Several times a week someone tells me, "My friends say wait to buy
because the market is going to go down this year." I am sure these
same friends were telling these same people the same thing last year.
Let's focus in on Santa Monica Condominium sales for example. Last
year, when the "bubble" was bursting median sales prices went up
12.3%. The median sales price for all types of real estate in Los
Angeles went up 7.3%. Yes, the number of sales went down from 8,269 in
2005 to 6,888 in Los Angeles and 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.
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 gain in equity.
Another misconception is that it is better to rent now 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 or if you just moved to Los Angeles or Santa
Monica and don't know what neighborhood will work best for you. 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 on the Westside and 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, taxes 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 same period.
So, the next time a newscaster on CNN or a friend at the coffee shop
tells you it's a bad time to buy just hand them this article or have
them contact me via my web-site: www.SantaMonicaSimon.com
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.
All statistics taken from the Multiple Listing Service of the local,
Beverly Hills Greater Los Angeles Association of Realtors.
