Last Sunday marked the end of the Los Angeles Times’ Real Estate section – a victim of the cutbacks affecting The Times and many other metro dailies. The Times promised that there would still be plenty of real estate coverage in other sections, particularly its Business and Saturday Home section, where Hot Property will run.
True to its word, Sunday’s newly monikered Business, Personal Finance and Real Estate section published a story headlined “Should You Buy a Home Now?” It was the most e-mailed story on The Times’ Web site on Sunday — an indication of how many people want an answer to that question.
The story makes the point that buyers are slowly returning to outlying areas, where price drops have been most severe. The closer you get to the ocean, the more moderate the price declines have been. In the most desirable areas of L.A., affordability is still an issue.
More than half of the adults in the Los Angeles metropolitan area own their homes. But because of the price run-up that began in the late 1990s, fewer than 11% of adults in the L.A. area earn enough to buy a median-priced home of $412,000, according to a National Assn. of Home Builders index. As recently as 2001, when the median was lower, that figure was about 38%.
One measure of whether buying makes sense is calculating its rent ratio.
The ratio of home prices to annual rents in the Los Angeles area was 20 as of March 31, meaning the median home sale price was 20 times a year’s rent for a comparable property, according to Moody’s Economy.com. The 15-year average ratio in Los Angeles is 16.4.
Experts expect prices to continue to fall in SoCal.
Los Angeles economist Christopher Thornberg believes that home prices will stabilize when homes are affordable to about 25% of the adult population. For that to happen in Southern California, home prices would have to come down 20% to 35% from their current levels, Thornberg said. “There’s no way in hell the house you buy now will be more expensive next year,” he said.
For those in the market to buy, the story advises to keep in mind the following:
* Don’t count on price appreciation.
If you can’t afford a house now, don’t presume you’ll be able to tap an increase in your home equity to refinance it — that’s a mistake made by many people who are now in foreclosure.
Likewise, don’t divert retirement savings to buy more house than you can afford, expecting to make up the shortfall later through a jump in home values.
* Don’t expect a house to make you financially stable.
Experts advise home buyers to have a steady and reliable income stream; don’t buy in the belief that simply owning a home will provide financial stability.
* Don’t buy if you think you may be moving soon.
If you’re not sure how long you are going to live in a house, move slowly. If you are forced to sell after a short time, any price appreciation may be outweighed by closing costs and agent commissions — and prices could decline.
Typically, people should avoid buying a home unless they plan to live in it for at least five years, advises Richard Green, director of USC’s Lusk Center for Real Estate, but a safer target these days may be seven or eight years.