OUTRAGEOUS GOINGS ON AROUND TOWN (page 4 of 4)

MORE ON SMRPH QUALIFIED FOR THE BALLOT
Last issue we reported that SMRPH had qualified for the ballot. Many in town question just whether a new condominium conversion law will be needed or welcomed in Santa Monica. Is there a market for condominiums in our town? What has happened in the real estate market this year (compared to prior years) which would indicate whether or not there is a need for more condominiums? Since we last spoke, The California Association of REALTORS (http://www.car.org) issued a comprehensive study of condominium sales comparisons for the year 2000. C.A.R. is one of the largest state trade organizations in the United States, with more than 95,000 members. It is headquartered in Los Angeles. The C.A.R. release may be retrieved by calling the PR Newswire fax-on-demand service at 1-800-758-5804, ext. 131489. Here is what the C.A.R. report had to say about condo sales. First, buyers looked to purchasing condos as the affordable alternative to single-family homes. Throughout 2000, demand for residential real estate remained high, driving prices skyward and keeping inventory low. The price discount, representing the percentage difference between the initial asking price and the final sales price, was only 0.5 percent in 2000, down from 1.7 percent a year ago. During 2000, the median price of a home in California was $241,250, 8.7 percent above the 1999 median of $222,000. The 2000 median price was up 37.9 percent compared to 1995, when it was $175,000. And this is an interesting bit of news which might help us see the future: according to the study, the stock market influenced buyers’ and sellers’ decisions to participate in the housing market 10.5 percent of the time, compared to 6.6 percent for the same period a year ago. We all know how horribly the stock market did in 2000, and it appears that when the stock market is down, people look to a home as a better investment for their money. If the stock market keeps its poor performance in 2001 (and if the interest rates on home loans keeps falling -- as we think it will) then 2001 could be a banner year for home sales. As some support for this prediction, it is interesting to note that California home purchases in 2000 were paid for entirely with cash 11.9 percent of the time, compared to 9.9 percent a year ago. To us this indicates that stock investors are selling their shares and using the money to purchase homes. Further support for a strong condominium sales year for 2001 is found in the fact that the median mortgage interest rate on new fixed-rate mortgage transactions was 8.25 percent in 2000, compared to last year’s 7.40 percent median. Thus even with the higher interest rates, people moved out of the stock market into the home investment field. With lower interest rates this year, it appears that even more people will find condominium purchases to be a better investment than the stock market.

How many current tenants are potential homebuyers? Based on a recent Rent Control Board vacancy study for the years January 1999 through December 2000 (a two-year study), the vacancy rate for first time market rent tenants is approximately 7% of the 28,000 rent controlled housing units. This means that approximately 2,000 units are now occupied by market rate tenants who pay somewhere between $1,500 and $2,000 per month for a two-bedroom apartment. When one considers the tax savings from income which a mortgage brings, (and don’t we all) then a $2,000 per month payment could support a mortgage of approximately $300,000. This isn’t hay. An average condo conversion unit in non-exclusive Santa Monica would sell for around $300,000 total. This means that there is a big market out there for tenants who would be available to purchase their own units. Remember that our last condo conversion ordinance (called TORCA) sold approximately 3,000 units. If this new one could do as well, it too would be a success.