As I check the weather around the country, it is clear to me why so many people call Southern California home. From Atlanta to Boston, Dallas to Detroit, below freezing temperatures are what most of the country woke up to this fine Saturday morning. As I was wondering where I’d go surfing this morning, most Americans weren’t even thinking of leaving the house. No wonder people visit and vow to return – with a moving van. In fact, my own father left Michigan in the 60’s and has never gone back. Sure, with news of unemployment, foreclosures, and the ever present traffic, it’s sometimes easy to forget the weather and beautiful beaches. However, as many of you already know, in the long run, the beach remains a very attractive place to buy a home. So as many football fans from Oregon, Ohio, Alabama, and Texas return home from the Rose Bowl after a week of perfect weather, I’m sure many are planning their moves back to Southern California. Sure, I could go into detailed statistics of why to buy a house here, but let’s look at some of the basic and simple facts.
- Interest rates are still historically low. Assuming you buy a house worth $800k, with 20% down, a 30 year loan on $640k at 5.25% will cost you $3,534/month. If rates were to increase to 6.25%, merely 1 point, that same loan will cost $3,941/month, or roughly $70k in loan value. One thing is certain, I don’t think interest rates can remain this low for much longer.
- Tax incentives – the US government will actually give you money to buy a home. Now there are restrictions on who qualifies, but first time home buyers and those that have lived in their previous home 5 of the last 8 years can receive $8k or $6.5k, respectively, if you buy a home by April 30th.
- Home prices are discounted. With prices in many areas of Southern California peaking in 2006 (median price was $585k in 2006 and was $340k in 2008), current price levels represent a significant discount. The South Bay has remained somewhat insulated from huge price drops, but it still remains a buyers market.Finally, look around.
- The lowest priced homes have seen bidding wars – yes, bidding wars. I had clients submit offers on two homes in Manhattan Beach last year that both had over 20 offers – in less than one week! What does this mean? People simply want to live near the beach. Low priced homes in the South Bay are in high demand, and will continue to as long as people want to live near the beach.
So what does this mean for the next year? I stand by this logic – if you like the house, want to live in it for the next 5 years or more, and can afford the payments, you can’t go wrong buying a house in the South Bay.