I remember sometime in 2010 and friends of mine didn't want to buy since they felt the prices hadn't hit bottom. My response was for them to buy with prices on the way down rather than on the way up. Once everyone realizes that we have hit bottom it's too late, it means prices are climbing up again and you will be involved in a buying frenzy and overbidding. Prices have to be on the upswing for you to notice that we've already hit bottom. I know that my friends today wish they had bought back in 2010 rather than deal with current prices that are up almost 50% since 2009.
If you buy on the way down, you aren't competing with anyone. Today there was this article illustrating how bad it is. One lady just paid $899,000 for a property listed for $699,000 in Oakland - $200,000 over asking. I currently have a number of clients putting in offer after offer only to be out bid. These clients are first time buyers without the ability to pay $200,000 over asking, nor should they. I'm not so sure that lady who paid $200,000 over asking won't be sorry in a year or two seeing as the San Francisco area is supposedly headed for a downturn. (article here) .
But back to Los Angeles. It has been a very tight market for a long time due to limited inventory, foreign borrowers and all cash investors that together, have driven prices up. I started wondering when our market was going to finally normalize and was a correction around the corner? But according to the UCLA Anderson Forecast, Los Angeles is supposedly in for another 3-4 years and 35% price appreciation before there is any sort of correction. Add to that very low interest rates, that should stay low for a while longer, and I still seems like a good time to buy.
To soften your monthly payment consider buying a 2-4 unit property. A 2-4 unit comes in all different shapes and sizes. Sometimes it is a single family home with another smaller house behind it. Sometimes it is a single family home with 2 or 3 additional units over a garage. Sometimes it is one building with all the units inside...and the variations go on and on.
When you buy a 2-4 unit you are limiting your monthly cash outlay. You will collect rents that will help reduce what you have to pay every month. So if your mortgage is $5000 a month and the rents are $3000 then your portion is only $2000!
When you buy a 2-4 unit property you qualify for a much larger mortgage than you do for a single family home or a condo. When prices continue to rise like they have, it forces a lot of buyers into less desirable neighborhoods or into a condo they really don't want. The way to live in a better neighborhood is to qualify for a larger mortgage by buying 2-4 units. When getting a loan the lender will add 75% of the rents to your income which enables you to qualify for a larger mortgage, which usually means buying in a better neighborhood.
And... if you lose your job or suffer some other unforeseen challenging life event...when you own a 2-4 unit property you can move out and rent your unit so now all of the rents should pay for most if not all of your mortgage, taking pressure off of you so you can find a new job.
So...I am telling my clients to stay the course, be patient and buy units. Regardless of whether the value declines at some point, they will be on a nice low fixed rate and have tenants paying a good portion of the monthly mortgage for them. Then, in 30 years their building will give them a nice chunk of change every month to help support them as they age.