Is It time To Buy Your First Los Angeles Home?

Wednesday, March 18, 2009

by Eileen Walsh

Is it time to buy your first Los Angeles home? Read what Thomas FitzGibbon of DePaul University had to say in a recent Business Week article.

At this time in the economic cycle, one might think that venturing into the choppy waters of home buying is the last thing you should think about. But there are good reasons you should consider it.

Home prices have declined to a level that’s more in line with household incomes than at any time in the past several years. Residential real estate prices were artificially inflated because of wider access to easy-to-qualify loans that had features making affordability of payments, even if only for a year or two, seem attractive. So home buyers only looked at the payment, not the loan features or the price of the property. The idea was that home prices would continue to rise, and the borrowers would at some time refinance the loan or sell the house to recoup the equity and buy a different property. Times certainly have changed.

The latest Case-Shiller Home Price Index for a 20-city composite showed that prices recorded a 1% drop in August 2008 and were down 16.6% for the past 12 months. Miami had a 1.8% monthly drop and a 28.1% tumble over the past year; in San Francisco, it was -3.5% monthly and -27.3% for the year. In September 2008, existing home sales rose 5.5% nationally. Evidence shows that home sales by units have increased slightly and the bottom on prices is nearing.

What does this mean to you? First, if you have good credit and a modest down payment, your opportunities to buy a home for shelter (tax benefits and a roof) are better now. Don’t even think about flipping the house for a while; concentrate on the basics. In Los Angeles one year ago, the median home price was $582,450, according to the California Association of Realtors. This September, it was $376,790. The National Association of Realtors report on the metropolitan area median price of single-family homes indicates that we are back to the levels of 2005 and earlier in certain markets. The steep decline is not reflected everywhere, but you get the picture.

Mortgage rates for 30-year fixed-rate products, although slightly up, are still affordable at or near the 6% to 6.5% level. Given an average sales price of $200,000 in today’s market and a $40,000 down payment, your principal and interest on a 30-year fixed-rate loan this year would result in a $1,011.31 monthly payment. That same home would have cost you $221,000 early last year, you would have needed a $44,200 down payment, and the principal and interest alone would have equaled $1,117 per month.

Lower prices and access to quality mortgage products mean that this is the best time to buy.