First-time buyers benefit in recession Lower home prices, interest rates help

January 03, 1993|By Ed Van Herik | Ed Van Herik,Los Angeles Daily News

LOS ANGELES -- After more than 20 years as a renter, John Boal can thank the stubborn California recession for a roof of his own.

Record low interest rates and falling home prices made it possible for the self-employed public relations agent to move into his first home last week.

"It's such a mental rush to finally be a property owner after too many years of not being [one]," said Mr. Boal, who bought a condo in the Los Angeles-area city of Burbank. "It's beautiful."

While many home sellers are disappointed by the slow real estate market, buyers like Mr. Boal welcome the first chance they've had to own in what remains one of the nation's most expensive markets.

"The opportunity for first-time buyers is the one silver lining in a very down real estate market," said Jim Link, executive director of the San Fernando Valley Board of Realtors. The San Fernando Valley is an area of Los Angeles.

Many moderate-income earners were priced out of the home market in the late 1980s. By August 1988, only 16 percent of Los Angeles home buyers could afford a median-price home, according to the California Association of Realtors.

But as the market sagged and prices fell this decade, roughly 30 percent of Los Angeles area home buyers in August could afford the median priced home of $211,420, according to the association.

First-time buyers now comprise up to 50 percent of home purchases in the San Fernando Valley, fueling an otherwise idle market.

Many lenders are catering to first-timers by offering loans with down payments as low as 3 percent to 5 percent.

Eugenia Becerra said that a 3 percent down payment program is enabling her and her husband to purchase their first home after 14 years of renting. The Becerras will also have a cousin living with them to help with the payments on their $137,000 home in the Los Angeles area of Sylmar.

"There are a lot of those programs out there," Mr. Link said. "You don't need $50,000 cash in your pocket before you think about buying a home."

Lower interest rates have also made it possible for more moderate wage earners to qualify for a loan because the payments are lower.

For example, a $125,000, 30-year fixed rate loan would have had a monthly principal and interest payment of $1,108.99 in October 1988 when interest rates nationwide were averaging 10.13 percent.

Today, with interest rates running around 8.46 percent, the same loan would cost $957.60 a month.

The Federal Housing Administration also recently raised its limit on home loans from $124,875 to $151,725. The higher ceiling should benefit first-time buyers especially because the loans only require 5 percent down and have more favorable lending guidelines.

The Realtors Association estimates that about 39 percent of Los Angeles-area home buyers are candidates for the revised loans, up from 23 percent under the old limits.

"People who were priced out of the market for that last five to seven years now have a wonderful opportunity to buy if you buy at giveaway prices," said Ron Prectl, a real estate agent at Century 21 Lamb Realtors in the Los Angeles area of Northridge.

Mr. Prectl recently listed a condo for sale at $99,950 -- roughly the same price he got for a similar unit in the same complex more than 10 years ago.

Some first-time buyers are taking advantage of distressed property to enhance the new home's value.

Mr. Boal bought a condo that had been inherited by the seller after the death of a parent. The property hadn't had an offer since February when Mr. Boal made an initial offer $54,000 less than the original asking price. After some haggling, Mr. Boal bought the unit for $40,000 under the asking price.

"When you have information like that, you can write your deal," Mr. Boal added.

The increase in first-time buyers also will provide a host of move-up purchasers in coming years.

Some purchasers already are positioning themselves for their next move.

Suburban North Hollywood condo buyer Steve Coyne always had wanted to own a home. A Veterans Administration loan request, coupled with low rates and home prices, nearly has put the Los Angeles Unified School District music teacher into his first home.

Mr. Coyne sees his condo as the first rung on the home-owning ladder. He expects to stay in his new home until he can sell at a profit, before buying a better residence.

"It's a beginning," Mr. Coyne said. "I don't expect to spend the rest of my life there."

Boal is reveling in his purchase.

His daughter bought him a congratulatory card on realizing his homeownership goal. "She said to use it as a stepping stone for my next dream."

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