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Sal Aranda: It’s time to invest in real estate again

Real Estate Talk

Posted: June 23, 2011 1:30 a.m.
Updated: June 23, 2011 1:30 a.m.

People who have seen home sales in the Santa Clarita Valley slow down over the last several months, and believe the steady drumbeat of negative reports regarding real estate may blow their tops when they read the following upbeat news.

Fortune magazine in April reported what Realtors have known for a long while:

“Real estate: It’s time to buy again.”

“Forget stocks,” the article by writer Shawn Tully stated. “Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.”

Is that so difficult to believe?

While too many current owners are struggling to hold onto their homes, and thousands more have homes worth less than what they owe, there are many people who see opportunity where others feel pain.

The people with cash or a job and a near-perfect credit history are driving today’s sales for this simple reason: They understand it’s a historically unique opportunity to buy a home.

No one knows what tomorrow’s housing market will look like, except that it most likely will be minus the elements that allowed the steep run-up in prices, and the mad, irresponsible borrowing and lending of the past.

Yet, today’s buyers know that current low interest rates more than likely will be gone this time next year, or sooner, and that prices are about as low as they can go.

A $300,000 loan at 4 percent today costs $1,500 for principal, interest, taxes and insurance. Let that rate rise to 5 percent or 6 percent and the monthly goes to $1,640 and $1,790, respectively.

Yet many prospective buyers remain glued to sideline seats, hoping prices will go even lower, failing to realize that a 5-percent drop in price translates to a $79 savings per month. And when interest rates rise to 5.6 percent, for example, the monthly payment increases by $111.

While traditional buyers dither and dawdle, folks with money and a positive perspective snatch up properties at both low prices and low interest rates.

So it should come as no surprise that 51 percent of home sales statewide last year had multiple offers, with an average 4.1 offers per property, according to the California Association of Realtors. Or that buyers who paid for the property with all cash consummated 23 percent of sales.

The percentage of investors buying residential homes and vacation properties also continues to rise. Investors purchased 13.4 percent of investment/rental properties last year and 5.3 percent of vacation or second homes.

The challenge for Realtors is to drill the statistics down lower and lower, focusing on individual communities, neighborhoods and streets in their effort to educate buyers about where to find the best opportunities and when to pull the trigger.

Interestingly, after five years of declining prices, 24 percent of renters say they rent out of choice. Yet 8-of-10 renters also say they would like to buy a home sometimes in the future.

And despite ongoing tumult in the market, 8-of-10 Americans agree that buying a home is the best investment one can make.

Those findings came from a Pew Research Center’s report, the title of which says all we need to know about the future of housing: “Home, sweet home. Still. Five Years after the Bubble Burst.”

Sal Aranda is president of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, coauthors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.


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