Simon says: "Housing Affordability, What Can We Do About It?"

Simon says: "Housing Affordability, What Can We Do About It?"

Almost every weekend of the year I do an open house. Inevitably, during one of these three hour windows of time, someone will come in and we'll begin discussing the current real estate market. Sometimes this person will be incredibly discouraged by the great expense it takes to own a home on the Westside. And often enough they will make a comment like "well, it's great for you real estate agents, you're making more money!" Then I stop and tell them that it's not great for me. I don't like seeing more and more people priced out of the market. It's disappointing when a young family of three, both parents working professionals, can't afford a two bedroom house or condo in a decent neighborhood. There are many great things about owning your own place, and once you have children it is even more important.

Some California economists are expecting a second wave of an increase in property values along the California coast. This will supposedly happen as the baby boomer generation begins to retire over the next five to ten years. This would further reduce the affordability of housing. I really have a lot of love for the baby boomers-- they brought us civil rights and Bob Dylan. However, vibrant economies don't happen in geographic locations dominated by retirees where young families can't afford to be. I live and sell real estate in Los Angeles because it's vibrant, active and exciting.

The current housing affordability index was released this week by the California Association of Realtors. The current affordability index statewide is at just 25%. This means just one in four households of first-time buyers can afford to own by their own means. Many people in this situation end up receiving outside help from parents or relatives, making this figure probably closer to 35% of first time buyers are able to afford a home. The figure for Los Angeles County is at 19% of households can afford a home at the median price of $500,000. Considering the median price for a house in Santa Monica is $1,500,000 and a condo is $805,000, affordability in our fine little liberal community is closer to 10%.

What can we do? One thing we could do is encourage city hall to relax condo conversion laws and make it easier to build in Santa Monica. The main law of commerce is supply and demand. If we had more supply in relation to demand, properties would be more affordable. If you look around Santa Monica, when a building is taken down, say a ten unit apartment building, the developers end up building four to five townhouses. The city doesn't allow condo conversions to protect tenants. So, instead of allowing tenants the opportunity to afford the joy of home ownership, the system encourages developers to tear-down the old buildings. They move everyone out and rebuild a less efficient property that caters to a significantly smaller number of households. The city doesn't allow you to build an eight to ten unit building of single level residences. This sort of design is more efficient. The city should also allow new three to five story properties instead of just two-story ones. Let's have building restrictions that encourage more for sale housing to be built, not less.

I agree that development needs to have restrictions and the beautiful aesthetic of our neighborhoods needs to be preserved. However, let's not continue to confuse the true intent of socially liberal values. Let's make it easier for people to afford to live here, not harder. What do I know, I'm just a real estate agent?

Simon Salloom is a REALTOR at Coldwell Banker
You can comment on this article at www.santamonicasimon.com

Simon says: " Sub-prime lender meltdown, foreclosures everywhere-- what's really happening here on the Westside?"

Several evenings ago I walked past a group of men near a local coffee shop at 9th Street and Wilshire in Santa Monica, talking excitedly about the sub-prime mortgage industry "meltdown." One of the gentlemen was sure it meant a significant increase in foreclosures. And another man said that he was looking forward to finding some great deals on houses he was going to purchase. The way they were talking I began to get the impression that Los Angeles was about to be littered with homeowners down on their luck, losing their homes to the bank.

All of the geniuses who had sat out the "ridiculous" rise in property values over the past six years, were about to be finally proven correct. Dozens of presumably well-heeled yuppies were about to find themselves in the bread line with the other homeless in Palisades Park. Disillusioned men and women would be looking out over the sunset, somberly enjoying their meals courtesy of the local food bank. Their eyes gazing out over the glittering Pacific Ocean towards Malibu, dreaming of the day they could get their home back.

Well, that's not going to happen and here's why. Currently, only about .5% of sub-prime borrowers are foreclosing on their homes nationwide, while about 13% are late on payments. That is just one in 200 sub-prime homeowners who are actually in foreclosure. The fact that more than one in ten is late on their payments is testimony to the reason why they were sub-prime borrowers in the first place. While many of these people aren't too good at balancing their checkbooks, there are many things a homeowner can do to resist foreclosing.

The number of homeowners who purchased properties on the Westside of Los Angeles with sub-prime mortgages is estimated to be under 5%. My personal mortgage broker has been in business for the past 15 years. He has only done one loan with New Century, the largest sub-prime lender to close it's doors.

Our housing inventory in Santa Monica is very low. Only 197 houses and condos are currently for sale. Let's say there are 15,000 homeowner residences in Santa Monica and 5% of them are owned by sub-prime borrowers. If they were all in default at the national rate of .5%, then we would have about four new homes for sale. If that number tripled, we would have about twelve new homes for sale. We are certainly not entering a time of crisis.

Real estate values like mortgage defaults is a geographic issue. Los Angeles has a foreclosure rate of only .1% above the nationwide average. This April, Los Angeles had the lowest foreclosure rate of the top five metropolitan areas in the nation, only 1 out of every 997 households is in foreclosure. In Florida this March, the rate was 1 out of every 278 households.

There are things that can kill real estate values: war, natural disasters, economic calamity and the concurrent closing of law firms, hospitals and biotechnology and entertainment industry companies. However, for now, a couple dozen sub-prime lenders that feed on the financially disenfranchised is not going to have any effect on our local real estate market.

Simon Salloom is a local REALTOR with Coldwell Banker Residential Brokerage
To comment on this article please go to: www.santamonicasimon.com