Rent vs. Buy: Buying Is Better

According to the National Association of Reators, the Federal Reserve Board estimates that homeowners have a net worth nearly 36 times more than that of renters. Over the past 10 years, the cost of rental housing in the United States has increased an average of 3 percent per year; average rents are projected to rise 4.1 percent this year alone. With a 3 percent annual increase, a current rental payment of $1,000 per month would increase every year and amount to $137,567 after 10 years, with no wealth accumulation.

In contrast, a $210,000 home purchased today with a downpayment of $10,000 and a 30-year fixed rate mortgage at 6.5 percent would cost a steady $1,100 per month and yield a net worth of $138,521 after 10 years, assuming an historic 4.5 percent annual appreciation rate.

Current Housing Price Picture

Just lately there's been a lot of media focus on the condo prices, i.e., they're falling, but if you read closely, the articles are about certain markets. Condos closer to the coastline in Long Beach are anywhere from $300,000 up to $1,000,000 plus. With the slower market, buyers and sellers are each hugging their own trees, waiting for other's to fall down first. Condo conversions are in oversupply in some markets, but in the coastal areas of Long Beach, condos are still an entry level home buy for otherwise expensive single family neighborhoods. As Kenneth Harney says here, "scour the market for properties that may never be cheaper, or even available."

California Median price Over $575,000

The number of single family home sales decreased by 26.3 percent from June, 2005, but the California median price is at a new high of $575,800, according to California Association of Realtors on July 25, 2006. This data is drawn from regional MLS's maintained throughout the state. Statewide, the median price for condos was $430,600, a 1.3 percent increase from June 2005.

"Statewide, the 10 cities and communities with the highest median home prices in California during June 2006 were: Beverly Hills, $1,877,500; Burlingame, $1,725,000; Manhattan Beach, $1,575,000; Los Altos, $1,543,500; Newport Beach, $1,347,250; Saratoga, $1,309,000; Mill Valley, $1,294,500; Palos Verdes Estates, $1,225,000; Orinda, $1,207,500; La Cañada Flintridge, $1,150,000.

"Statewide, the 10 cities and communities with the greatest median home price increases in June 2006 compared with the same period a year ago were: Delano, 94 percent; Beverly Hills, 44.9 percent; Barstow, 36.9 percent; Culver City, 35.5 percent; Porterville, 34.6 percent; Paramount, 31.7 percent; Inglewood, 31.3 percent; Laguna Hills, 30.6 percent; Arroyo Grande, 30.5 percent; California City, 28.3 percent."

The UCLA Anderson Forecast: No Recession

Buyers and sellers seem to be in a kind of standoff this summer--buyers are waiting for real estate home prices to fall and sellers are just waiting for an offer. More than a month ago, UCLA discussed its national and California forecasts, and for both, certain declines in real estate and jobs are present in certain sectors, "but absent job losses in manufacturing or other sectors, there will be no recession," according to economist Ryan Ratcliff. Anderson Forecast director Edward Leamer, "does not expect real estate prices to fall significantly, notes that sales volume is what typically drops, and drops more precipitously than prices, as the price cycle lags behind the volume cycle," which is what we are seeing on the market now, as Southern California sales volumes (although higher in June than April and May) lag behind last year's, the median price remains strong. http://www.juliahuntsman.com

Rent Increases in State Outpace Much of the West

Average rents in Orange County and Los Angeles County range from $1400 to $1600 a month, and may increase approximately 6% this year. A strong economy is one of the reasons, but the conversation of over 11,000 apartments into condos is another. In recent years low interest rates allowed many renters to become homeowners so rents were not raised, but now with home prices and interest rates rising, renters are stalled as landlords raise rents to match the current market. And until more multidwelling units are constructed, a shortgage of rental units allows some landlords to play catch-up to the tune of rent increases of several hundred dollars a month.

Median Price Increases in Southern Calif.

The six counties of Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange saw a median home price of $493,000--an increase from the May median price. The overall price increases have slowed, but the number of sales was also up from May. National and local Realtor associations have claimed 2006 will see an overall median price increase, nationally and locally, of about 5-6% for California statewide. Some local markets may fluctuate, but the overall appears to be stabilizing. See the Mid-Year Report at my website.

Drop in Interest Rates

The average 30-year fixed mortgage rate fell from 6.79% to 6.74% over the seven-day period ended July 13, the first time in five weeks the rate has declined, according to Freddie Mac's Primary Mortgage Market Survey. The average 15-year fixed mortgage rate fell from 6.44% to 6.37%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.39% to 6.33%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.82% to 5.75%, Freddie Mac reported.
Fees and points averaged 0.6 of a point for 30-year fixed-rate mortgages and one-year ARMs, 0.4 of a point for 15-year fixed-rate mortgages, and 0.5 of a point for hybrid ARMs. 'June's employment report caught financial markets off guard,' said Frank Nothaft, Freddie Mac's chief economist. 'In response, long-term bond yields eased a bit this week.' A year ago, the average 30-year and 15-year fixed rates were 5.66% and 5.25%, respectively, and the average one-year ARM rate was 4.39%, Freddie Mac said. "

Housing Market Cools in SoCal - Los Angeles Times

"DataQuick said that the median sales price for all homes sold in Los Angeles County last month rose 8.8% to $517,000. The county's median had been posting annual gains of 10% or more until recently." San Diego's median price for June dropped 1%, the first time in 10 years that market has lowered. Sales in Los Angeles County have decreased, although the median price increased in June.

NAR: Home Sales Expected to Stabilize In the Months Ahead

"Don't look for any big shifts one way or the other", says NAR economist David Lereah. Higher increases in interest rates are a concern, but median home prices nationally will go up about 5.3 percent overall. Sellers should understand that "abnormal" price growth has cooled. While buyers may see larger price decreases in some market and with some properties, they should also understand that certain price decreases may be expected if the seller has overreached the current market, but that it doesn't mean there will be a huge decrease overall in the market. The median price in the six Southern California counties has not dropped during the Spring (see earlier post).

Cooling Home Market Spurs Interest in Foreclosure Sales

With a slowing in the market, perhaps a stabilizing in the real estate market, foreclosures seem to have a little more allure. But there are things to know: websites listing foreclosures may be out of date, or may list properties that haven't yet met all the legal requirements for sale. In other words, approach foreclosure properties and foreclosure websites with care. Just because it's listed on a website doesn't mean the property will actually sell; and if a buyer does purchase at auction there are significant risks involved. The thought that a foreclosure property can be bought below market doesn't work out that way, because if a bank finally takes it back after completing the foreclosure process, those properties are usually listed at market. Why would the bank sell for less? Read the Wall Street Journal article for their complete story on investigating this sector of real estate sales.