As you know, my husband and I are looking for our first house. Right now is a tricky time to buy, especially in the Los Angeles market. If you’re in the market or thinking about it, it’s not a bad time to buy. Just be prepared for the frustrations, and probably to get a little bit stabby.
Every week, some new development crops up to make it even more difficult to get a loan. First, there are Fannie and Freddie, who went so far into lax lending that they’ve now gone overboard with regulation. In addition to demanding high credit scores (which is good) and some cash on the table (which is good), they instituted new fees for borrowers with lower scores, less than 20% down, or anyone buying a condo. They also refuse to back loans for any condo where the development has more than 20% of the owners behind on dues or that is not 80% sold out.
Fears of Mortgage Brokers
Now, several major banks have announced that they will no longer work with mortgage brokers. On the one hand, I understand this. There were many brokers who presented false information to banks in order to get loans approved and pushed borrowers into bad loans. But not all brokers are bad. The brokers who remain in the business are reputable brokers who took good care of their borrowers. A flat refusal to work with them will make the loan-hunting process more difficult and more expensive for borrowers.
Dwindling Real Estate Agents
Again, this is probably a good thing. There were way too many agents out there who knew nothing about buying or selling houses. The agents who are left are experienced and knowledgeable. We’ve found a great agent (by referral) who’s been a great guide. However, the smaller agent pool does mean that it can be harder to find a real estate agent who is a full-time agent and prepared to work very hard for you.
Finding the Right Price
Finding the right price is probably the hardest part. No one knows exactly where prices will land. The best you can do is buy a house you can afford today and comfortably live in for the next 10 years. That will give the market enough time to level off and then hopefully rise by about 3% a year.
Comps are perhaps the trickiest part, unless you’re looking in an area with relatively recent sub-divisions. The neighborhood where I grew up has 5 models, so you can pretty easily determine that a house with no upgrades is worth X, while the same house with upgrades is worth Y. That’s harder to do in a market like Los Angeles, where every house is different. There are basic floorplans that are typical, but you can’t compare apples to apples. Instead you have to work off some metric of price per square foot plus degree of upgrades and quality of neighborhood.
Foreclosures and Short Sales
The Los Angeles market is 70% foreclosures and short sales. Most of the foreclosures need a lot of work, and short sales take 4 months to close, if the bank agrees to the sale. You also have to contend with the rate at which the banks release the assets. For example, a slew of foreclosures hit our market in January and February. Now those have sold off and there is almost nothing available. We’re stuck in a holding pattern while we wait for the banks to release the next set of foreclosures, hopefully at the end of this month.
The other issue with foreclosures and short sales is the quality of the homes. We’ve seen several that had either never been updated, and therefore needed a lot of work, or were mid-upgrades, and therefore needed a lot of work. We’ve seen one that was completed – it was gorgeous but it was also a former flip with some strange design choices that ruined the flow.
If you’re ready to buy, have a good income and a stable job, are willing to do some work on the house, and have cash on hand, then now is a good time to strike. It will continue to be a good time at least through the end of the year and well into next year. However, be prepared to look for a while and to see a lot of junk mixed in with the jewel. It will be exhausting, it will be frustrating, but in the end you’ll have a home.