Real Estate Investment: Return on Investment and Cash Flow Calculation

Home sales across the state rose 20.1 percent in June, compared to last year, according to the California Association of Realtors, which issued its monthly report on Friday. And while the median price of a home declined more than 26 percent, in June it rose to $274,740 – a 4.2 percent rise from May’s $263,600 median price, according to CAR.

CAR officials and other real estate experts said the bolstered market was fueled by a continued surge of first-time homebuyers who took advantage of state and federal tax credits to move in.

The question is, will the momentum they created last, said Delores Conway, director of the Casden Real Estate Economics Forecast and professor at USC.

“These are the prices of sales in June … so probably people bought these in May, which means people are taking advantage of the stimulus,” she said, referring to the $8,000 federal tax credit. “But California is no longer taking applications.”

It remains to be seen what effect limited rebate funding will have on inventory, Conway said. Shrinking inventory has driven the median price up. And while the market is showing signs of recovery, there are 
other headwinds to watch out for, such as more foreclosures and rising unemployment.
Another surge of foreclosures is expected later this year, CAR’s Senior Economist Leslie Appleton-Young said. If demand for homes remains strong, the market may be able to absorb the surge. If not, the median price will fall.

Much depends on jobs.

Worries about unemployment not only spark foreclosures, but they also create timid buyers.

“It’s not just people who are unemployed,” Conway said. “It affects people who are nervous, potential buyers who might want to take advantage of these prices ….”

The unemployment picture seemed to link up with the housing picture in some areas of the San Gabriel Valley.

For instance, El Monte – at 14 percent unemployment – bucked the state trend of rising prices. The city saw its home values fall 7 percent from May to $270,000. La Puente’s home values held steady compared to May at $230,000. Whittier continued falling from $305,000 in June to $295,000 in July. So did Covina, which went from $291,500 in May to $281,000 in June.

But other cities mirrored the state’s trend.

In May, the median home price in Pasadena was $503,000, according to CAR. In June, it was $521,500. In all cases, across the valley, home values are much less than what they were in June 2008.

That has attracted buyers looking for deals, and those with ready cash have an advantage.

“There’s a lot more cash offers,” said Victoria Chen, who with her partner Charles “Buck” Stapleton at Masters Realty in San Marino is seeing values reaching 10 percent above asking prices as bidding wars spark up on homes.

“It’s definitely turning around,” she said.

Nationally, new home sales jumped in June by the largest amount in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners.

But whether the housing market had recovered – or when it would – was something Chen could not say.

Uncertainty about jobs may be why.

“Can we say the housing market is stabilized yet?” Conway asked. “We need to see unemployment stop rising. But it’s better than the alternatives.”

The Associated Press contributed to this story.

ryan.carter@sgvn.com

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