There’s something about the holidays that makes us homesick, especially if you’re in Southern California, a long way from family roots.
Television, movies, and The Hallmark Channel don’t help. Everyone’s bundled up in cute boots and chunky knits, trotting through CGI snow flurries toward that warm, lighted window in the distance, then bursting through the front door to be embraced by a loud and loving tribe and a few sloppy dogs, followed by a long sit by the fire to string popcorn amidst happy wassail-ing and general wallowing in homegrown hygge.
SIGH. If only.
Realtor Alvin Yang, Residential Director at Moon Realty, has deep roots in Pasadena. The former Marine comments, “I’ve lived in the Pasadena area my entire life. I was born at the Huntington Hospital, and our first family home was on Oak Ave between Corson and Colorado Blvd. While serving in the Marines, I was stationed at 2/23 Marines on the corner of Paloma. We then moved to Arcadia by the Arboretum on Balboa. Later and into my college years, we lived in the foothills of Arcadia for about 22 years.”
But even Yang, who is sunny by nature, admits that becoming a homeowner in the Crown City today requires the perfect storm of planning and preparation.
Oh, and a whole lot of cash.
Speaking here as a midlife renter myself who has owned and sold two homes in California, I sought out advice from Yang and a couple of colleagues, financial planner Manuel Edghill, Northwestern Mutual, and mortgage loan officer Steve Kim, Vice President, Equity Smart Home Loans.
My first question had to do with age: I had heard that no one over 60 could qualify for a mortgage. Yang quickly deflected that misinformation like a lion swatting away a fly.
“Mortgage eligibility has to do with proven ability to pay the loan,” he says. “Retired people may have difficulty demonstrating the steady income typically required, but it’s about cash flow, not age.”
So, what’s the big mystery then? I asked.
You practice self-control. You save cash by living below your means as a renter for a while. You build credit into the 800s by using your plastic judiciously, making intentional purchases and quickly paying them off to show Experian et al. that you’re a good risk. But here in Q4 2023, that’s just not enough. Why not?
Yang says, “Currently, the biggest challenge is the continuous increase in interest rates. A large part has to do with homeowners wanting to hang onto their low-interest rates. And builders can’t build fast enough to keep up with demand. In Pasadena and its surrounding cities, available and build-able land is scarce. Any new builds in our area are priced above $1M.”
He shares some chilling stats from August 2023:
The median sale price is the middle of the price range of all homes sold in these cities during the month. Chart: Phil Hopkins
More from Yang: “Homes in Pasadena receive on average six offers, and on average currently spend 31 days on the market—that’s three fewer days than in 2022. In August 2023, Pasadena home prices were up 12.7 percent compared to last year, selling for a median price of $1.1M. There were 91 homes sold in Pasadena in August this year, down from 113 last year.”
Kim adds, “The common obstacles I see are two-fold. Rates are much higher now compared to two years ago. Ninety-one percent of homeowners own a home with a rate under 6 percent, 62 percent are under 4 percent, and 24 percent are under 3 percent. Due to this, homeowners are not selling now because they would have to buy a new home at a much higher rate. Thus, there is very little inventory, so buyers who are in the market are scrambling and competing against multiple offers.”
Then there’s that high-priced cherry on the millionaire sundae: the down payment. Just as we learned to grip the steering wheel at 12 and 2 in Driver’s Education, we learned that 20 percent down in cold, hard coin of the realm – that’s $200,000 frog-skins on a million-dollar bungalow, in plain talk – is what you need to qualify as a homeowner.
Still true? Ideally, yes.
Kim comments, “Most home buyers put 10 percent down on average, but you can put as little as 3 percent down. I’ve helped several buyers purchase their first home with 3-3.5 percent down over the past 18 years. It’s very tough to save 20 percent down unless you have been saving or investing for a long time or have a family member who can gift you part or the down payment.”
Edghill counters, “Having 20 percent down prevents the buyer from needing Private Mortgage Insurance (PMI), which could range from $150-450 per month of unnecessary expense. As financial planners, our goal is to help get clients as close to that 20 percent down payment as possible based on the timeline they give us.”
Another morsel of wisdom: Don’t work directly with a listing agent, use your own agent. According to Yang, “The listing agent represents the sellers and, in some cases, dual representation, both seller and buyer. Many times, a buyer will have a buyer’s agent representation. The buyer’s agent’s duty is to serve the buyer only, whereas a listing agent’s first duty is to serve the seller’s best interest, then to work out a deal with the buyers.”
Here’s what these experts prioritize as realistic criteria for mortgage eligibility:
- High household income [$200,000+ / per year]
- Two-year minimum work history [2 years, minimum at the same full-time job or in the same industry]
- Good-to-great credit score [740+]
- Down-payment [5-20 percent down]
- Savings to cover closing costs
- Liquid cash savings of three to six months “nut” (monthly expenses) saved for emergencies – ideally in a high-yield savings account, not in a coffee can or under the mattress, although cash is always a good thing, to quote Mr. Wonderful (Shark Tank’s Kevin O’Leary). Note that this “nut” isn’t your current pre-purchase expenses: this calculation needs to include the costs associated with your new home.
- Only minimal pending debt, i.e., credit card balances, car payments, student loans
- Income disability insurance (not employer-based)
- Life insurance and umbrella homeowner’s insurance policy – discuss these protections with a financial planner
- General rule of thumb: your monthly housing costs should be no more than 30 percent of your gross monthly income
As we dig through our box of holiday decorations, unraveling these facts can seem as formidable as untangling the snarled strands of Christmas lights. Ironic, isn’t it, that “home” — the place so deeply tied to our childhood selves — requires such scrupulous adulting, ideally begun while we’re still waiting for our skin to clear up. A lot of it has to do with impulse control and delayed gratification, distinguishing wants from needs, and fighting the urge, let’s say, to buy that new car because we just got a raise and because, most importantly, we like the color.
Yang advises, “Be intentional with your savings and budget accordingly. Be cognizant of your debt-to-income ratio. Communicate with your partner and discuss your goal to become a homeowner. Be open about your planning and what sacrifices you are willing to make to afford a purchase in a given timeframe. Loop in trusted advisors such as a realtor, loan officer, and financial planner, then ask for their advice.”
If you’re a young(ish) adult, and your parents are living, and they own their home, and you’re all on good terms, consider a re-set. In America, leaving the nest ASAP is admired. It’s part of our country’s Puritan-rooted self-perception of pulled-up-by-your-own bootstraps individualism and independence. But moving back in with mom and dad while you earn and save can be a winning strategy when you’re on the hunt for your own home.
Yeah, it takes a little humility to be back in your old bedroom, complete with your tear-soaked stuffed animals and that fading Star Wars poster. But Yang says, “My beautiful wife and I lived separately with our parents into our early 30s. This sacrifice allowed us to save about $120,000 combined. Living with your parents is at times frowned upon, but I saw it as a blessing.”
Different families view money differently. Cultural attitudes play a role. Some families, like Yang’s, teach financial literacy and fiscal responsibility as a crucial part of socializing a child. These same families often are willing to gift cash to children, without shaming, to ease the way.
Didn’t happen for you? Yeah, me either.
As we enter the generally auspicious Year of the Dragon, here’s Yang’s advice: “As gorgeous and ideal as Pasadena is, for some, it might make sense to buy your first home in a more affordable city. That way, you can live comfortably as a homeowner for five to seven years, knowing that your money is going back into an appreciating asset versus paying a landlord.”
By then, perhaps the market mayhem will have calmed. So, take heart. Edghill says, “I’m actually looking to buy in the Pasadena area within the next few years, which aligns quite nicely with his piece of advice. I’m saving this article!”