Are you being priced out of the Valley? If you’ve been looking for a home in the area, you know that prices haven’t exactly been hospitable lately. In fact, “The median price of a previously owned home in the San Fernando Valley hit $600,000 in July, its highest level in eight years, and sales reached their highest total in 27 months,” according to the Southland Regional Association of Realtors, said the Daily News.
Granted, high prices driving buyers away here is hardly a new phenomenon. I’ve had plenty of clients and friends who ran off to Santa Clarita because they couldn’t afford to stay in the Valley and/or were seduced by new construction and great schools and double strollers and a swelling local employment base (I did it myself, and would do it again.). Not to mention all those who compromise on the specific area (north of Ventura instead of south, Tarzana instead of Encino, Canoga Park instead of West Hills) or forgo size and amenities to stay in their target area.
So what’s a buyer to do if the idea of leaving the 818 is just too tragic? Is it still smart to buy in the Valley if you can afford it? Motley Fool recently outlined reasons why “Buying a home now is a smart move.” Let’s take it local.
1. Rents keep rising
“The median asking price of rental housing in the United States is $1,575 per month. And, rent has been increasing faster than home prices, causing rental households to spend more of their income on housing than homeowners,” said Motley Fool. “According to recent data, the average renter spends 30% of their income on housing costs, while the average homeowner spends just over 15%.”
But in the L.A. area, it’s 47%, according to a UCLA study. The same study says that in L.A. County, “you need to earn at least $33 an hour—$68,640 a year—to be able to afford the average apartment.”
2. Interest rates are still low, but they may not be for long
“With 30-year mortgages at an average of 3.91%, it’s a historically cheap time to finance the purchase of a home,” they said. “After all, it wasn’t too long ago when 6% interest rates were considered ‘cheap.'”
True. And there is chatter that interest rates may be going up before year’s end. On a $500,000 mortgage, the monthly payment (P&I) will rise by $146 going from the current interest rate of 3.91% to 4.41%, an increase of half a point. Is $146 a month compelling enough to get you moving now? What about an $800,000 home that goes up from 4% to 4.5% and costs an extra $234 per month?
3. Prices are rising too
“Although home prices have rebounded significantly from the lows, they are still about 12% below the pre-crisis peak,” said Motley Fool. “More importantly, the housing market is finally beginning to rise at a healthy (read: sustainable) pace once again. Prices are expected to gradually increase in the years ahead—it doesn’t look like it’s going to get cheaper.”
Back to that Daily News article. Based on information from the Southland Regional Association of Realtors, the “median price gained 15 percent, or $80,000 from a year ago, and is now 8 percent under the record high of $655,000 set in June 2007.”
Sales are also up 7% in the area while foreclosure and short sale rates plummeted to record lows. Oh, and don’t forget that there is only a “2.3-month supply at the current sales pace and well under the six-month supply that is considered a balanced market.”
Yet, for all the pricing surges and inventory crunches, the Valley is still the answer for all those who don’t want to quadruple their monthly spend for a place in the city. Prices are still comparatively low when you look at anything points south directly off the 405. For many, the bottom line is simply this: The Valley is where “you can afford a house,” said Curbed. “You—as in, you, someone who isn’t an exec at Paramount—can afford to live like a human being in the Valley. Ready to live in something larger than a suicide-inducing studio apartment? With a pool? A mere staff job on a soon-to-be-canceled basic cable late night show hosted by a white guy is all it takes to live the dream.”
Sounds about right.
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Tripp Jones is a leading Los Angeles real estate agent with years of experience working with buyers, sellers and investors. For more information, click here.