Temporary rental may be a help to home-seekers

December 09, 1990|By Denise Haddix-Niemiec | Denise Haddix-Niemiec,Los Angeles Daily News

LOS ANGELES -- Michelle and Sako Seukunian are betting that California home prices will rise again.

The Seukunians were renters for six years before the current downturn in prices allowed them to buy a new $125,900 town home in the Los Angeles suburb of Sepulveda. It was a purchase they wouldn't have been able to make six months ago.

They would still be in precarious financial shape if either becomes unemployed. And they don't expect the property to increase in value over the next 18 to 24 months, she said.

"Overall we're losing," said Michelle Seukunian. But the couple is hoping that in about three years, things will change and they'll be able to sell at a profit.

All over Southern California, people like the Seukunians are facing a similar decision: Buy now, while the prices are relatively low, or keep renting and put away the savings in an interest-bearing instrument?

There is no easy answer. Owning a house provides tax advantages and a way to accumulate equity. But it also means high mortgage payments, high maintenance and, given today's sluggish market, the prospect that real estate values will keep dropping.

Renting offers no equity, few tax advantages and relatively little privacy. But it also provides a smaller monthly payment than a mortgage, no maintenance costs and the flexibility to move -- often with only 30 days' notice. In some cases, renting also may make financial sense.

Up until recently, few investments could match a house, especially with real estate values in Los Angeles rising by 81 percent since 1983.

Take 1988's $179,423 median-priced home in Los Angeles whose value rose by 20.1 percent last year alone, a $36,049 gain. If your down payment was $35,885, the gross return was 99.5 percent.

But equity in a home is not the guaranteed profit center it once was.

Home prices already have fallen this year because of sluggish sales -- mostly in homes priced $250,000 and above. Experts say the Los Angeles median home price this year is expected to be down about 1 percent from a year ago -- the first decline since the 1982-1983 period when the median price dropped 0.6 percent.

Homeowners who bought in the past two years and have to sell are starting to take losses.

Erin and Robert Atkisson cut the price on their Lancaster home -- in the high desert north of Los Angeles -- to $139,900 from $172,000 and have listed the home with a discount brokerage to keep the price low. Still, there are no offers.

Ms. Atkisson said they paid $129,000 for a new home in the Sandcastle project in 1988 and have invested about $20,000 in home improvements.

Does it still make sense to buy? Analysts say yes if an investment is not your primary concern.

Though prices in the early 1990s aren't likely to go up at the rates they did in the late 1980s, they will tend to rise above the rate of inflation, said John Savacool, senior vice president at WEFA Group, a research firm in Bala Cynwyd, Pa.

In the Los Angeles area, home prices generally have been about 2 to 3 percent above the average inflation rate of 5 percent.

"There have been only two years in the past 15 years when there has been a slight decline in the median value of houses [in Los Angeles]," said James Gary, president of James R. Gary & Co. Ltd. in the Los Angeles suburb of Woodland Hills.

Owning a home can be a hedge against inflation, since mortgage payments stay the same over time, while rents in Los Angeles are expected to rise about 5 percent a year, according to Dan Levitan, director of real estate consulting for Price Waterhouse in Los Angeles.

Since 1980, the median rent for a unit in Los Angeles has risen 85 percent to $625.84, according to the Los Angeles City Department of Rent Stabilization.

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