because the market is going to go down this year." I am sure these
same people were saying the same thing last year when the median sales
price in Los Angeles went up 7.3%. The not so great news was that the
number of sales went down from 8,269 in 2005 to 6,888 in 2006 in Los
Angeles. In 2006 the average days on market went up from 41 to 57
days. However, 2005 was a record year for real estate sales. The fact
that the pace of sales decreased in 2006 means the market shifted from
going a metaphorical 100 miles per hour, a pace that is impossible to
maintain, to a more sustainable 70 miles per hour. Real estate values
are still going up and the market is still strong.
For an example, let's focus on Santa Monica Condominium sales. Last
year, when the "bubble" was bursting, median sales prices went up
12.3%. Let's say for example that you didn't listen to your friends or
the media and purchased a home last year for $700,000. At the median
increase in value of 7.3%, you would have enjoyed about .6% or $4,200
a month increase in value. If you owned in the right part of Santa
Monica, you would have experienced an even greater gain.
Today, many people have the misconception that it is better to rent
than to own. It may be better to rent if you don't plan on being in
the same place for more than a year or two. Additionally, if you just
moved to Los Angeles or Santa Monica and don't know what neighborhood
will work best for you, renting is a good idea. There are also some
people who can't come up with the money every month for the mortgage,
taxes and home expenses. For all the rest of you, households making a
combined income of about $90,000 a year or more, it is a good business
decision to buy.
Thanks to the media created "bubble" hype, and an ever increasing
demand for shelter in Los Angeles, rents have increased about 12%
citywide in the past year. Many rental seekers have said they see
closer to a 15-20% gain in Santa Monica. You can buy a very nice 2br
condo in a great Santa Monica neighborhood for around $700,000. This
same condo will now rent for around $2,800-3,200 a month. To own it,
with a 6.25% interest rate, 1.25% taxes on an annual basis and $300 a
month in dues, it will cost you approximately $4,900 a month. However,
after taxes at 30% (many people pay more), your effective cost is
about $3,100 a month.
If you hold onto this same property for the next five years and enjoy
a modest 3% or $21,000 increase in value per year, you will make over
$100,000 in equity. If you sold and paid about 6% in closing costs,
clearing $40,000, your effective cost of homeownership is only about
$2,400, less than renting and a steal of a deal if you consider that
rents will also be going up over the five years that you own the
property. It may also be notable to you that a 3% increase in value is
very conservative. The average increase in property values nationwide
since the 1950's is about 6% and even higher in California.
So, barring any great economic calamity that no one can predict, it is
less expensive to own than to rent. The sky is not going to fall, and
people will continue to enjoy the pleasure of owning their own home. I
hope that this column has given you some solid numbers on what will
work best for you.
Simon Salloom is a Realtor who specializes in Santa Monica Real Estate
with Coldwell Banker Residential Real Estate Brokerage, Brentwood
Court Office. He is ranked in the top 3% of Coldwell Banker agents
Nationwide for sales volume. contact me via my web-site: www.SantaMonicaSimon.com
All statistics taken from the Multiple Listing Service of the local,
Beverly Hills Greater Los Angeles Association of Realtors.