Welcome to our first installment of Ask the Readers! This will be a recurring feature seeking advice from our knowledgeable, passionate and always opinionated readers. So put your advice caps on and get ready to put Dear Abby to shame…
Our first question comes from a potential home buyer in Calabasas:
My wife and I are thinking of buying a condo in Irvine as a long term investment. This is a second home so we have no urgency. One question: good or bad move to buy now?
I had some questions so the reader called me and we had a quick chat. Here’s some more background info: this man and his wife are looking at condos in the $400,000 to $500,000 price range in the neighborhoods of Woodbury and/or Quail Hill. They were in escrow on a Quail Hill condo for $475,000…but pulled out two weeks ago due to “cold feet.” Like he said in his original email, this couple already owns a primary residence so there’s no “emotional investment” factor in play; this would be purely a financial purchase.
What say you, readers? Good or bad time to buy, and why or why not? If it’s NOT a good time…when do you predict that time will come?
Chime in, and TAKE THE POLL!
If you’re in a property pickle and would like advice from our opinionated audience, send your question to Ask the Readers! at echavez@ocregister.com.
The reader should seek the advice of a licensed financial adviser or accountant (not a realtor) to assist in these types of decisions.
In these hard economic times, where prices continue to fall, its best to wait until prices and the economy stabilize. Unemployment numbers continue to rise, and so do delinquencies on mortgages. Typically condos are the last to stabilize in prices, so this is just the wrong time to buy an investment property unless its going to be in the harder hit areas, such as riverside. There, the prices have gone so low, they can’t really go too much lower.
Lets also not forget, banks are set to release a bunch more foreclosures into the market in the coming months…
All the economic indicators in California are pointing down, why would anybody think that RE is any different? Unless you are realtor, of course.
I would agree with Roger. There are too may economic uncertainties right now. Most experts agree that prices will either decline or stay flat for many years to come…so there is no urgency to buy right now. The days of “buy today or be priced out forever are gone.”
Buying investment property in desireable parts of OC at current prices does not make financial sense. You are much better off buying in the IE where ownership costs can be less than rental parity…you won’t find that anywhere in desireable parts of OC.
A qual hill condo might rent for $2500 per month. A seriously doubt the mortgage, property tax, HOA, insurance, maintenance costs will be less than that for a 500K condo.
one of the last things I would do is to buy a condo in Irvine as an investment. The condo market is pretty much in free fall. Now, if you want to buy a foreclosed house in Santa Ana for 150K and you can rent it out for 1200/month, I don’t have a problem with that but I would not buy a condo in Irvine for 500K
They would be better off investing in Beannie Babies or sub prime mortgage companies.
Echoing what other posters said: Some areas have fallen below positive cashflow levels, so feel free to buy in those areas FOR RENTAL CASHFLOW, *NOT* FOR EQUITY APPRECIATION. Santa Ana, Riverside County, and others areas have been mentioned already. But beware! Given the state of the economy, we can expect the rental market to remain very tight, so leave yourself some margin between the current expected rent and your cost of ownership. It’s very likely that you might not be able to rent out your investment 6 months from now for the same price as rentals are going for today. Also, you might want to stick to the high end of the normal recommended cash-on-hand of 3-6 times monthly rent.
Prices everywhere will continue to fall for quite some time, even in the beaten-down areas, so don’t expect to fix up a condo anywhere and flip it for a profit within a year or three. Only buy as an investment if you plan to become a long-term landlord.
If you want to buy for equity appreciation, wait until mid-2011 or later.
Lots of great advice here: http://www.irvinehousingblog.com/. Time may reveal some of the posters on this blog to be somewhat overly bearish, but they’ve got a pretty good track record so far.
-Darth
I’m adding my voice to the echo.
I can’t stress what DarthFerret said enough:
[b]“Some areas have fallen below positive cashflow levels, so feel free to buy in those areas FOR RENTAL CASHFLOW, *NOT* FOR EQUITY APPRECIATION.”[/b]
Anyone that thinks that now is the time to buy for equity appreciation should consider these 2 articles carefully:
U.S. housing misery poised to enter new phase
http://www.reuters.com/article/deborahCohen/idUSTRE55P51I20090626
U.S. consumers fall behind on loans at record pace
http://www.reuters.com/article/newsOne/idUSTRE56638720090707
-Darth
Why irvine, try somewhere else? buy somewhere where at least your mortgage will = your rent
WAIT don’t buy a condo in Irvine.
I agree with a number of comments on this topic. I’ve been a realtor in south O.C. since 1986 and have some more input. With regards to condo purchases, I’m seeing numerous headwinds. Many lenders are shying away from lending to condo tracts due to association and PMI constraints. Fha will not lend if the h.o.a. is not properly funded, if the non owner / owner occupancy rate is to high and a number of other reasons. Consequently, we’ve seen many tracts lose their fha designations. Even if your not an fha purchaser, this will obviously bring downward pressure on prices. For conforming buyers with 10-15% down you need a fico score north of 720 and even then your going to pay a high PMI premium. So that means that many condo projects are left with 20% down buyers. I’ve seen a number of investors who jumped in too early in the last few months who also didn’t properly account for rental price decreases. Many of these have languished on the market as they slowly decreased their rents. Look for areas that were built during the bubble periods i.e. Quail whatever, Ladera and Talega to be hit disproptionally hard during the downturn.
These associations will be hit especially hard by h.o.a defaults and foreclosures. I tell investors looking at condos that we’re probably at least 2 years away from having any consideration for investment. As an aside, you guys are generally right not to listen to any of the B.S. spewed by realtors. It’s because of sites like these and other bubble blogs that I sold my homes in O.C. three years ago. Keep up the good work!
A report from the Bloomberg.com today : housing-Prices will continue decline until 2011
Off Topic:
I’m not into Real-Estate so I have no idea what this means but I bet some of you do. Why are apartment rentals at historic lows? If people are not buying houses & not renting apartments where are the living?
http://news.yahoo.com/s/nm/20090708/ts_nm/us_realestate_usapartments
Use common sense, invest in strong demand and short supply. For now, California housing isn’t either one of those. In times of recession people must go where the work is, thats where profits will be made on housing.