Home Mortgages Rival Leases Here
Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable today than at any point in the past 15 years and is less expensive than renting in a growing
number of cities.
Can this be possible even in Pacific Palisades? Many of my clients who are currently renting are pleasantly surprised when they discover that a mortgage on a house here will be very close to what they are paying in rent. Mortgage rates, hovering around 4 percent, are the lowest in six decades.
It’s true! In Pacific Palisades, from September 1- November 30, the median price of a 3-bedroom,2-bathroom home with up to 2,000 sq. ft. sold for $1,275,000. With 20-percent down and the right credit score, the same house can be financed with a jumbo 4.5-percent loan for about $5,168 a month.
The median price of a rental for the same type of house in Pacific Palisades averages $5,700 a month. After factoring in monthly carrying costs like property taxes and insurance and leveraging in a tax write-off, leasing a house is approximately the same cost as buying a house.
According to the Multiple Listing Service, leases in Pacific Palisades for 3-bedroom, 2-bathroom homes from September 1 to November 30 increased $500 a month from the same period in 2010. The demand for leases is greater than the supply.
Lease prices are increasing because many would-be buyers can’t qualify for mortgages because lending conditions are tight or because they don’t have enough liquidity to use as a down payment. Other current tenants may have purchased their home at the height of the market and due to hard economic times lost their property in a short sale or foreclosure. Additionally, there are individuals going through divorce or separation. These people want to keep their children in the same schools and stay in the neighborhood while they get back on their feet.
Many investors, skittish about keeping their funds in the stock market, are trending towards buying investment properties. I have many clients interested in buying properties who understand a tenant can more than cover their mortgage payment. These new landlords feel their money is safe if they buy in Pacific Palisades. In a few years, they can keep the property as an investment or realize a profit by selling when the real estate market rebounds.
Another interesting phenomenon is the new desire by tenants to find furnished short-term leases. Many takers are people who may have just started a new job who will pay extra just to avoid committing to a full-year lease until their firms commit to them permanently. Others expect to buy but want to take their time and find the right house.
The option-to-lease agreement works out well for sellers who have had their house on the market for many months and it hasn’t sold. If principals can afford to wait to sell their house and are open to leasing while waiting for the market to rebound, they can get 30-40 percent more for a lease if they offer it for a minimum of three months and provide furniture. If sellers also provide Wi-Fi and cable, tenants will be glad to pay far more for the convenience.
Overall, studies show that homeowners, on average, accumulate more wealth than renters. Home ownership is a self-imposed savings plan. If people are planning on staying in a property for awhile and don’t abuse taking cash out of their house as their equity increases, owning a home is still a strong investment.
The economy is in flux but Pacific Palisades is a beautiful and desirable area to live and because of its proximity to Santa Monica, Century City and downtown will ALWAYS be a safe place to invest in real estate.
Michelle Bolotin is a longtime Pacific Palisades resident and a Realtor with Teles Properties. Please call her with any questions at (310) 463-7278 or visit her Website: www.michellebolotin.com