I was watching one of my guilty pleasure shows the other day - TLC's "Deals on the Bus". This is where they schlep a group of would-be buyers around in depressed-price areas (Vegas, Stockton, Dallas) and show them a bunch of homes over the course of a few hours.
The show generally makes me laugh, as the voice over guy intones about how a house "was priced in 2006 at $425,000, now being offered at the bargain basement price of $275,000 ...", which I complete by saying "and it should be $150,000!"
The show was set in Vegas the other day, and one of the houses, a fairly basic 3BR/2BA stucco job in a tract development, was listed at $97,000. It needed some work, so let's say the all-in price would be $125k. That, to me, is the definition of an "entry-level" home. Of course, we can make all the arguments about how renting should make sense for a large % of the population, but if you're a working, lower-middle class family making $30-40k/year and want your slice of the American Dream, a house priced in the low $100s could be justified.
Which got me to thinking, how would "entry level" be defined in WeHo? And should an area like WeHo have "entry-level" housing?
I'll take a stab at it ... and I'm generalizing for all neighborhoods here ...
The per-capita income for WeHo (2000 census, but close enough) was approx $38k. So let's take a two-earner household making double that, or approx $75k/year.
With the current lending environment, that income would support a PITI monthly number of approx $2,200. I'm assuming a 35% DTI ratio.
With rates where they are, and assuming 10% down, the purchase price would need to be $350k or less.
Current number of properties on the market in WeHo for less than $350k? Twelve
The largest? A 1BR/1BA, 954 sq ft condo near the Beverly Center, a short sale at $300k.
All the listings are condos, either studios or 1BRs.
Doesn't exactly scream "entry-level", does it?
11 comments:
i thought the same thing when watching the "on the bus" show! the idea that people are getting "whopping savings" with the current price, rather than that the previous sales price was ridiculously inflated.
as a renter who has been patiently saving and waiting in the wings until the price of a starter home becomes realistic, i appreciate the info on your blog so much. prices are finally beginning to drop - it's starting to get interesting!!
Within the city limits of West Hollywood, an entry level property would have to be a condo. Houses are relatively scarce and generally more expensive than condos (except, of course, for the extravagant penthouse-type places). And I suppose that in a city awash in condos, "entry level" would mean one bedroom condos. But I agree, it is absurd that there are only a handful that fall within your (I think quite liberal) standards of affordability. (I'm more inclined to use a 28% DTI standard for affordability).
The downward spiral is agonizingly slow. It has unquestionably begun but we are still well short of the point of capitulation by the folks who bought their places NOT as homes or even as cash-flow rentals but as capital gains investments. My guess is that the wave of recasting Option ARMs starting right now should apply some serious downward pressure. But there is another time delay on that too; those properties won't make their way through the default/foreclosure/REO cycle for quite a while. I'll be surprised if we see the fallout from that until the end of this year at the earliest.
wow. this blog is pretty dull. spice it up boss.
I think you may be undershooting the media income a bit, but even so if it's closer to $45K, I'd put the price of a starter home for a couple making $90K -- $100K between them, or around $350K to $400K. Back in 1999, you could purchase a nice, two bedroom condo in WeHo for round $220K (my definition of a WeHo starter home)...what would be a historically reasonable price for that same condo today, based on a 4% inflation rate?
Re: Anonymous 3/18 at 1:31 am. This blog is a welcome addition to the RE information base. Those who have information/views just need to start sharing more like they do at the SM Distress Monitor. But I've noticed that in West Hollywood, in nearby Beverly Hills, things are kept quite close to the vest/close to the chest. Major, major denial in the area--it can't happen here, it's WEHO, it's BH. Dig below the surface and you'll find some very high anxiety.
Back in 1999, you could purchase a nice, two bedroom condo in WeHo for round $220K (my definition of a WeHo starter home)...what would be a historically reasonable price for that same condo today, based on a 4% inflation rate?
Magically, a 4-5% inflation rate off of the 1999 numbers you mention for condos would put them at around $350k. Commenters on various blogs seem to be using the 1999 to 2001 timeframe as a "baseline" when talking about reversion to the mean, and I tend to agree. I'm probably a little less bearish than most on these blogs, but in looking at the Case-Shiller stats, its easy to make a case for the true bubble starting anywhere in that timeframe. This will be a long process of unwinding ...
". But I've noticed that in West Hollywood, in nearby Beverly Hills, things are kept quite close to the vest/close to the chest. Major, major denial in the area--it can't happen here, it's WEHO, it's BH. Dig below the surface and you'll find some very high anxiety."
Very true. On the surface, realtors, sellers, and even some buyers seem to think this area is immune. If they can just hold on things will be back to "normal". But the non-public anxiety is palpable. Just talk to anyone trying to sell or lease a house up in the bird streets. :-)
People have short memories! I bought my house in Weho in '93 during the last slump. I remember the estate properties in Beverly Hills posting enormous price drops--much worse in terms of percentage than the drops in the more modest areas.
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