Divide Between Homeowners and Renters Growing

For homeowners in Southern California, the housing recovery has been pretty kind. For renters, not so much.

New figures highlight the growing gap between owners and renters in the Southland: Many homeowners are capitalizing on low interest rates to push down their monthly payment while renters are shelling out larger shares of their income to stay afloat.

And the ranks of renters are growing.

The data, released Thursday by the Census Bureau, show that the median monthly mortgage payment for a homeowner in metro Los Angeles — L.A. and Orange counties — was $2,241 last year. Adjusted for inflation, that figure has fallen 17.7% since 2007. And the share of homeowners spending at least 35% of their income on housing — a common barometer for affordability — has fallen sharply in the last few years to 30%.

Meanwhile, median rent in the area has outpaced inflation by 2.3% since 2007, and the share of renters who spend 35% or more of their income on housing has climbed to just above half. That large burden is partly a function of higher prices for apartments, housing watchers say, and partly of incomes that have been stagnant for years.

“This trend has been going on for some time. Generally it’s an issue of income,” said Larry Gross, executive director of the tenants group the Coalition for Economic Survival. “Renters are a little younger or very low income. They’re earning less, and their rent burden is increasing.”

By some measures, metro L.A. is the nation’s least-affordable rental market. A study issued last month by UCLA made that claim, noting that although rents and home prices in metro L.A. nearly match costlier markets such as San Francisco and New York, typical incomes in metro L.A. are significantly lower.

That finding was reinforced by Thursday’s census numbers, which found median household income in metro Los Angeles last year was $58,869, 10.5% less than metro New York and 26% less than in the Bay Area. And although incomes in metro L.A. grew 1.4% last year, they’re still down 10% from 2007 when adjusted for inflation.

“There has been a [long-term] problem of both decreasing real income and increasing real rent,” the study’s co-author, UCLA urban planning professor Paul Ong, wrote in an e-mail.

Adding to the challenge: more demand for rental units, including from former homeowners who lost their properties to foreclosure. Thanks in part to the mortgage crisis and in part to young adults putting off buying, the region’s homeownership rate has fallen from 52% in 2007 to 48% today, and the number of owner-occupied homes has dropped by 115,000.

Some of those houses have been bought by investors and converted to rental units. But construction of apartments, Ong noted, hasn’t kept up with the growing demand

There has been “low and uneven construction of rental units. Too few at affordable levels,” he wrote. The “standard economic dynamic of increasing demand and inelastic supply.”

Those who managed to own a home through the downturn, though, have fared well because of several years of near-record-low interest rates. Since 2009, about 28 million mortgages have been refinanced into lower rates, said Len Kiefer, deputy chief economist at lending giant Freddie Mac.

A borrower who took out a $400,000 loan in 2007 with 6% interest could save more than $700 a month by refinancing to 4%, according to mortgage website HSH.com.

“We’ve had a couple of years of almost unprecedented low interest rates now,” Kiefer said. “Millions and millions of households have locked in those rates and lowered their monthly payments.”

In addition, home values have climbed 40% in the last two years, nearly back to pre-crash levels in parts of the Southland, and many homeowners who weathered the downturn are now in relatively healthy financial shape, he said.

For many renters, the prospect of just holding on to what they’ve got can be daunting. But that’s what Maritza Guzman is hoping to do.

Guzman has watched over the last year as the East Hollywood apartment building where she and her mother have lived for 22 years has emptied out. New owners are planning a major overhaul, she said, and offering longtime tenants — many in rent-stabilized units — cash to leave. All but four apartments are now vacant, and Guzman said she thought hard about taking the $30,000 she and her mom were offered. But she looked around, saw nothing on the market even close to the less than $900 a month they pay now, and realized that the money wouldn’t last more than a couple of years.

“It just doesn’t make sense,” she said.

And, although she would rather own than rent, even if she combined that $30,000 check with her mother’s Social Security and income from her job as a preschool teacher and three other part-time gigs, Guzman said, there’s no way they could afford to buy a house right now.

“In L.A.?” she said. “That’s just not going to happen.”

So Guzman is hoping to reach an agreement with her landlord for an apartment in the building after renovations are complete, to hold on as a renter as long as she can.

tim.Logan@latimes.com

Twitter: @bytimlogan

Rent or Buy?

It may be the biggest financial decision most of us ever make: Buy a house? Or keep renting?

For a while in the wake of the housing crash, the answer was pretty clear: If you could swing it, buy now.

But things have changed rapidly. Prices in Southern California have climbed by a third in two years. The post-crash bargain bin has been picked clean. Yet doubts linger about the health of the housing recovery, and the broader economy.

That has a lot of would-be home buyers eyeing the market more carefully. They’re weighing the new higher prices against interest rates still near record lows, deciding between the flexibility of renting and the potential long-term payoff of homeownership. And many are looking at a job market that still feels a little wobbly and wondering whether now is the right time to take the plunge.

All this is one reason why home sales in the Southland fell 10.4% through the first half of the year, according to figures from CoreLogic DataQuick. Even as buyers are shaking off the effects of the recession, they’re confronting prices that are no longer very recessionary at all.

“People still have this idea that houses are still more affordable, which, compared with their highest points before the crash, they are,” said Natalie Lohrenz, director of counseling at the Consumer Credit Counseling Service of Orange County. “But they’re getting out of reach again for a lot of our typical clientele, which is middle-income people.”

Still, despite the dents of the housing crash and the new higher prices, survey after survey of renters suggest that most do plan to buy. The question is when.

In some ways, it boils down to simple math, the kind Jed Kolko does all the time.

The chief economist at Trulia, Kolko regularly produces a Rent. vs. Buy Index for 100 markets across the U.S., including L.A.

Crunching home prices, rents on comparable apartments, interest rates, tax deductions and other factors, he tries to determine the spread between the cost of buying and the cost of renting.

The last time he did, in February, he projected that buying would cost 24% less than renting for the typical household in Los Angeles County over seven years. In Orange County, it would cost 21% less. But, he notes, prices have been climbing faster than rents, and the next time he crunches the numbers, he expects those figures will be smaller.

“The gap [between buying and renting] will continue to narrow,” he said. “It’s already been narrowing.”

As it does, would-be buyers will have even more to weigh, like location.

Southern California includes many housing markets, from foreclosure belts like Lancaster and San Bernardino — where sale prices remain relatively cheap compared with rent — to high-end areas like San Marino and Newport Beach where seven-figure houses have bounced back from the crash but rents remain relatively modest.

“Prices are real high in some places, compared to rent, and in some places they’re real low,” said Gary Smith, a Pomona College professor who’s written a book about the economics of homeownership. “It’s hard to make a universal statement like, ‘Everyone in Southern California should buy a home.'”

Some of this dynamic, too, lies in what’s getting built where.

Parts of Southern California are seeing something of a rental boom. In places like downtown Los Angeles and North Hollywood, swanky new apartment buildings are going up left and right, but there’s little supply on the for-sale condo market.

That’s a big change from 10 years ago, said Enrique Wong, regional manager in Marcus and Millichap’s Los Angeles office. Back then, multi-family development was about half for-sale, half for-rent. Now it’s overwhelmingly rental.

“There’s a lot of risk inherent in developing condos,” Wong said. “A lot of developers struggled through the downturn of 2008 and 2009 and they’re a little more careful with regards to putting up new condo developments.”

That’s driving up the cost of what condos there are, while all the apartment competition keeps a bit of a lid on rental prices. Still, there’s lots of demand for nicer rentals — even at $2,000 or more a month for a one-bedroom — from young people with good jobs and no particular urgency to buy.

Travis Ruff sees them often. A real estate agent with Coldwell Banker, Ruff sells a lot of condos in Studio City and North Hollywood and owns six rental properties himself. Whereas some clients come in set on buying, he knows lots of other people for whom it’s just not on the table.

“It’s just a different mind-set,” Ruff said. “They don’t want to own. They don’t want the hassle. But they’re paying $3,000 a month for an apartment and they could easily buy a condo for that.”

Indeed, even the most likely first-time buyers are holding off.

A recent study by lending giant Fannie Mae found that the homeownership rate among “prime” first-time buyers — married couples in their early 30s with a college degree, a child and household income of at least $95,000 — fell by more than eight percentage points from 2006 to 2012. When those people move, only a bit more than half now are buying a house, the study found, compared with three-quarters of them six years prior. This is despite homes being relatively cheap for some of those years.

There are financial reasons for this — tight lending requirements, high student debt, an unsettled job market — said Pat Simmons, director of strategic planning in Fannie Mae’s economic research group. But some of it, too, stems from a changed perspective after the housing crash. The idea that a house is always a good investment got thrown out the window.

“Baby boomers saw a decline of nearly $1 trillion in home value during the bust,” Simmons said. “Younger folks saw that experience among their parents. I think that’s going to leave an impression.”

That may be a healthy thing, said Lohrenz, if it keeps people from stretching too far to buy a house on the assumption that its value will catch up. Many would-be buyers figure they can make the mortgage payment, but they don’t necessarily budget for all the other stuff — taxes, condo fees, maintenance costs — that go along with homeownership, not to mention the transaction costs of buying and selling a house if you plan to live there just a few years.

“The biggest challenge for us is helping people be really realistic,” she said. “A big part of the housing crisis was people not knowing what they were getting into.”

But even for those who are well-prepared, the decision to jump in can be daunting.

Cedric Shen and his wife have been “aggressively looking” for a house to buy for about three months, but they’ve yet to put in an offer. They’ve looked all over, from Eagle Rock to Redondo Beach, but haven’t found anything they really like at a price that seems right.

“We’re fully qualified for a loan. We’ve got good credit and no debt. You’d think it would be easy,” he said. “But you’ve got inventory issues, and you’ve got prices that seem ridiculous.”

They could stay in the one-bedroom apartment they rent in Marina del Rey, at least for a while. But Shen missed the chance to buy low a couple of years ago — he was paying down law school debt and his wife was getting an MBA — and now he’s worried that prices and interest rates will climb higher. On the flip side, though, Shen’s a self-employed attorney, and worries a bit about what might happen if business sags or the housing market starts falling.

“We’re anxious to do it,” he said. “There’s just so many factors involved.”

 Article Courtest of http://www.latimes.com/business/realestate/la-fi-rent-or-buy-20140831-story.html#page=1