Monday, July 21, 2014

What If Nobody Sells Their Home?


Mortgage Rate Lock In, Underwater, and Paid in Full Restrain Owners from Selling

During most of the post WWII era there has been a constant churn of homes. In California the assumption was that the average homeowner would move every five years. People moved to better neighborhoods, bigger homes, due to corporate transfer, for a better job, or to be close to or far from relatives. We may be seeing a very large cultural shift brought about by a demographic and financial pressures that are tending to keep people right where they are.

Seemingly the most pressing of these outside pressures is low interest rates. More than 1/3 of all home mortgages are under 4%. With interest rates now closer to 4.25%, even a move to a similarly priced home will result in higher payments. It isn't unusual to hear homeowners say: "Why would I ever sell? I might rent it out, but with these interest rates, I'd be crazy to sell."

So that leaves 2/3 of the homes that are not faced with mortgage rate lock in. But half of those remaining have no mortgage at all. Some of those are recent purchases by investors and foreign buyers paying all cash for homes.

While owners with no mortgage have the most freedom to sell without consequence, they are also the least likely to sell. For investors, the incentive would only be there if the prices get ahead of the real rate of return. For those who paid off the mortgage and have lived in the home for decades, the most likely sale  is only in probate.

Statistically, the issue gets a bit sticky with the last group. 40% of all homes are still underwater - they owe more on the mortgage than the home is worth. Certainly some of the under 4% mortgage might be in this group, which would explain why the total is over 100%.  One can also surmise that there are very few holding mortgages over 5% who owe any substantial amount.

Others are reporting that millenials are perfectly fine with living with mom and dad or renting. They like the freedom to change locations as they change jobs, get married, or add kids. They are putting off the home ownership piece until their lives settle down.

As noted elsewhere in this blog, the balancing act between demand and supply seems precarious. The possible tipping points are many. An influx of legal and or illegal immigrants can drive demand and thus rental and purchase prices. An improving economy will result in some folks moving out on their own or going from three sharing space to two.  The current economic expansion has not reached the lower middle class, so millions continue to share space who would rather be on their own.

The odds seem to favor a continuation of increased rents and purchase prices, especially in nicer neighborhoods. However, rent pressures are also increasing in the lesser precincts as the population grows faster than new housing units are being added.

If you are interested in a mortgage at what are STILL historic low rates, where you also may say in a year or two, "Why would I ever sell this property with this interest rate?" call Bill Rayman today before the rates go higher.  424-354-5325

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025

Saturday, July 5, 2014

70% of Landlords in LA County Plan to Raise Rents in the Next Year


Time to buy a Home in Los Angeles? Rents are out of control!

On the 5th of July the temperature in the various Los Angeles valleys is 96. But as we say, it is a dry heat, and the breeze makes it feel like 93. On the West side of the 405 Fwy, most cities are around 80. Is it any wonder people still want to live here, regardless of traffic and the cost of living?

But is there a limit? 

33% of LA County renters spend more than half their income on monthly rent, reports a Harvard University's Joint Center for Housing Studies. Meanwhile wages have been down over the past six years. What are the options?

With the median apartment rent at almost $1500 a month, does it make more sense to buy? What kind of home can you own with a payment of $1500 a month in this market?  A rough estimate would put the cost of that home at $300,000. Assuming $60,000 down, the mortgage would be $240,000. With property taxes and expenses, and an interest rate of 4.2%, you should be at or around $1500.

So what does a $300,000 home in Los Angeles look like?  

A 2 bedroom home in Seal Beach, Hawthorne, Inglewood, Gardena, or San Pedro will keep you on the cooler climates, though the neighborhoods are as you would expect. You can do a lot better with a condo in any of those areas; better neighborhood, newer facility, and more amenities. You will definitely have a nicer overall home for the same money or less. 

You don't have $60,000 down, and can't afford $1500 a month. Go further inland. You can buy a home in Los Angeles for under $150,000, use an FHA insured mortgage and only put down $5000. Now your overall out of pocket might be under $1000 per month.

You can get a starter condo or home in this difficult market, and now may be the best time. Business seems to be picking up a bit. If the economy bounces back even to a 3% annual expansion, prices and mortgage rates will both go up. If you'd like to discuss what you can afford and qualify for in a mortgage in Los Angeles, give Bill Rayman a call at 424-354-5325.

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025