The decision to buy a home instead of rent should be a calculation of the "full after-tax cost of home ownership," said Stuart Gabriel, director and Lusk Chair at the University of Southern California Lusk Center for Real Estate.
"It's guess or a forecast for any of us," said Gabriel, an Oak Park resident.
Given the huge gains that have been made in the past few years, especially in the coastal regions, huge gains are not likely, he said.
"A prudent assumption for anyone buying a home today in any of our overheated markets is that price appreciation will slow probably into the single digits," he said.
The number of sales in Southern California was down slightly from last year's record pace, but Ventura County has loosened up slightly with 9.8 percent more sales in July from the same month a year ago.
DataQuick reported that the typical monthly mortgage payment that Southland buyers committed to was $ 2,072, still about 5 percent less than the inflation adjusted peak in the spring of 1989.
Johnson said when an agent prices a home for sale, he or she starts with the comparable sales in the area but then has to include the availability of homes in the neighborhood. The market has calmed dramatically from last year, she said, and buyers are taking more time and paying closer attention to upgrades inside the house and other things that were overlooked when the market was overheated.
Still, "if in their mind's eye it is the perfect house, then the value is going to go up," she said.
For home buyers, the focus is "can we afford this?" said Larry Loik, president and founder of Real Estate Investor Network in Westlake Village. As investors, they need to not get emotionally attached and know whether there is the potential for renting the properties to cover the mortgages or appreciation to provide good investment returns.
He said it makes sense in a high-appreciation area to have a negative cash flow, or not have the rent cover the mortgage, because the financial gap is usually easily covered when the house is sold.
Most of the group's investment opportunities are outside of California right now, he said.
"If somebody purchases something over $ 250,000, it's an appreciation play," he said, meaning the investor is betting the home increases enough in value to cover what's lost in monthly rent.
"Under $ 250,000, the numbers start to crunch, but in Ventura County, good luck." He said a novice investor will often look at houses the way a home buyer would: looking for something cute that seems like a good deal.
"Through some coaching, they know it is about cash flow and appreciation," he said.
Gabriel said just as there aren't a lot of day traders making money in the stock market, short-term positions in real estate are risky. Taking a more traditional position in buying a home and living in it for seven years while building some equity is relatively safe.
"If the game plan is to get in and out of the house in six months ... I would precede with caution, because I think most of the upside is behind us," he said.
Young people planning on staying somewhere for a year or so should rent, Gabriel said. He noted that with many investors having bought over the last few years, there is more slack in the rental market and prices are fairly flat.
"People are seeing again that renting may make sense," he said.