Sunday, May 6, 2012


Zillow's poll is fairly exhaustive including 104 economists.  What exactly did they guess? : 1) 2012 originally thought to have a decline of 0.18 now comes in at 0.72%  2) 2013 was projected originally to gain 1.75%, now at 1.39%  3) 2016, however, stays the same with estimated growth of 3.32%.  The 10% gain, had originally been 11%.  So if you think 10% is rather bullish, maybe it isn't.  Trulia did a study to see if buying still beats renting and except in two marketplaces, Honolulu and San Francisco, it does.  This is a good time to bring this up, because even as housing affordability soars, pessimists point out that it is affordable because it crashed in the worst, possible, way.  Now, what Trulia is pointing out, is that with rates in the mid-fours (yes, they have risen slightly, still killer good), one can literally freeze their housing costs for 30 years.  Last month we compared the inflation of renting to owning and it was a bloodbath in favor of owning.  With so many economists projecting growth in 5 years, it may be time to seriously consider more real estate investment.  It can be guaranteed if you double that 5 year window to 10 years, most assuredly those who did invest, will look like geniuses.


This has been mentioned before in this newsletter, but bears repeating... Unless you are paying 100% cash, the cost to you of a home is more important than the price.  Why?  The amount you pay in interest for the money you borrow, i.e. your leverage, is what is going to cost you the most during the time you own your property.  Being able to borrow that money at 3 or 4 percent, as opposed to 6 or 8 percent, obviously would make a huge difference over the course of 10 years.  It will have far more impact than whether you paid $450,000 for the property or $465,000.  For example, let's say you buy a property for $450,000.  If you secure a loan of $400,000 at 3.5%, your payment will be $1,796.  Let's say you really want to buy that property at the rock bottom point in the market.  You wait and manage to secure the same property for $400,000, a $50,000 reduction.  Now, however, interest rates have gone up.  You now secure a loan for $360,000 but at 5% interest.  Your payment is now $1,933.  If you own the home for 10 years, that's a lot of extra money that could be going for something else.  Only cash is king on price.  Otherwise, look at your cost.


There were modest gains across the southland for volume, while prices declined a total of 3.7%.  (This is for the counties of Ventura, LA, Orange, San Bernardino, Riverside and San Diego.)  There were a total of 14,369 sales for February 2011 and 15,573 for February 2012.  Orange County had a total of 1,904 for February 2012, Riverside came in at 3,011, and San Bernardino had 2,082.  Short sales made up an estimated 20.5% of all southland sales and foreclosures accounted for 32% of the sales in March for all of So Cal.  Absentee buyers-- mainly investors and a few second home buyers, bought a record 29.7% of all sales in So Cal.  This is a strong number that would indicate prices are reaching a bottom.  Jumbo loans are making a strong comeback accounting for 14.4% of the total purchase loans for the month.  Adjustable rate loans had a sliver of the market at just over 5%.  Obviously, conforming fixed rate loans grabbed the lion's share of the lending market.  Finally, all cash purchasers accounted for a record 32.8% of southland, February home sales, slightly up from the previous month and for February of the previous year.


Of course everyone wants a good deal.  No one wants to overpay for a property.  But at the same time, people in a market that is hitting bottom, can become so shortsighted with wanting the very best deal, that they forget all the other advantages and benefits of home ownership.  The following is from a National Housing Survey of why people buy homes:  1) They want a good place to raise children - 80%  2) They want a place their family feels safe - 79%  3) They want more living space - 74%  4) They want control over the living space - 70%.  It could be added to this list a most important benefit -- control over housing costs for the foreseeable future.  Owning a home is so much more than just an investment.  Or perhaps it's more than just a financial investment.  It is also an investment emotionally, and with our family's best interest for a happy and safe future.

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