Update: Meet today's homebuyers. Seriously.

(Updates to include a third buyer. They are coming out of the woodwork, folks.)

No, this is not an April Fool's item. A reader asked who, exactly, is buying houses in today's market? According to DataQuick, 3,468 homes changed hands in L.A. County last month -- that's roughly 120 buyers a day. Meet three of them:

Milla writes, "I just closed on a house in Highland Park, high up in the hills in a safe neighborhood, a foreclosed property that I got an amazing deal on..."

She continues, "I've gotten so tired of people (criticizing) the housing market, which, in my estimation as someone who was just out there, is not that bad. I mean, it's bad and all, but it's not THAT bad, certainly not as bad as people make it seem. And the idea of two markets -- high and low -- is very real. I went in as a first-time homebuyer, low-income, under the Cal-HFA and Los Angeles Housing Department programs for people like me. These programs are real, very good and allow people the opportunity to buy in L.A. proper, so the idea that housing is so out of reach unless you make six figures is total b.s. I did it with a modest income, a small down payment and very good credit. And I bought a detached, single-family home, a 3/1, on a big lot with a great view for well under half a mill."

Another buyer speaks -- this from Mommy, in the comment section: "Just wanted to say that my husband and I finally made the leap -- we are in escrow on a repo in Long Beach, 90808.  Sales price is $429,900 -- others in that neighborhood (Lakewood Village) are from mid-500s to $900k (though much larger and better updated).  We're putting down 10%, and will be financing at 6%.  We're buying because we took a giant hit on our taxes this year not owning a home, and the mortgage payment will be pretty close to what we pay for rent."

From a third buyer, Perks: "My wife and I closed at the end of February on our new house in the San Fernando Valley.  We purchased our bank-owned fixer for $375k, a comfy $225k less than the house sold for 18 months earlier and after many months sitting on the market.  After a month of sweat, equity and an extra $20k in cosmetics work, the house looks spectacular and we're almost ready to move in.  With six-figure incomes and excellent FICO scores, we could have easily qualified for a bigger house and a bigger mortgage, but I know better than to be strapped to a house I have to scrape to afford while it continues to lose value.  In our case, our house payment is less than our current rent, and we're in a bigger place with a bigger yard in a nicer neighborhood than where we have been renting."

So there you have it -- real buyers. Yes, Virginia, there is a housing market.

Your thoughts? Comments? Do me one favor: don't write in demanding more details on the above transactions. These people have opened themselves up to all manner of criticism and second-guessing, which it seems to me is above and beyond the call of duty. E-mail story tips to peter.viles@latimes.com.
Photo Credit: The view from Milla's new deck, from millatimes.com.

Comments

[Fred]

These two new homeowners have made a very, very dangerous bet. The risk is a couple more years of double digit losses (as most have predicted). The potential reward? A year or two of static prices. That's the best case scenario, and few economists would argue it's likely.

[Tim K.]

Peter, I know you said not to jump on the two people here, but I just finished reading Milla's blog and the details about her home, and I have to say, I hope you enjoy your new home.

However, she did get taken. "Well under half a mil" is probably codeword for $450K. Well, I hate to say this, but since she says she doesn't make six figures, and has to beg money off her parents, that really is too much money for her to handle. What's worse, despite what she says about it being a "good" area of Highland Park, it still is Highland Park, and at 1000 sq ft, she paid probably $450 per square foot which is way more expensive than even the homes in North Pasadena, which I know is a MUCH better neighborhood than Highland Park, and places there are going for closer to $350 per square foot and DROPPING.

Seriously, that is too much money even in THIS market.

But it does explain who the people are who are buying these homes - people who still believe, one way or another, that they MUST get into a home at all costs. We all know a few people like that, and they are helping to drive the market down.

[Just Call Me Maria]

Welcome to the homeowners club, ladies. We are still looking for our perfect place- almost a year now- but I'm sure that it will come around soon.

[puckhead]

Milla & Mommy

You are about to be deluged with many posts calling you stupid for buying a house in this market. Ignore them and enjoy your new home.

[perks]

Interesting to see that I'm not the only sucker--er, buyer--out there!

I agree to some extent with Milla--the market isn't that bad for buyers, as long as you aren't the type of buyer who can actually qualify (i.le., not like many of the people who bought in the past several years!). I think the people who are out there seriously looking right now are better informed than in the past few years. At least, hopefully I fit into that category.

My wife and I closed at the end of February on our new house in the San Fernando Valley. We purchased our bank-owned fixer for $375k, a comfy $225k less than the house sold for 18 months earlier and after many months sitting on the market. After a month of sweat equity and an extra $20k in cosmetics work, the house looks spectacular and we're almost ready to move in.

With six-figure incomes and excellent FICO scores, we could have easily qualified for a bigger house and a bigger mortgage, but I know better than to be strapped to a house I have to scrape to afford while it continues to lose value. In our case, our house payment is less than our current rent, and we're in a bigger place with a bigger yard in a nicer neighborhood than where we have been renting.

Will we lose money in the short-term? Of course. But we can easily afford the payments, and we needed the extra room. If we lose equity, so be it--I know we are going to be in that house for at least the next 15-20 years.

[mike]

now THAT is a true l.a. land blog...

good job viles!!!!

[Uncle Billy]

I can only think that these people have been convinced by someone that we're near bottom and that they are not making the mistake of overpaying by a couple of hundred thousand dollars. Even if they are buying as a permanent home to live in forever and ever and hand down to their children... why do they want to pay far more than they would if they waited?

It's fear that the deal won't be there next year... that prices will surge up again and they'll be priced out again. Right? They shot themselves in the feet and the rest of the straightforward buyers as well who will have to suffer through the painfull slide and market bounces on the way down.

People are still letting themselves get bamboozled. If Mommy did 6% fixed rate, 30 year loan, her payments are about $2,320 for principal and interest. Add another $570 or so for taxes and insurance and she's at $2,890 per month housing payment. That would rent a pretty nice place in Long Beach.

Let's say they had waited a year to buy a similar house for a conservative $100k less. Assuming rates about the same, their housing payment would be about $2,217 Plus they're paying over $100,000 in additional interest over the life of the loan.

If people stuck to their guns and waited until socal homes came down 50% like I want them to, we could very well have a big economic problem (bigger than now). Maybe it's ok that there are a few out there that are willing to "grossly overpay"... it makes the crash go slower. On 2nd thought... stick to your guns. Don't buy. Let's get it over with.

[Inland Empire]

Congrats and enjoy your new home. You will be laughing in few years when your home has appreciated and most of these nay sayers are still renting and waiting for prices to drop.

[MyLessThanPrimeBeef]

I thought there was a proposal for some government agency to advise people about the danger of buying homes?

On the other hand, this just proves that the market is working. It's working NOW! Government should stay away from it.

[Tim K.]

By the way, I strongly recommend anyone who wants to know more about Milla's situation read her blog entries on the link that Peter posted. She gives good insight into her thinking. I found this quote particularly telling, which was posted just before she found her current place:

"what’s that you say? i should wait to buy until prices fall more? yeah, i’ve heard that one, too, and i wouldn’t disagree. but certain financial and logistical circumstances are pushing me to buy sooner rather than later"

Unfortunately she doesn't go into details about why, specifically. It's clear from her writings that she does not have a steady job, and is working on a contract basis, so that's a particularly dangerous combination - getting a house for "under half a mil" and yet not having steady income "under six figures".

It's also clear that she does think the area she is looking into is going to improve - she describes her area as the "up and coming north east Los Angeles" area.

Furthermore, just a few months prior in December, she describes not wanting a foreclosure in a bad neighborhood. Well, I think her own psychology played tricks on her, because not only did she get a foreclosure in a bad neighborhood, she also did it with the standard If it is Meant To Be, logic, which is often the way people set themselves to rationalize any action that comes their way even if it is inconsistent with principles they setup for themselves.

Quite an interesting read, really. It's a warning about what could happen to you if you let your obsession of finding a house take over your rational mind.

[Milla]

thanks, puckhead! i will enjoy my new home. it's more than just an investment to me. it's a place i plan to live for many years.

and Tim K., i paid $410K, house appraised for $440K, was listed for $450K, lot size is 5,300 feet. so if prices depreciate another 10-15%, i won't worry too much about the short-term losses, especially as i appreciate the view from my deck.

[Mary Ellen]

Mila's very lucky to have been able to take advantage of the LA Affordable Housing Program, but it is no longer available to moderate income buyers like myself. Another consequence of the sub-prime fallout is 1st time homebuyer programs are less generous. Mila, question for you: does the city of LA participate in any appreciation of your home? My understanding is they do.

[Tim K.]

Milla, glad to hear you're reading this. I do hope you're going to stay put, because I think that your time horizon is going to need to be long. I read another comment you posted on your blog last year, where you wrote: "i'm hoping Highland Park will be that neighborhood for me here on the eastside. and it better turn into something cool very soon because i don't plan on sitting in my starter home for 20 years, maybe just five."

I know it's probably moot for me to tell you this now, but maybe if you find a way out of your escrow, you might want to consider taking it. 5 years is not enough time to weather a downturn of 10-15%. I hope your idea of short term has elongated to at least 10 years since you posted this.

[Fred]

Milla, prices fell 25% in 2007. And keep in mind that most of that happened in a 6 month period (the bubble didn't really go pop until the summer). The sizable majority of crystal-ball gazers out there predict 2008 will be worse than 2007. So at the minimum we are talking about another 25% drop. Will things be all sunny on Jan. 1, 2009? Most likely not. House prices peaked in 1991. Do you know when they reached those same prices again? 2000. That's a nine year cycle.

[Moe Green]

Milla:

Congratulations, and do NOT listen to the naysayers about Highland Park... it's centrally located and scenic, has a metro lightrail station, and is getting better all the time with new restaurants and bars. Just in the past 5 or 6 years the area has improved drastically. You'll also find a lot of community activists and just a tight community around Northeast LA in general, with a very diverse range of people.

There are rough pockets, to be sure, but the same can be said about most parts of LA.

[Giacomo]

Hmmm, buyers not worried about "short-term losses."

Turn it around, could you have waited another year to save 80-100K? Was having a view, or pride of ownership, or a place for the dog run around-- for this next YEAR -- worth that price?

[TakeFive]

I used to own a rental house in Highland Park - at the bottom of that hill Milla bought on. Yeah, the neighborhoods up topside are a bit nicer, but I think you still need to come down below for groceries and gas. Just do it before dark.

Looking over Milla's blog we read "...i had three underwriters all disagreeing on how to calculate my earnings, which consist of an unpredictable blend of my base salary at work, two work bonuses and some freelance.

and:

"inspections came and unearthed a multitude of problems"

and:

" i even went begging at the bank of mom and dad..."

Milla - I hate to piss on you Wheaties, but you probably cannot afford this house, and you may risk taking mom and dad down with you by requesting funds to keep this thing going. You didn't get them to co-sign, did you?

Is it too late to get out of the deal?

[Tim K.]

Peter, I do understand your concern for the 3 example buyers privacy. It does however, make it a very difficult discussion to have because the very details that these individuals are not disclosing make all the difference in whether or not this was a wise decision.

The 3rd couple, "Perks", paid $400K for a house with "six figure incomes", again a very vague notion. The problem is the San Fernando Valley is a HUGE place, and a $400K house, no matter how lovingly restored, if it's on a busy street, a tiny lot, or in a crappy neighborhood, is not fairly valued by any stretch of the imagination.

A lot of this vague "happy talk" is supposed to make these people feel better, but it's about as worthless as the cocktail chatter we used to hear in the 90's about how we bought Yahoo at $20 and saw it soar to $80, while completely ignoring all the other terribly losers which completely decimated our portfolio. It's so much fun to brag and feel good about ourselves, but it does nothing to actual *illuminate* the situation.

[Milla]

mary ellen: yes, you are correct in that the city will share in the appreciation of my house once i sell it. the amount will be somewhere around 12% of the profits, but given the "silent second" of $50K that they provided me, i think it's an okay exchange. (though of course i'd rather keep all the profits myself!)

and i also heard the rumors that the city was discontinuing the moderate-income program, which is what i qualified under. i can't say this with any authority, but i asked a city official about this rumor when i was signing my paperwork and they assured me that the mod program was still active. they did say that all available funds were reserved currently but there would be more in the future.

[TakeFive]

"i'm hoping Highland Park will be that neighborhood for me here on the eastside. and it better turn into something cool very soon..."

I bought HP property in 1986 and sold in 2002. It was a barrio in '86 and still one in '02. But maybe it's about to turn...

See if you can get out of the deal (or at least re-negoitate it) before the city of LA comes after you to clean up their budget mess.

[Cal]

Congratulations to the new homeowners.

A follow up in a year would be good, I don't think anything would change but I think their perspectives and what they learned over the previous 12 months would be interesting to read.

For Mommy, I have found that people have both underestimated the total cost of ownership (taxes, maintenance, insurance, interest, opportunity cost on principal) and overestimated both the mortgage tax deduction (mortgage interest and property taxes, I have found people overestimate the deduction by about 20-25%) and ignored available tax deductions (401k / IRA).

[victor knopp]

some times you guys seem so confused,some people need houses to live and raise a family,not an investment,not an atm,not constantly obbsesed with price, but life,its just about time to except the market the way it is ,not the way the greedy speculators have tried to convince everybody it should be,theres plenty of other broken markets to talk about

[puckhead]

I grew up in Mount Washington, which borders Highland Park. Parts of it are scruffy but the parts in the hills are nice. Overall, not a bad place for first home and it’s centrally located. My first home was in a neighborhood that was not much better. Why do people think that just because they held off buying a house the last few years that they are “entitled” to buy a house in the South Bay or some other neighborhood of their choice?

[Tex]

I am also actively looking for a home. Currently I have an offer submitted on a 3 bed 1.5 bath 1600 square foot home on a 6500 square foot lot in Leimert Park. This is a relatively nice neighborhood where homes were selling in the $600K range 2 years ago, and are now down into the high $400K's to mid- $500K's. Nice community, reasonable driving distance to downtown & the westside. This house was originally listed for $610K and list price is now down to $420K. It's a short sale, so we are waiting for the bank to approve the transaction.

Here's my logic in making an offer on this property. First of all, this is a pretty good price for the neighborhood based on prices during the past 3 years or so. Although it's possible that the price will decline further and next year this won't look like such a good price, nobody really knows for sure how low it will go. I can afford the payment, and I will enjoy the house. Second, I expect the PITI in this house to be reasonably close to the amount it would cost to rent the same thing. Third, I feel like a financial chump anyway -- I get no tax break as a renter, my savings earns no interest, and my mutual funds are going down. So why not just buy a house if the right one comes along?

[Milla]

TakeFive: admittedly Highland Park has its sketchy areas, but there are many good pockets, and i know i picked a very good block where the comps are well into the fives.

and of course my starter home needs work, but i don't know many middle-class people whose starter home is also their dream home. most people i know do have to stretch their budgets and ask their parents for help when buying a first home. it's not so unusual. i bet you would find it in any type of market and in every city across the country.

[Anonymous]

Areas like Highland Park are going to get killed in the upcoming (or current) recession. Crime will spike, and home prices will fall. And these claims of mortgage payments cheaper than rents are almost certainly wrong or at best very special cases. These people should have spent the same time searching for a rental as they did for a purchase. Home prices still far outpace fair rental values almost everywhere in Southern California. I highly doubt any of these buyers will be "laughing" in a few years. Anyone who would have to put down any sizable down payment should rent and investigate other investment options for the cash that would have served as the down payment.

[perks]

Tim K., I'm posting on a public forum, so yes...why tthe heck would I want to post the intimate details of my personal finances for the world to see? I will state that we qualified for a good old full-documented, fixed-rate mortgage more than twice the one we got. Again, a vague notion, and one that will scarcely elucidate the reason behind my ability to qualify for a house. Frankly, it's irrelevant, other than its potential utility as an example that we probably had an easier time securing financing than many other current buyers. For that I suppose I should feel fortunate, and I do.

Suffice to say...My house is not on a busy street, a tiny lot, or in a crappy neighborhood. I know better than to buy any of those places, since as you very correctly note $400k is way overpriced for anything in even the most slightly questionable area.

I have no delusions that I paid more than the house will be worth for the next 5+ years, maybe 10 years. I don't think it's really possible to put into words every factor that led to my decision to buy. There were definite reasons for doing so, and definite reasons against doing so. Our major reason for purchasing was not financial: We needed space and more permanence, and I'm just flat-out tired of moving, dealing with idiot landlords (don't get me started!), etc. I want to be settled before the kid is born.

Was it a foolish decision for me to buy? Financially, quite possibly. But there are reasons beyond money, and (barring any horrible career catastrophes) we'll still have the house paid off in 10-15 years and I'll still be retiring comfortably when I intend to. If the market doesn't completely crash, then no harm done. If the market tumbles completely, then cool: I'll still have a house I can quite comfortably afford, plus I'll be able to pick up a cheap income property or two.

[Jonah1979]

You can't say "Highland Park" and "Safe Neighborhood" in the same sentence.

[mapletree]

If these people who are buying aren't speculators and intend to live in these homes for several years then good for them.

I found a good deal a few weeks back, but I didn't get to it fast enough. It was on the market for one day and now it's in escrow--I think it was an inside deal. R.E. agent probably had a friend or something. Not a short sale, not a foreclosure. Asking price $700K. Which is interesting b/c that is the price most likely that the homes in that neighborhood should go for next year or at the end of this year, but I don't think they will, the old supply and demand...it was east of la brea-eh still not that crazy about that area. I'm going to end up in the ocean....

I see condos in my area that sold for 1.3 million, 3 million not 3 weeks ago. Not that I would buy a condo ever again. No thank you.

I'm in the category where it doesn't matter if prices fall further, in the neighborhoods that I want to live in I still have to make "real" money to buy and prices aren't going to fall-maybe $200K or $300K, so what doesn't make a dent.

The three people that bought, I don't care for those neighborhoods, boring and not safe. I should be able to afford a house in a safe, city environment, but that isn't going to happen ever again, those days are gone.

Oh well.....

I don't know why that woman didn't buy in Silver Lake. I believe that's a better area than Highland Park and I think you can get a better deal in SL these days. There was a lot of speculation in that neighborhood circa 2004-5-6-

[TakeFive]

Milla wrote:

"I went in as a first-time homebuyer, low-income, under the Cal-HFA and Los Angeles Housing Department programs for people like me. "

and:

"i paid $410K, ..."

How does this pencil out? The program Milla mentions states:

"The CalHFA Housing Assistance Program (CHAP) is designed to provide up to 2% of the down payment"

and the Low Income limits for this program in Los Angeles county are 54,576 to 62,762.

So how do you afford a 400k home with that kind of income when you need assistance with the down payment? Please expain.

Income requirements:

http://www.calhfa.ca.gov/homeownership/
limits/income/income-main.pdf

Assistance program:

http://www.calhfa.ca.gov/homeownership/
programs/chap.htm

[RealtorDaveE]

This spring we're seeing an increase in people who are more interested in owning a home they both like and can afford and less interested in market timing.

They may well be right--check out what's rumored to be happening in Washington today in an amazing post on SoCalRealEstateNews.wordpress.com

Amazing!

[Moe Green]

@Take Five: Yes, parts of Highland Park could definitely be considered "barrio". The same can be said for Downtown LA, Echo Park, Silver Lake, Mount Washington, etc. I would also argue that all of these areas are improving, but at the same time I hope they maintain the cultural diversity that they enjoy today.

The Eastside might not have the beach, but it has good public transit, proximity to more cultural events (shows, theatre,etc), a more diverse selection of restaurants and bars, and MUCH less traffic congestion than our friends west of the 405.

[JohnnyB]

Greater fools die hard... even in the initial phases of a declining market… even on April Fools.

What can one say. To each his/her OWN. Or, more appropriately... To each his/her DEBT.

The pressure to spin this around and shill the debt is enormous. Absolutely enormous.

Then again, never underestimate the pull of a nice home. They can at times make even the most sophisticated financial guru an emotional puppet.

Especially when a significant other is softening up the hard earned brain matter. The nesting instinct is nature's trump card... and the RE industry knows this too well.

But as an investment decision it's ranking right up there on the stupid scale. Sorry... it is. Why? Because the house WILL continue to lose value for AT LEAST 2 more years. And, after AT LEAST 2 relatively flat years, when the gradual price increases may start to work their way back, it'll take AT LEAST 2 more years just to bring it back to today’s purchase price. That's the absolute best case scenario… a 6 year turnaround. More likely longer. That’s OUCH on the finances!

And there's no way the mortgage payments are as low as renting a similar home at this time. NO WAY. NOT EVEN CLOSE.

[JW]

Victor: You are the one who is confused. People buying lower end houses that cost $450k+ is sheer lunacy in the majority of the USA. Those same houses go for $120k in most places outside of La La Land. You can raise your family in a rental home just as well as you can in an over priced SoCal home. I would love to re-visit these buyers in about 2-3 years and hear their reactions to their houses losing $200k or more in value. There are none so blind than those who refuse to see.

[Ace]

Milla,

Thanks for being brave enough and sharing your story. I wish you well... but you should have listened to yourself before buying this house.

From your blog:

'i called my mortgage broker about increasing my budget, but was told i was stretched too tightly already and couldn’t go a penny over.'

'he came back with a plan that had me paying off my car loan to reduce my monthly debts and increase the amount i could borrow. this killed me as it cut into the remodeling budget substantially.'

'i even went begging at the bank of mom and dad, who kindly granted me a small loan for repairs, with a reminder that they are getting ready for retirement'

I don't know your financial picture but you bought a house that you were 'stretched' to buy... in a declining market... when you have other debt... and needed a loan from your parents....

Good luck. I hope that it all works out for you.

[Cal]

I'd be interested in hearing details of Millas loan (s), is it interest only? 30 or 40 year amortization? Which program did the 50k down come through?

She must be making pretty good coin to be able to afford 400k on a single persons salary.

Of all the stories, and this is probably only because of the level of detail provided in her blog posts.. her purchase seems the most.. tenuous.

[JK]

"...I just closed on a house in Highland Park, high up in the hills in a safe neighborhood"

Highland Park and safe neighborhood should not even be in the same sentence.

[areles]

":These two new homeowners have made a very, very dangerous bet."

I am loathe to play devil's advocate, but it's only a "dangerous bet" if they a) can't afford the house and b) intend to flip it.

If they like the homes, can afford them, and intend to stay awhile, it's not a bet. It's a home.

[johnny1290]

To the woman that bought in HP, my boss that made around 150k a year back in 2001 bought a house in the hollywood hills north of ventura blvd for 450,000, and it's a fabulous neighborhood and a beautiful house and private yard.

You paid that much to live in a ghetto and you don't make over 100k and have unstable employment and the market is headed down.

You'll be sending in the keys within 18 months I bet.

[areles]

(After reading the comments, and Milla's story in particular, I have to exclude her from my devil's advocate stance. Looks like hers was a bad move all around. Shame.)

[eprobert]

Yes, I'd like more details as well. I'm also a potential buyer in the same program. Last summer, before the big price drops, we had offers out on 6 or 7 houses with no luck.

My wife & I combined JUST squeak under the LAHD limits at 96k per year, and have only one car payment and no CC debt between us, but the $410 was simply too much.

I don't see how a single person with a typical job (say under $70,000 per year) could possibly afford $410,000 for a house. That's almost $3000 per month including taxes!

Unless, of course "mom and dad" loaned a lot more than $10,000 or so that I'm assuming.

Maybe we're doing something wrong - seriously please enlighten me about your situation. How much of your income are you paying each month, for example, and how much did you put down out of your own (and your parents') money?

I'm not looking to hate on you, I just want to know what I should be doing.

[Roxy]

Perks,

You and I are in a very similar situation. I also am buying. I was able to get what I think is a good deal (paid <70% of appraised value), locked in a 5.7% interest rate, and have payments that give me a very, very good pymnt/income ratio. I too was getting killed on taxes and am sick of dealing with landlords.

Will the house go down in value for a while? Probably. But I'm not interested in flipping it this year or next and I'm looking forward to painting it whatever color I want, playing in the backyard with the dog and not stressing about timing the bottom.

As you said, if prices continue to drop significantly I plan to pick up an investment property or two along the way.

[perks]

JohnnyB: "And there's no way the mortgage payments are as low as renting a similar home at this time. NO WAY. NOT EVEN CLOSE."

The next tenant in the house I'm renting is shelling out $2500 a month for the place (Lord only knows why). Not only my mortgage payments, but my entire combined PITI payments are less than that. Ironically, guess who the new tenant is? Yep...a foreclosure "victim"!

[Milla]

it's called a "soft second," people, meaning a 0% interest, deferred junior loan of $50K that the city of Los Angeles provided me, meaning the monthly mortgage i pay is only on the first loan. i also had a down payment, so my first loan is smaller than you might think. the second loan will need to be repaid in full upon sale of the house. this happened via a little-known but very beneficial program available to low- and moderate-income homebuyers in the city of Los Angeles.

and because this is a government program, i assure you there were no shifty ARMs available to me, nor could i go into the loan with shady documentation. i'm set at a fixed rate for the duration of the loan, and yes, i can afford my mortgage.

[tom borland]

Uncle Billy says
"If people stuck to their guns and waited until socal homes came down 50% like I want them to, we could very well have a big economic problem (bigger than now)."
I like that he said what I have thought for a long time - that how much the market will really fall is kind of irrelevant - it's all about how much the bitter renters want the market to fall that shapes the majority of the comments on this forum. I too am waiting for prices to fall to more affordable levels so that I can buy, but I have no delusions that there will be $250k houses in safe desirable places in LA. I just don't see it happening. And if they do fall that low, I figure most of us will be out of work or the country will be facing so many bigger economic problems that buying a house will be out of the question anyways. Check the median incomes for Mexico City, London, or NYC, and you will see that they really have no major bearing on real estate prices. World class cities are increasing the domain of the elite.

[sfvrealestate]

Congrats, buyers. As i've said many times on this blog, a house should be a place to live, first and foremost. The idea that a home purchase should be a great and always-lucrative financial investment is a fairly recent one. It has lead to the bubble mentality so despised by many of the posters here. Enjoy your home and remember that NOBODY knows what your future will hold.

[IToldu2CashOut]

Congratulations on your new homes. I think however in a few years you will regret that you were not more patient. Living in an apartment and saving money is the right move right now.

On the bright side, maybe stories like this will kill the bailout.

[Milla]

p.s., the $50K provided by the city is seen by the first lender as part of the down payment, and with the down payment i provided, both combined were able to cover 20% of the sale price of the house, so i don't have to pay a monthly mortgage insurance.

without going into the nuts of bolts of my own earnings, i will be the first to admit that i could never afford a $410K mortgage on my current salary as a single person, and the good news is that i don't. but i can afford a monthly payment on my first mortgage, which is in the low $300Ks.

the point is that there are great programs out there that help middle-class people like me get into a first home, so i think it's silly when people talk about the impossibility of buying in los angeles unless one makes boatloads of money. that simply isn't true.

[Cal]

With 5% down, 50k gifted by the program I come up with 340k owed.

Assumptions
5.75% interest
$75 a month for insurance

I get $2486 as monthly payment for PITI (assuming 30 yr amortization). With the most aggressive program I can think of allowing 45% DTI with no front end ratio and assuming zero debt. That would require a salary of 66k. 10% down would be 2369 a month. Interest only or 40 yr fixed, and a half percent lower rate could knock off another couple hundred.

[the problemwithcaring]

Thanks Mila for sharing your story.

I was going to purchase my home through the same program in which you refer LA American DREAM Down Payment Initiative purchase assistant program, leveraged with other eligible loan programs like CALHFA First Loan, and brokered by a loan officer at my credit union. I thought the programs were great - you all can read about them here (http://tinyurl.com/25hz7e ) - not least of all because it required an 8 hour homeownership class that saved me from becoming a knifecatcher.

With those combined programs, I was supposed to receive about 50K in down payment funds, and of course a decent, fixed rate. (I only qualified for the High-moderate Income Help as a single person - the Low-moderate income standard was capped at $58K income per year in 2007.)

The only catch was the Shared Appreciation requirement, which is a part of all of the city's NON-rehab loans. It a city-calculated percentage based off the LAHD purchase assistance loan to the total home purchase price. So for most folks, basically that meant about 50%. The cleaning, maintaining and other wise making an unlivable pre-war, freeway close shack, habitable -- well that was all up to me.

Regardless, I quickly realized that like most homeowners, To sell any time within the near future, my potential property would need to appreciate in value or decrease, only at the rate of inflation. Anything else meant I was stuck, and would still be UNABLE to sell for any reason. I thought - this made more sense than renting - how?

So I passed.

Now how some one in the LOW-INCOME bracket could be patting themselves on the back for taking on a $400,000 mortgage is beyond me. Truly.

So best of luck!

[victor knopp]

bla,bla,bla,with all these market geniuses in LA iam suprised the market or any market for that matter ever goes bad,wall street is waiting for all you tuesday afternoon quarterbacks,good luck with your perdictions,buy....sell,,,or keep your bogus advise to yourself

[Long time listener . . .]

I believe Milla is taking the brunt of the negative comments simply because its hard to believe that someone who can qualify for a mid-income assistance program would purchase a house for anywhere around 400k. Even assuming her first mortgage is around 350k, her PITI would conservatively be around $2650 a month. Using traditional underwriting standards, that should only be a third of her gross income, giving her a yearly income of around $96000k. Not quite 6 figures, but still very good, well above the median in LA county. But if she made that much, she couldn't qualify for the assistance. So, in its amazing brilliance, the government has helped someone into another loan they can't really afford.

For the other two buyers, if they can afford it, good for them. But Perks, if you and your wife make that much money, why wouldn't you want to get a better house in a year? What did your house sell for in 2000? What is the average income of the households in your new neighborhood? Well you not be upset in two years if a much better house for the same price you paid this year? While I understand that buying a house isn't an investment, and you are buying a home for your family, which has a certain intrinsic value, I would be so pissed at myself if I cost my family its ability to move up to a nicer home in a nicer neighborhood.

[E]

I have to agree with most of the other posters and thank all the buyers for being the knife catchers and future debt slaves that our economy needs.

With regards to HP...I grew up in the other HP...(Hancock Park)...you should have seen how shady and dangerous it got just south of Wilshire during the recession in the 70's...so...all you REALTARDS spouting off about the gentrification of Silverlake, Echo Park and every other godforsaken ghetto that you all yammer about...EVERY place "gentrified" during the boom. Whoopdie doo...there are a few artsy fartsy coffee houses, gelato stands and boutiques here and there but just remember...

Reverse gentrification is a BITCH!

[TakeFive]

Moe Green wrote:

Yes, parts of Highland Park could definitely be considered "barrio". ..but at the same time I hope they maintain the cultural diversity that they enjoy today."

Man, I just don't understand this fetish with "diversity" and how it's used to justify all sorts of anti-social behavoir jutst so the liberal mind can make a demonstration of magnanimity.

I'll bet folks in the area would gladly take a safe mono-culture over dangerous diversity without a second thought.

[Long time listener . . .]

Even with a 300k mortgage at 6% for 30 years, $50/month insurance, she's looking at a monthly payment of $2211, and still needs an income of approximately $80k to truly afford it. My question is whether that is still too high to qualify? That seems like a high income requirement for an assistance program given median income levels in the county.

[John]

Congrats to the buyers who shared their stories!

(Ignore the envious would-be homeowners and the bitter soon to be former homeowners.)

It always makes sense to take advantage of a good deal.

There are some great deals to be had in the Highland Park / El Sereno / Washington Heights area right now.

[mommy]

Just wanted to respond to a few comments:
Firstly, we are not first-timers who are underestimating the costs of homeownership -- we have been renting a lovely home about 3 miles from the beach since selling our North Long Beach home in October of 2006. We netted about $70k.
The house that we're buying sold for $740k in August of 2006 (granted, waaaaaaay overpriced!), and at $429k, it's already about $200k below other homes in the neighborhood... if it goes to $229k over the next 2 years, i'll be bummed, but I don't expect that to happen. According to zillow.com, we're buying at 2004 prices.
And yes, we do plan to stay a long time as the lot size is quite large for these parts (7800s.f.), there are mature fruit & avocado trees, remodeled (albeit filthy) kitchen, 3yr old central air & heat, new roof...
My dad tried to dissuade us from buying, too. But he also tried to stop us from buying, and then selling, our North L.B. home, so we're trusting ourselves!
I'll post the appraisal amount when we get it!

[petevles]

Lefty? You there? C'mon buddy. This post has your name all over it. Don't disappoint us.

[JohnnyB]

Perks; "...my entire combined PITI payments are less than that (nearby tenant’s rent)."

Hey, IF I stand corrected, so be it (but I doubt it). I must say it sounds kind of anecdotal. Which is to say, it's possible here and there for someone to be overpaying on rent and for another to get a perceived good mortgage deal living nearby. Anything’s possible in LALALand.

What about the broader point that whatever your paying now could have been SIGNIFICANYLY reduced in even a year or two? And, you'd be in a better position to build equity instead of losing it. Losing equity in this overpriced morass of LA homes is serious… very serious, because we’re not talking a 10 grand loss, we’re talking 100 to 200 grand + depending on the mortgaged principle.

In any case, owning a home isn't always about buying low/affordable and building equity right from the start (but, it should be). There are certainly many other important factors to consider. So, if you're happy, more power to you!

But, the basic economic fundamentals are considered basic economic fundamentals for a reason – as millions of overburdened debt slaves are finding out the hard way (along with derivative “waste” investors around the world).

I rent a home… it’s a lovely home… I call it home… I decorate it, I eat, sleep, play, party… whatever… in it… just as though it was a “mortgaged” home. I certainly do wish I had an affordable mortgaged home in LA, building equity, etc., I very much do. But now is not my time. Months of searching informed my decision to pull out and then months of subsequent research informed my decision to stay out.

My hope is that more folks take this corrupted RE industry, complicit fed/treasury/government, fraud-laden lenders, banks and wall street to task and hold off buying an overpriced home, and also continue selling/foreclosing/walking away, so prices decline to 1999-2000 levels. Maybe even undershoot on the way down for good measure. I'll keep my fingers on the pulse.

Anything’s possible in LALALAnd.

[Truth2Pwr]

The common refrain among buyers is, "the tax advantage this, and the rent is almost the same as the mortgage that", just doesn't balance out against the fact that you didn't "buy" a house. You think you did, but you didn't. Here's why. If you bought a house for $500K in November and put 10% down...you now have NO EQUITY in that house! Your $50K is gone, because your house probably devalued that much in 3 months or less. Congratulations sucker. I hope you enjoyed your month as a homeowner. As of now you don't own that house any more than I do. Don't believe me? Go ahead and sell it and see how much you walk away with!

The simple fact is that unless you own your home free and clear, you don't own a home. You just made a promise to the bank who bought the home on your behalf to be their indentured servant for the next 30 years in exchange for letting you live there. You're a renter, just one with no options and lots of financial obligations. Oh, and BTW, you're also really really DUMB!

[Moe Green]

Take Five:

Are you for real? Did you just use the phrase "dangerous diversity"? So are you saying that diversity in and of itself is dangerous?

Liberal mindset? Let me get this straight now: the fact that I enjoy living in an environment that has a wide range of different peoples and cultures makes me a liberal? I guess that implies the opposite too, right, that if you prefer "safe mono-culture", you are a conservative?

Guess what, pal, I grew up in what one might consider a "safe mono-culture", and I got the hell out of there as soon as legally possible. You do realize that you live in Los Angeles, right? And that it's a fairly diverse place? Well, at least the cool parts.

Some of the commentators on this blog are unbelievable. Doesnt reflect incredibly well on the readership here.

[Phyllis Harb]

Congratulations! It's hard to "go against the grain". Prices have dropped, rates are low - good for all of you! Wishing you much happiness in your new homes.

[perks]

To Long time listener... I'll attempt to answer your questions individually:

>> But Perks, if you and your wife make that much money, why wouldn't you want to get a better house in a year?
First of all, we make a comfortable living, but please don't get the impression that we're loaded. (I wish!) To answer your question, I don't need a "better" house. It's exactly the size and condition we wanted, and it's got all the features we need. The idea that only a huge house is a good house holds zero meaning to me. I don't tie my self-worth to the my square footage. More space just means more stuff, and I neither need nor like "stuff." And with energy costs going ever upward, the amount it would cost to keep all that stuff warm/cool is pointless.

>> What did your house sell for in 2000?
Couldn't say. It sold in 1956 and then again in 2006. Other, similarly sized houses in the neighborhood were selling in the $250-300k range in 2000 though.

>> What is the average income of the households in your new neighborhood?
Offhand, I don't know, although I did look it up some months ago. Above average for the Valley, but less than our household income.

>> Well you not be upset in two years if a much better house for the same price you paid this year?
See my first response. Should something "better" come available for less in a couple years (and I've said before it probably will happen), no, I won't be upset. Buying a house is a calculated risk, and you have to know that going in.

[martin]

My first single family home -- after a year of owning a condo in some might consider a worse area -- was in Highland Park ...north of York ...hillside ...with a deck and view ... the top of Phillips Way ... very close to the highest elevation of Eagle Rock.

I bit into the promise that Highland Park would slowly gentrify because of Bunker Hill's development. It didn't. But it was (then) a relatively crime free and safe neighborhood.

Over seven years and lots of income and additional equity later, I moved to a better area: Woodland Hills. But some of the happiest years of my life were in Highland Park.

Therefore, Milla ... CONGRATULATIONS!! You did fine. I'm sure you expect the value of your home to decline some more and that you're prepared to deal with this financially. But the point is you're finally paying some principle every month into a home you like and can afford.

To the pundits who criticize your decision to buy now, I say to heck with them. They should somehow realize that LIFE GOES ON.

Congratulations to the other homebuyers too. May you all enjoy many years of happiness and good health in your new homes.

[l.a.guy]

Basically the only way win the approval of the readers of this blog is to not buy anything and wait 5-10 years for the market to bottom out. I absolutely agree that in general housing prices are still way too high and will likely have to come down another 25% before the markets reach a bottom in Southern California. But that does not mean that every house is over priced. There ARE motivated sellers who ARE pricing homes sensibly and those homes can be bought with very favorable interest rates for those who can qualify for full doc loans.

Those interest rates will inevitably go back up once there is a sniff of recovery. So here's a question, what's more expensive; a $100,000 house financed with a 30 year mortgage at 6%, or a $90,000 house financed with a 30 year mortgage at 7%? Answer, they cost almost exactly the same amount. (Monthly payment $600 vs $599)

Meanwhile you live in a house instead of an apartment and get to write of the interest on your taxes.

[unomascervesa]

Thanks to all the buyers who share their story.

I just can't believe the people in this blog who whips out the calculator and proceed to dissect the finances of the buyers. What, so everyone knows your financial acumen?

These buyers read this blog and are aware of the "catching a falling knife" and have no doubt read the posts of the "regular" contributors. Having done their research, they decided that it is to their best interest to buy. The numbers folks just can't get past that to home buyers, it's not just about the money.

[dave]

Good buy. One year from now it will be worth 10% - 15% LESS than what you paid.

Great going!

[eternal summer]

Hi Peter,

Thank you for answering this question! I feel better now. Wow, you really do listen-you must be a great husband! :)

[eternal summer]

Hi Peter,

Ok, so since this blog is about real estate I have another article I'd like to know about-all these programs for buyers. I've found Cal-Fha, but I've never even heard of this "LA affordable housing program". A quick google turned up nothing. So this is how people are getting into the market? A comprehensive look at the "new creative financing" would be great.

[Geek Seek]

Lefty, get out of Phyllis Harb's body!

We're all just renters here anyway... ownership is an illusion. We rent our bodies for a hundred years at most. The entire human race is a blip on the cosmic scale.

Plus, this just in (as of a few days ago, anyway)... two guys in Florida are sueing the european nuclear accelerator Cern, to stop them before they activate new modules. One of the scenarios is that the scientists might create miniature black holes. The guys from Florida are afraid that these could swallow up the earth. Nope, not making this up. Imagine what that would do to property values in L.A.! (thought I imagine they're only concerned about values in Florida).

[Fred]

It would be easy to write off the majority of us posters as "bitter renter," but we have every economist and scholar in the country on our side in this one. Many of us (most of us?) could afford the houses that these 3 have bought right now. But we understand that our money (and our sanity and our families) is much better served elsewhere at the moment. Why should I buy a $400k dump in the far valley when I can rent a much nicer place at a cheaper price for the next year or year and a half? In mid- to late-2009 I will be able to afford a much better house for that $400k. And what price did I pay? Oh darn I had to let my landlord fix my clogged sinks and toilets for the next year.

[shockg]

Dear recent buyers. Ignore the rude putdowns by the jealous trolls. They too want to buy a home in soca and are jealous. The people here are real creeps who take joy in hearing about homeowners hardships. They are trully Vile peter....er I mean people. They dont want to hear that people are jumping into the market and plan on owning for a long time. They are all speculators.

[peter m]

"i'm hoping Highland Park will be that neighborhood for me here on the eastside. and it better turn into something cool very soon..."

I am the locational/geographic expert for LA county anf have been to 1000's of hoods all over this vast county and city. Hoods generally do not gentrify quicky. Venice took 15-20 years and large parts of it still very edgy. Silverlake was on the cusp but may reverse very quickly. Old hollywood took 20-30 years and the tranformation was roughshod, as if developers took a sledgehammer to sculpt an ice block.
My feeling is that the hoods in northeast LA will not transform /gentrify quickly if at all but wiil continue their long dark descent into yet another typical East-LA type slum. Too may factors work against hoods in LA becoming quicky transformed into sudden sparkling yuppie oasis's. One is if U live in the city of LA they are very lax about permits, developmental impacts, enforcing codes and ordinances, and city is still underpoliced and an environmental disaster zone in many marginal areas. Another problem is LA is the worlds largest safe haven city for illegals, with all the attendant gangs and criminal activity.

Another factor is related to the first, that LA is becoming increasingly two tiered: a tiny enclave of very weathy clinging to their tiny westside enclaves and a shrinking percentage of struggling marginalized taxed-to-death middle class and a vast pool of impoverished lower- working class/immigrants/illegals. This would mean that tons of hoods all over LA are swiftly reverse gentrifying as we speak , with vast areas of the East SFV and Pomona but a tiny sampling.

[sean]

Cal -- Regarding your thoughts that people tend to overestimate tax advantage of ownership, and ignoring the obvious ones like 401K and IRA. What about the folks whose income have exceeded all the deductions allowed, from job expenses to child cares, to health cares, to IRA/Roth IRA. The only shelter we do have now are our gigantic mortgage interest deduction, which still saves us a huge amount of taxes. Our effective tax rate after mortgage deduction, since we are not eligible for everything else as our incomes have exceeded the limits on everything would be at 10%-15% range....

I think by percentage, we are paying much less tax than most of the working renters here. Sure sounds fair to me... making more money, and paying less taxes.....

sfvrealestate -- Bravo!!!! I may be old fashioned, but I was always taught by my parents that I should work hard to buy a house and provide for my family. I did. The HOME is for me to share with my wife and my kids. I have NEVER put any kind of NPV, ROI, ROA, ROE, or any other "investment" calculation to my decision to buy a home. The only calculation I made was whether I can afford it (or for that matter, can we afford the payment, even in the event that one of us loses our job). If I have to sell it and not make a penny on it (in fact losing hundreds of thousands), so be it. It was a matter of quality of life, as I am sure many here would tell you (ie. LA Guy), not % gained/loss on investment.

I have never believed one could make money in the long run flipping any kind of real properties. That's why I like making my money by buying commercial properties and enjoy the cash flow they generate.

To the rest of the folks who are so concerned about these 3 folks' decision to buy -- I am sure the 3 of them appreciate your thoughtful concerns for their financial welfare. But, I am sure these 3 people are adults and are old enough to make their own decisions on their own money. Whether they bought because they were "dumb" as you folks have suggested, or they bought because they want to have some quality of life, it is still their decision. If they lose money, oh well, it is THEIR money, afterall.

Just my thoughts......

[anonymous (I)]

Highland Park?

Oh yeah, can't wait to take my inlaws from England down scenic "AVENUE 46" or bucolic AVENUE 29. Too bad they're of (East) Indian ethnicity and not south of the border, there's more taco stands and liquor stores per square mile than there are donut shops for the cops to police the area. It is a working class Latino neighborhood gone trendoid when the art-school crowd couldn't afford Los Feliz, then Silver Lake, then Echo Park(ay).

[Susan]

Peter, left this on my Redondo Beach doorstep last week:

FHA As an Option

Qualifying Advantages
- No income limit
- No sales price limit
- No FICO score requirement
- No reserve requirements

- minimum 3% down which can be a gift (i.e., no questions asked)
- minimum 5% down if loan is over $362,490

The FHA will insure lenders by collecting insurance premiums from the borrowers.

-----

This sounds a heck of a lot like the government is in the business of lending subprime + 5%.

And does anybody in their right mind really think the FHA is going to collect enough in insurance premiums to offset the potential for losses down the road?!?

[CaliforniaDreamin']

Yeah..... if the city has to give you $50K to get into a house, or you have to go to the "bank of Daddy and Mommy", that is probably not a house you can afford in the long run. Milla's story is just another example of creatively stretched financing to get into a house any way possible. I still hold out hopes that lending regs will put an end to this sort of nonsense at some point.

[Chris]

There are a lot of negative Nellie's on this board. Why don't we just let these people enjoy their new homes. Yes there is a good chance there homes will lose value this year and perhaps the next couple of years, but as long as they can make the payments the chance of foreclosure is zero (other than a conscious decision to walk away). If they can get a house that is acceptable to them at a price that they can afford, more power to them. So congrats to the buyers, it's a tough market out there and it sounds like you were realistic and found something that you makes sense for you.

Hey I'm glad a lot of people on here were too smart to buy on the way up and now on the way down. But, I don't think all of you are going to be able to buy at the bottom, so at some point all you that do buy may overpay. When prices get to $350K you could buy and then prices could go down to $250K, you could buy at $250K and then prices go down to ....

[Brian]

These people may be "knife catchers" (yet to be seen), but they do not seem like flippers/speculators. I hope many of us would agree that if all buyers during the last decade were like the ones profiled, we would not be in this bubble situation we are in today.

[Inland Empire]

Basically the only way win the approval of the readers of this blog is to not buy anything and wait 5-10 years for the market to bottom out.

No because then there would be additional factors added like the readers didn't like the math involved, thought the area was wrong, the house chosen wasn't good enough. You cannot please most of the people on this blog. Ever.
I do remember my adventures in renting over the last ten years (only brief instances fortunately). There was the landlord who kept most of my deposit claiming a dirty carpet (white, of course it needed cleaning) and a pencil eraser sized paint spot on the toilet seat that was obviously a manufacturing defect. Then the one that wanted me to pay for the water bill dated six months before I moved in. The one who arrived from out of state and expected me to let her in my house unannounced so she could show her relatives the house. This one also reneged on her agreement of price and terms (as in bait and switch). There was the "little dusty house" that leaked air everywhere. There was the house with the wrongly installed septic tank and broken water lines.
Of course, I couldn't remodel, paint or have a pet at any of these places but I can see that renting is so much more desirable than owning for most of the people on this blog.

[Geek Seek]

"If they lose money, oh well, it is THEIR money, afterall."
______________________

But it's not, necessarily. If people were buying homes with their own money and then the homes lost value, fine. If people got loans from banks and the banks got the short end of the risk, fine.

But this is not what happened/is happening for the most part. These people are buying homes using money lent to them, ultimately, by wall street who just gets bailed out with your tax dollars if the borrowers default. Or if not bailed out directly, our government is creating money out of thin air to support the shadowy financial infrastructure. What do you think this is doing to your purchasing power?

When your cash flow goes negative due to vacancies, or tenants begin to ask for a couple months' rent relief, the picture might get a little clearer.

If we see stories of people putting 20% of their own money down, and their income is 3-4 times their housing payment, and the bank is making a loan they're going to keep on their own books, THEN we might feel a little more comfortable.

[peter m]

"Congratulations, and do NOT listen to the naysayers about Highland Park... it's centrally located and scenic, has a metro lightrail station, and is getting better all the time with new restaurants and bars. Just in the past 5 or 6 years the area has improved drastically.., with a very diverse range of people...There are rough pockets, to be sure, but the same can be said about most parts of LA."

The same can be said for Compton, East LA, Inglwood, Sentral, firestone district, watts, SGate, Huntington park, vernon, ect,. All these inner LA trashed- out ghettos are centrally located, have access to public transportation, have a wonderfully diverse population, and new restaurants and bars, and are just 30 minites from dwtn LA and the westside. Nothing beats Compton for its diverse eclectic ethnically diverse barrio culture. Why noit buy a crackshack Compton fixer for under $200,000 ?. Close to LA dwtn, westside and the beach, diverse improving districts, new shops and malls, access to both the blue and green lines, ect.

U see, I can paint even the most wretched gang -infested graffitied inner LA barrios in bright colors. Just like the LA times in its real estate section.

[arroyogrande]

"or they bought because they want to have some quality of life"

I can understand this sentiment a little...however, by saying this, you seem to be saying that renters don't have "quality of life".

For example, where I rent (up the coast a ways from LA), I'm paying almost exactly HALF per month as I would have been paying had we bought a house. And yes, this is WITH the mortgage tax deduction figured in. As we are in the highest tax bracket, the mortgage tax break would have been hefty.

What does this mean? It means that we have to "worry" about finding a new place when our lease runs out. It means we can't paint the walls (actually, we probably could, as long as we paint them back when we leave). And, long term, we need to worry about rent increases, although rents have held steady for the past 3 years.

But it also means that we have a BIG extra chunk of change each month that we can invest (emergency savings, down payment), AND take nice vacations and have evenings out. It also means that we won't be "priced in forever" on a house that is under water, limiting our options lo live somewhere else.

Different people have different meanings for "quality of life". For some, it means being able to have a dog run around in your own backyard without a landlord telling you "no". For others, it means being able to save money, take trips, and not worrying about having to pay for a new furnace or roof.

Will I buy a new "primary" someday? Yes. But I feel no need to "hurry up or be priced out forever" right now. Congrats to those that did feel the need to buy now. Myself, I'm saving quite a wad of cash, part of which will eventually be going to a down payment. As we've worked hard for that cash, it's not like I'm "just going to give it away".

- arroyogrande

PS Everyone should remember that the tax savings is not "free money". It's the government taxing you less because you PAID a big chunk of change to the bank. If you pay $32,000 in interest in a year, and you get back $12,000, all that means is that you "only" paid $20,000 in interest that year.

[TakeFive]

Posted by: unomascervesa

“I just can't believe the people in this blog who whips out the calculator and proceed to dissect the finances of the buyers. What, so everyone knows your financial acumen … it's not just about the money”

It will very soon become just about the money.

Based on what the income limits are for the program Milla used, as well as the information she provided about the purchase price and maintenance requirements, this is likely to be a ball buster of an expense. I suppose she could rent out some rooms, but this could not have been part of the original calculation.

The calculator jocks are really the ones looking out for her best interests. Not so long ago these guys were known as “Mean Mr. Banker Who Won’t Give Me The Money”. Then they were replaced with “Mr. You're Qualified!” and the housing / banking train wreck began.

Look, I don’t know how many of you have worked with clients, family or friends going through foreclosure, but imagine a fish caught on a hook, thrashing about, but inevitably reeled in. Think of divorce, of broken families. It’s not always the happy, rent free living you may read about on this blog. Maybe some readers will substantiate this with their experience.

I not looking to create buyer’s remorse. Rather, I want to see buyers take a ruthlessly aggressive tact when dealing with the banks who largely created this mess. But even more, avoid the pain of financial distress caused by optimistic revenue projections (sound familiar?). Milla’s a big girl, and I wish her the best, but prepare for battle.

[permo]

I'm in escrow on a similar loan as Milla's, only it's under the Long Beach program. That being said, it's a very narrow band income strata that allows a 1st time buyer with limited income in for either program. I also had a reservation with LA program, but went with LB for a couple of reasons.
1. the 'silent' 2nd does not have a shared appreciation schema that is market driven - I can't sell above an amount capped at a price tied to local median income, either. IN other words, LB gets it's zero percent loan amount back when I sell with no piece of the profit (but the profit will not be great since it's sales price is capped). I am OK with this since it gets me into a small mortgage as a first time buyer so I can begin to build equity and get tax relief.
2. when I submitted the paperwork for my income, etc. I heard more positives from the mortgage guy than I ever heard from 3 hears talking to the ones that write the loans for the LA program.

All of you number crunchers should know that the unnderwriting standards are much higher for CalHFA than for conventional loans. I have really been through it with them and with LA and LB and finally have passed muster. Your scrutiny of Milla's figures are nowhere near that she received from her bank's underwriter and the folks at LAHD and CalHFA. I presume that Milla, like me, had to squeeze into a very narrow bandwidth of income eligibility. The difference in LA is that I would have to deploy 40-50K in saving to close the financing gap but Long Beach is 100% financed in their program so I can save my money and make interest in a bank or use it for upgrades on my condo.

Still, Milla's got a good deal for the hills and Highland Park a is fine place to live if you're not scared of working class folks like so many of these commenters seem to be.

[Joseph C]

On a 30 year loan, most of the payment that you make go toward interest, and is tax deductible. This effectively gives you a 25 - 35% "rebate" at the end of the year (depending on your tax bracket).

Yes, you'll have to pay insurance and property taxes, and utilities and trash which you might have had included in rent before. But you still come out ahead.

And, whatever amount you don't pay in interest goes toward the principal -- so you are building equity in the house. Granted, you might lose equity from depreciation in the short term; but if you know you're going to stick around for more than a few years, the prices will rebound, and you likely will have been better off than if you had rented during that time.

[enlightenment]

Dead Cat Bounce!

[Jason M]

I think a really important point has been left out of all this bickering, and that is that our esteemed buyers purchased homes knowing that they could actually make the monthly payments! That's something we haven't seen in a long time, good for them. It may indicate a stablizing market, but what do I know.

I personally would have waited. But hey, if you're paying more in rent than you do on the mortgage on your new home, you just picked up a great tax shelter. That said, people tend to not realize the other aspects (read: costs) of homeownership. I owned a 1923 home in Echo Park from 04-06 and not a weekend went by that you couldn't find me at the Home Depot on Olympic. Some people like that home improvement stuff, but I sorely missed the days of renting in Hollywood.

[Milla]

sorry for not leaving this sooner. there seems to be lots of false impressions of the programs i used to buy my house. here are the deets:

http://www.calhfa.ca.gov/homebuyer/
http://lahd.lacity.org/HomeBuyers/GeneralInformation/
tabid/97/Default.aspx

the LA Times also ran a great story on these programs last October:
http://www.latimes.com/business/la-hm-firstbuy
21oct21,0,3268783.story?coll=la-home-center

[Cal]

sean-

I know all about what you speak, but I was speaking in general terms when speaking with people or seeing calculations done online people tend to overestimate the tax savings (generally people lop off around a third when their tax savings is about 20-25% lower than that) and use the fact that they need a tax break to overpay when they have other avenues available to them. I know people hunting for homes because they "need the tax break" and I know for a fact that their 401k contributions are exactly zilch. Two people with 401ks can sock away 30k. IRAs do have the income limits (I get no savings from contributing to an IRA), but 401k do not if the employer offers them.

The tax break issue, as a generalization, is an excuse for people to "spend more to save more".

The math is pretty simple on figuring out the benefits, but people mess up the inputs and overestimate the "savings".

[toby]

The Mommy buyer was paying rent in the neighborhood of 4,000 a month?

WHAT?!?!?!

I think Mommy is a figment of a RE Agents imagination.

Pete,

In the future, please voir dire the people you use in your post a bit more.

[Tourist]

There are incredible buys out there! I live in Miami and just bought a 1000 sq ft condo, 2mile bike ride to the beach, granite, new appliances...needs a paint job...40K! Time to jump in.

[TakeFive]

Milla wrote:

“sorry for not leaving this sooner. there seems to be lots of false impressions of the programs i used to buy my house. here are the deets:”
As Milla previously stated, she went in as Low Income. Income range is 54,576 to 62,762. Lets use the midpoint of 58,660 as Milla’s income. Assume state and federal taxes, SS, medicare, unemployment lop off 30% of Milla’s check, netting 41,062 annual. Sale price was 410K – roughly 10X income. I don’t know about the rest of you, but my heart skips a beat when we start talking orders of magnitude.

Sure, some will quibble that gross income should be the multiplier, or what about the tax deduction. Ok assume she came in with 10% down and uses the gross income figure. Still over 6X. Even the loan calculator at the link Milla posted shows this income with zero debt only qualifies for a 250k to 264k loan.

Am I using the wrong numbers here, or is something just not right?

[LA Renter]

Congratulations to the homeowners but I think Mila will be in a world of hurt - shortly.

I make roughly 125k a year and my wife is a MD in residency pulling in 40k. Even with our 10% down payment (need to save cash for emergencies) we would be stretching ourselves thin for a 600k house. That 540k mortgage would be $4,200 a month with insurance and taxes on a 30 yr fixed at 6.5%. I would survive, but not the way I want to live. Throw an additional car payment for needing to cars and we would be barely making it with a combined income of roughly $175k. I just find it hard to believe that people can really believe that they are going to make it with that little annual income and that high of a mortgage... the numbers just don't add up for them. Now is the time to build up that down payment so that you can survive the monthly mortgage.

[I Am Not Dead, So This Must Be LA]

To all the homebuyers...CONGRATULATIONS!!

To the naysayers: It sounds like nobody should EVER purchase anything since it will ALL lose value! Cars, electronics, etc. The point has been referenced by many posters and noone has yet to address it: SINCE WHEN IS A HOME AN INVESTMENT???? Who CARES what YOUR percieved value is. The real value belongs to the homeowner. Just as there are people out there with different tastes in color schemes, layouts, decor, etc. the homebuyers are not trying to please YOU, they are doing what they feel the have the ability to do and what is best to THEIR situation. So you assume that it will lose value, and it probably will, but the whole game of trying to guess by how much is pretty funny. You even have one poster who ADMITS that HE/SHE wants values to come down by another 50%, but it seems to be based on what they desire as opposed to real probability.

Obviously most posters on this blog want to live in "clean", "safe" areas with "good schools" and so on and so on. Doesn't everybody? But most of us will probably never be able to afford it since, even with prices coming down, it is still up to "Supply and Demand". Most of us want to live in the nice areas. (ie, Westside, near the beach, Miracle Mile)...only some will be able to do so. The rest of us will have to look at other options and figure out how much we are willing to compromise. But all this second-guessing, and vitriolic puffery about what they should do based on your ideas and opinions and calling them "dumb" and "idiotic" is pretty classless. You want to question their decision? Great. You have certain misgivings? Granted. These people have been nice enough to share their experiences with us, and agree or not, there is no need to get personal with your arguments.

One more thing.....while we all gang up on the real estate "professionals" and anyone else associated with RE who dare talk up the market as being dishonest and "unenlightend" (to put it mildly), are we not doing the same thing by talking the market DOWN? Yes, the market is coming down, but screaming and yelling time and time again that "prices still have to come down xx% before ANYONE should buy" is basically doing the same thing, only at the other end of the spectrum. (BTW I am not in the industry, as my earlier posts should attest).

[GDC]

These buyers are doing a good thing - they are setting MUCH lower comps in their areas. Trust me, their neighbors will know soon enough what the sale price was. Maybe, just maybe, sellers will adjust their expections in the next couple of years.

If there are no sales or very few sales, the sellers will still live in their deluded world and hold out for sky high prices. Thanks guys for setting lower comps.

[LovingMyRent]

I agree with the post above regarding quality of life. I rent a 2+2 condo 6 blocks from the beach in Santa Monica north of wilshire, for $2400 per month (rent controlled), which is probably less than Milla's all-in monthly payment (mortgage, taxes, insurance) for her same-sq ft house in Highland Park. Now granted, she has that view and the "pride of ownership," but I have a safe neighborhood, and a 5 minute walk to the beach, montana avenue, 3rd street and my job. And I don't have to worry about the cost of repairs or maintenance. I would like to hear someone try to convince me that buying the house in Highland Park is the better choice!

[Step1, drink koolaid, Step2 Bank drinks ur Milkshake]

There was the landlord who kept most of my deposit...Then the one that wanted me to pay for the water bill...The one who arrived from out of state and expected me to let her in my house...There was the "little dusty house" that leaked air...the house with the wrongly installed septic tank and broken water lines. Of course, I couldn't remodel, paint or have a pet at any of these places....

Posted by: Inland Empire |

Wow. Is it me? But these complaints about renting by inland valley housewives truely sound downright quaint next to hellish tales these f-ed borrowers will be singing 'round the campfire come this time next year.

[peter m]

" I rent a 2+2 condo 6 blocks from the beach in Santa Monica north of wilshire, for $2400 per month ... safe neighborhood, and a 5 minute walk to the beach, montana avenue, 3rd street and my job. . I would like to hear someone try to convince me that buying the house in Highland Park is the better choice! "

U are in that .00001 % of La county which is actully a quality decent hood. This coming from a really hard-bitten Re poster who has been into every damm hellhole hood in 3 Scal counties and also into every westside wealthy enclave.. I have been blasting LA County as a mostly third- world overpriced RE craphole for close to 3 year on bens bubble blog but there are actually a miniscule few decent walkable areas stiil left in LA of which SM beachside north of wilshire is one. Very walkable even at dark.
I also like dwtn Pasadena : dwtn Glendale not to shabby: SM along main st OK.: Beachside Manhatten B. very walkable: Grove area,3rd street in fairfax district OK.

I don't imagine highland park area would be very walkable after dark . Tatamount to living in a Celtic hilltop enclosure with barbarians roaming in the dark dank lower boglands.

[campechano]

News from San Diego: Last week we saw a house in a really nice area of town. Single family detached listed for 549K. Comps came in at 600-615k and a bank owned one next door closed a week earlier at 590k (599 asking price). The realtor insisted I should out bid the others by offering well above asking price without exceeding 600K. I told him I refuse to do that in these circumstances. It's very difficult for me to comprehend how people out there would be willing to go above asking price in 2008. Are they insane? Was it all just hype to find buyers for this short-sale...I'd like to know whether it sells or not and by how much. To the buyers: I say congrats. Everybody has their reasons, I just DONT HAVE THE STOMACH to get into the market right now.

[NoWayinLA]

If it takes a zero-interest loan of $50k to get into a house, then the amount the house is overvalued starts at $50k, and starts going down from there based on all the fixes it needs.

LA Renter's story is a lot like mine was... making just a shade under $100k, looking for a house in backwater Fontucky, I figured I could live the most basic lifestyle I was willing to accept with about $250k worth of house. And there weren't any. In Fon-effing-tucky. How much lower can I set my expectations for a starter home? How many people do you think make six figures there??

If some of y'all are overpaying for these houses and paying less in PITI than you were in rent, that just tells me there's a rent bubble in LA, too. Renting and saving isn't much of an option, because you aren't saving much... and the Fed is wiping out your interest rates.

That's what makes the whole rent/own in LA argument sound so silly. It's like the famous argument over the giant douche versus the turd sandwich. The housing bubble is a regional issue. The only smart response is to get out of the region, if at all possible.

[somedude]

"Sure, some will quibble that gross income should be the multiplier, or what about the tax deduction. Ok assume she came in with 10% down and uses the gross income figure. Still over 6X. Even the loan calculator at the link Milla posted shows this income with zero debt only qualifies for a 250k to 264k loan."

I'm with those that don't get it. If these programs have such strict guidelines, it seems to me that if you qualify for the program you don't qualify for such a big loan.

Obvisoulsy she got it, but still the program seems screwed up.

[Lisa]

This post is really bringing out the dark side in the commenters -- eek. Lots of class issues underfoot as well, it seems. I've lived in Miracle Mile for five years, Silver Lake for four, in my personal experience Silver Lake is much safer than Miracle Mile (i.e. no strangers have pulled guns on me or chased me after dark in Silver Lake which happened to me in Miracle Mile). Highland Park -- not perfect but not exactly a war zone either and it's not exactly polite to refer to its inhabitants as "barbarians."

I think the rhetoric needs to be toned down a bit -- aren't we all neighbors who have the same goal at heart -- to all be able to own an affordable home in a comfortable neighborhood?