The uphill battle for homebuyers in Alhambra

When John Gary bought his house in Alhambra in the early 1980s, he never thought his house could be worth hundreds of thousands of dollars someday. “It was only around $100,000 in 1983,” said Gary. He worked for a phone company in Alhambra during the 80s, and his income was fair enough for him to afford the house. “But, you can’t simply compare the prices, because of the inflation,” he said.

Gary is right. It is not an apple-to-apple comparison. According to the latest Consumer Price Index, which is one of the two main indexes in North America that measures inflation, released by United States Department of Labor, $100,000 in 1983 actually equals to $289,218.45 in 2015. However, the problem is you won’t be able to buy a house in Alhambra with $289,218 nowadays. Homes are more expensive in real terms.

A house advertising flier on a resident's door in Alhambra

“Even during the recession, Alhambra wasn’t hit as hard as other areas in LA. For instance, single-family residences didn't drop below $350,000,” said Alonso Martinez, a Century 21 real estate agent who has focused on the San Gabriel Valley market for more than 10 years. The median home value was around $420,000 in Alhambra during the recession. Now, the median home value has jumped to $559,100, following in line with the upward trajectory of the economy in the U.S., according to Zillow, an online real estate database.

Rising demand is one of the factors that drive surging home prices in Alhambra. “The inventory is tight. I listed a one-bedroom and one-bathroom single-family house last month. I got biddings from 50 potential buyers,” said James Sek, a realtor who has worked in Alhambra since 1989. There are 30,915 housing units in Alhambra. Vacant homes account for only five percent of that total. Among those vacant housing units, only 0.5 percent is for sale only, according to the city website

A realtor sign on Marguerita AvenueAs a consequence of the high demand and shortage of homes, the competition between potential buyers becomes fierce. Cash buyers are more favored by the market than buyers who rely on the Homebuyers’ Downpayment Assistance program, or other financing programs that may require a months-long period to assess an applicants’ eligibility. “Sellers won’t wait for that. They will go with the sure things, which are the 20, 30, 50 percent down buyer, or, maybe, all cash,” said Martinez.

An influx of cash buyers raised the threshold for some first-time homebuyers. Therefore, many first-time homebuyers opt to rent instead of buying in Alhambra, which could be a temporary solution for some first-time homebuyers who are currently dealing with student loans or credit issues but are also saving up for a down payment. Consequently, the rental market in Alhambra has been flourishing since 2012. In Alhambra, 59.2 percent of housing units are occupied by renters, according to the city website.

Some of these renters are renting to save up for a down-payment. But this also puts them in a bind because national income growth has not matched rising house prices. As they save up for a down payment to compete in a cash-buyer world, they're also paying for skyrocketing rental rates. This is especially hard in Alhambra, where the median household income is $54,148 in Alhambra, while the median rental list price is around $2,300 per month, or roughly $27,600 per year. In other words, rent accounts for half of a household's income.

Furthermore, high rental rates are bringing the housing market to a deadlock. As more and more first-time homebuyers are edged out of the purchase market and driven to rentals, the rental market will become more appealing to investors who look to purchase properties and profit off of them. This has lead to a deadlock in which both buyers and renters are faced with high rates. According to the latest economy and housing market forecast released by UCLA’s Anderson School of Management, housing prices and sales will continue to rise nationwide as the homeownership rate is declining.Screenshot of the median rental prices trend in Alhambra from Zillow

Another factor is that foreign buyers have played a very significant role in Alhambra's market. “There is a large [number of] Asian buyers from the Chinese community. That’s a lot of what we see,” said Martinez. One reason for this is China’s fast economic development during the past decade. Another factor may be that Asian cultures, which often promote strong familial bonds, encourage families to pool their resources to pay for the houses. “I don’t say other ethnicities can’t be close. But this pooling of resources has had an impact on the market. So they can buy in cash,” said Martinez.

However, the impact from foreign cash buyers has been dwindling in the last two years. This is “because of the slow economy and restricted domestic policies in China,” said Sek. He has been dealing with foreign buyers throughout his career, and many of them are cash buyers. But he has seen a change in his clientele during the past couple years. “As the economy recovers [in the U.S] and the unemployment rates decline, I see more and more domestic buyers from different ethnic groups these two years,” said Sek.
 
Sek's report is a reflection of the general trend across the nation. According to the forecast from UCLA, the state's unemployment rate will fall from 6% in 2015 to approximately 4.8% during the next two years. Meanwhile, the growth in California’s employment rate and real personal income will continue. As jobs continue to grow, the housing market will also pick up steam in California and around the nation.
 

“I don’t care what people do with their own properties. But, it does affect the neighborhood as a whole,” John Gary.

 
This is the bright side of the housing market, and it might be exciting news for some homeowners in Alhambra who want to sell or lease their property. But it may not mean a whole lot for homeowners like Gary, since they neither want to sell nor rent the house out. “I just renovated my kitchen, changed the windows and floors. I like staying here,” said Gary.
 
Moreover, he's concerned about new buyers who buy a house and tear it down to build a new home. Some regard the new homes, which are generally larger, as "McMansions." “I don’t care what people do with their own properties. But, it does affect the neighborhood as a whole,” said Gary. Alhambra has its own architectural history, which involve mostly modest, single-level structures. Gary notes that architectural norms may not "last forever," and that change may be a natural progression. “Who knows if it is going to be a good thing or bad?” he added.

Screenshot of the median housing prices trend and forecast in Alhambra from ZillowIn spite of rising rates, Martinez believes that it is still a good time to purchase a house as long as the buyer wants to keep it for the long run. “Prices will never go back to what they were 20 or 30 years ago,” said Martinez. It also bears consideration that prices will continue to grow in the next two to three years, according to UCLA's forecast. And owning a house in suburban Alhambra may be easier than testing the housing market in other areas of the Los Angeles County. A four-bedroom apartment in Echo Park, for instance, could cost $2.95 million to buy. Either way it will still be an uphill struggle for many people to afford a house in Alhambra—prices are spiraling up, and yet there are only so many homes.

Some interviews are translated from Chinese and edited.

7 thoughts on “The uphill battle for homebuyers in Alhambra”

  1. I am not sure what JosephS meant by “easy money.” Many of us can buy a house relatively cheaply in Central and South America, for example. Do we have “easy money”? Does Federal Reserve have an “easy money policy”? And I am doubtful that Fed started it. The PRC’s central bank has its own consideration and is unlikely to follow Fed’s lead blindly.

  2. How do you think those foreign buyers got all that money to pay cash for houses here? They got it because of easy money. You guys need to understand global economics.

    The federal reserve sets interest rates and the rest of the world follows. China has had easy money policy for the last ten+ years and they have the same or worse bubbles in their markets.

    So the people there sell their investments and look to buy outside of China. It all starts with the US Federal Reserve.

    I used to be a real estate investor starting in the 1970s. Its easy for me to see what’s going on.

    Some people (Im not blaming anyone here), are just anti-asian and are looking to blame them for something. I just look at facts and I dont let prejudice get in the way.

    1. What makes you think they got easy money? They didn’t borrow money from America. They lending America the money. Federal reserve slowly losing their influence as China starting to do what’s best for themselves. They don’t care if they hurt others or even their own people as long as the government remains in control. They have a huge bubble and we all know it’ll burst and the countries ghost towns will be more apparent. Over developed, under use, corruption, and hidden or imaginary numbers that aren’t really reflective of the true state of their economy. The smart people from China already left or at minimum buying property with cash outside of their own country. It doesn’t start and end with US Fed Reserve. It starts with globalization where corporations wants cheap labor to maximize profits. Who here don’t have an iPHONE made in China? See what I mean???

  3. The interest rates only have impacts on those home buyers who needs financing and can’t afford to buy now. With interest rates low, if you can not afford to buy, what makes anyone think they can buy when rates go higher? Most communities with huge Asian interest, primarily Chinese will probably defied the bs from the fed reserve. The bubble will burst if any and those who borrow will be under water, not the cash buyers. There are other factors to take into consideration, such as school, shops, restaurants, etc. Federal reserve and their bubble is the least worry for homes bought with cash.

  4. There is no way to see this only as a Fed Reserve problem. Whether low or high rates, demand will be high in a desirable place called Southern California. Of course demand counts, and so does supply! And by the way, interest rates don’t mean nothing when we are dealing with all-cash buyers that are often seen in San Gabriel Valley.

  5. The last time houses were affordable in Alhambra was back in the very late 1990s and early 2000s. In response to 9/11, the fed lowered interest rates to about 1%. A housing bubble was born, replacing a popped stock bubble. By 2005, real estate was a madhouse.

    Anyone having trouble buying a house in Alhambra or basically anywhere in the area now, can look to one major factor – the federal reserve. They set interest rates. Well, they actually do even more than that. They print money and buy whatever they want. They buy billions in mortgage bonds to keep mortgage rates low which keeps house values high.

    High house prices make home owners feel good and will then spend more money which creates jobs – so the theory goes. I feel sorry for any new home shoppers who are trying to make it on their own.

    Any real estate agent you talk to will ALWAYS say “now is a good time to buy”. Was 2006 a good time to buy? No, for most it was not.

    In summary, high house prices in Alhambra have almost NOTHING to do with supply and demand in the normal sense. It is a function of the federal reserve’s policies. They have created a new bubble and will never learn from their mistakes.

  6. No where in this article does the author explain why the growth of new housing supply is so limited.

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