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