Thursday, January 12, 2017

Housing Update

That's it, I can hold back no more.

I've started looking at properties in LA.

How can we know if it's the right thing to do? In uncertain times, what happens to real estate? What's next for property when all is unpredictable?

I've read articles claiming some ability to see the future. Some are bearish, while others are bullish. I'm bearish--I see nowhere for interest rates to go but up, up, up. But there is a lack of clarity on what this means. When credit tightens, don't fewer people buy? Will that result in falling prices?

I can't foresee prices going down in Los Angeles, simply because there is a shortage of housing. LA has so many houses and not enough apartments--it just wasn't a thing here for many years. People stuck to suburban-style living in the middle of the city. The area has a long way to go before supply catches up with demand. Short of an earthquake or continuing drought, at least. And there's been a lot of rain lately.

There are really not enough condos in LA, and I'm no economist, but I'm sure this is because rents are so high right now. Why should a developer produce condos instead of rentals when rentals are such cash cows? Though I'm told there were financial incentives to developers to create rental properties, and these may eventually be converted to condo.

I went to look at a condo in North Hollywood right before the Christmas break. It was depressing--tiny, expensive at $299k, in a building that needed a lot of cheering up. But it's the best value I've seen around town, because it was by the metro. There's a supermarket, post office, movies, shops, buses to all over, metro two stops from the farmers market, a Y, a diner, and the prices seem likely to continue to go up as the movement now is to walkable areas with public transit.

I waffled due to its dowdiness, and it was gone by the time I decided to bid. But that's good, because I needed to do more research anyway.

It's been a month now, and I've learned a tremendous amount about the local market. I've looked at tiny houses, which they call "bungalows" here, and some of them were up on hills. I've studied Redfin and Trulia and Realtor sites obsessively, and I even sat down and worked out the point at which the cheapest condo costs as much as the least-pricey house, assuming they are both a reasonable commuting distance from my office. (FYI, it's between $325k and $350k, depending on the condo fees.)

I even rented a car and went out to Sunland, to La Crescenta, and to El Sereno, to Montecito Heights, to see what the commutes would be like from those spots.

Too much. The cost of the car overcomes the bargains to be had, and the sprawl of the Sunland area was a bit too much for me, though there is a bus to my office from Sunland.

The only houses that really make sense for me are between 400-700 square feet. You read that right. Crazy, isn't it? My first condo in Manhattan was 463 square feet. I can't imagine fitting a house into it.

It took me years to find my JC house, and I still can't believe I got it. I hope to nail this down sooner, while interest rates are still at historic lows, rather than later. I have to live here for work anyway. I might as well be building equity. 

3 comments:

Anonymous said...

In a normal housing cycle prices don't go down much or at all when interest rates rise. They just go sideways for a while, especially in large urban areas with limited supply. What happened in 07&08 was once in 2 lifetimes event. It wasn't house prices, it was a rapid shell game, trading pieces of mortgage securities ,thousands of loans in each "security".

Around here new house prices have recovered, used houses are still down 10-20% below peak, so maybe good time to buy. Interest rates were 3.5 now 4.0, but hasn't slowed sales yet. Prices seem to be recovering as millennials finally take the leap.

If the economy slows and interest rates shoot up because of inflation, it will take a lot longer to sell a place.Don't see that anytime soon, but I wouldn't buy anything that I couldn't rent out for close to my holding cost. Still here Don

Marie Javins said...

Hey, Don. There is definitely more demand than supply here, which is important in my decision. And 4% is still phenomenal. What worries me is I can't see how I could rent the places I'm looking at out for cost, once I add in taxes and HOA fees. A little house doesn't have HOA fees, but houses are more money pits than condos anyway. I agree so long as you can rent for cost, it's a good bet, but I'm not seeing that here, which worries me.

Anonymous said...

Well that's the crux of it. Be sure what the rental market brings, maybe you're getting a real good deal. I've been shocked at how high rents are. If you're not sure how long you'll be there, I wouldn't buy if I couldn't cash flow near even. It's that 4% interest that makes it tempting, you know that wont last much longer.

I think it's getting back to normal, where houses are not a great investment. More like a place you really wont to live for a longish time and are willing to absorb unexpected costs. People that make this work are slum lords, buy em for a song, the key, and minimal fix up then as much rent as you can get. Yuck.

You did real good in JC, good timing to buy at a favorable price. Don