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Buying Power

Posted by admin on May 15, 2012
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The Following Article is from the Winter 2010 Newsletter

We all know people who have fallen on hard times due to the economy, but there is a bright side to some who have been saving for years to buy their dream home… and are still gainfully employed.

For a young family, living in an area with a good school district is of the utmost importance.  Private schools’ extortionary fees, and the declining quality of the majority of public schools, make quality public schools the Holy Grail for young families.  I know firsthand, as I have two children that will be starting elementary school in the next few years, that there are only a handful of decent public schools on the Westside.  Most of these are in areas where real estate prices are out of reach for most young families… at least until the arrival of reduced prices and rock bottom interest rates.

Over the past decade, I have seen many families make the move over the hill – to the “Valley” – to the land of more affordable housing and good school districts.  Not that anything is wrong with living in Calabasas, renowned for its excellent schools, but most of the Westsiders  I know would like to remain on the Westside.  This year I’m seeing more first time buyers and families that have outgrown their “starter” homes looking to buy new homes in good Westside school districts (i.e. Santa Monica, Brentwood, Westwood, and Beverly Hills.)

A perfect example of this would be a family that I am currently working with.  They own a 2000 square foot house in the very well regarded Westwood Charter School District, they have 2 children and a dog, and they are ready to move up to a “grown-up house” with a big kitchen and luxurious master and swimming pool.  They always thought that when they made this move it would be to Woodland Hills or Calabasas.  The house that they want in the area where they currently live would have cost $2.4 million dollars just a few years ago and interest rates were at about 6%.  If they would have put down the $600,000 they had in savings and house equity, they would be carrying a $1.8M mortgage with payments of almost $11,000 on a fully amortized loan.

Today, they can buy that house for 2.1M and have a mortgage interest rate of 5%.  The will have lost some equity in the house they are selling, so they now only have $500k to put down.  With the same fully amortized loan, their payments are now only $8,500 per month, which is well in their budget.  All of a sudden they can afford their dream home on the Westside.  Needless to say, they are currently in escrow to buy their dream home in their own neighborhood, and could possibly be the happiest people in the Los Angeles.

Likewise, the couple buying the “starter” from this upward moving family, never thought they would be buying a house…they were saving for a condo!

It’s great to see that there is an upside to our miserable economy.  Rates should stay low next year, so I’m sure we’ll see more families moving into the Westside neighborhoods that they never expected to be able to afford.

Click Here to download the entire Winter 2010 Newsletter

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