Dear Steve,
I bought a brand-new home in Los Angeles County a year ago for
$700,000. A neighbor with the same model, amenities, etc., just sold
for $1.1 million. Would it behoove me to sell my home, profit from the
appreciation and new valuation, and hold tight in a condo or apartment
and wait for housing values to go back down in L.A., and then buy
something again? What are your predictions for property-value growth
or declines in the area over the next few years?
-- Southern Cal

Dear Southern,
Historically, your odds of finding a replacement property at any point
in the future on par with what you paid a year ago are slender at
best, especially in southern California. No doubt, you've been
listening to theories that a housing bubble is forming and is about to
pop, or have heard horror stories about rapid valuation decreases in
the 1980s and early 1990s.

And yes, there have been some signs of mild softening this year in Los
Angeles County residential real estate. But even if the market goes
south suddenly and loses a stout 10 percent, which is not likely,
you're still looking at some fiscal pain when you try to re-enter it
at the same level you were at a year ago.

But let's have an L.A.-area Realtor weigh in on the subject. "It's
still a good market, but we're not seeing 10 to 12 offers per home
where they're offering $10,000 to $12,000 over list," says Fran Vernon
of Dilbeck Realtors SMAC in La Canada, Calif. "It's more like we're
seeing two to three offers of $2,000 to $3,000 (over)."

The truth is, new housing supply is still not keeping up with demand
in southern California. Even if Los Angeles grows at the same rate as
the national average (it's expected to grow faster than that), it will
be enough to absorb all the new housing coming down the pipeline,
housing experts believe. So it's logical to assume demand will
outstrip supply for the foreseeable future. Also, note that the number
of housing starts per 1,000 persons in lot-starved southern California
was well below the national average in 2003 and is expected to be so
again in 2004 -- further evidence that demand will outstrip supply.

"We're not typical here," says Vernon. "Where else would you spend so
much money for so little?"

As for your idea about buying a condo to ride out a downturn, you
might re-examine it. In a down market, home hunters generally opt to
buy full houses before condos because they can get more for the money,
Vernon says. So, in your scenario, you would be trying to re-enter the
housing market by selling your condo just at a time when the demand
for condos will be depressed.

Think about the tax implications, too. If you've owned and lived in
your residence at least two years before the sale, you can exclude up
to $250,000 of your capital gains from tax, or up to $500,000 for
married couples filing jointly. If you sell your home now you won't be
entitled to that exclusion, so an extra year might save you a load of
scratch.

My prediction on the market? Well, I'm with the folks who compare
prognostications to passing clouds. If you look long enough, they say,
you will begin to see images in their randomness. In other words, no
one knows, let alone me.

Good luck with whatever you decide.

http://www.bankrate.com/brm/news/rea...20040724a1.asp


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"Husbands are like fires. They go out if unattended." -- Zsa Zsa Gabor