Getting Onto the Property Ladder in Venice: High-Cost Market Tests Affordability, But Owning By the Beach is Better than Owning the S & P 500 by a Country Mile

This is a post by Luke G-Jones. 

Most long-term residents of Los Angeles aspire to climb onto the property ladder at some point. And when they do, the usual tough decisions prevail: “I don’t want to leave the area I’ve come to love, but I can’t afford it”, “I don’t want to have to downgrade in terms of space and I get so much more room by renting”, “If I’m going to buy, I want some outdoor space”, “Will I build some equity in this place over the next few years”… The list goes on and invariably sacrifices will have to be made.

However, with interest rates at 39-year lows (around 4.5%), and with so much distress in the housing market, there are excellent buying opportunities out there. If you are in a stable job, can put down a modest deposit (as low as 3.5% for an FHA loan), are prepared to pay a premium in rent and want to make that all-important step onto the first rung of the ladder, then read on.

First, consider the chart above.  In 2000 the median sale price for a home in Venice was $409,000.  Even after the real estate gyrations of the past few years, the median price of a single family home year-to-date in Venice is $975,000.   That's an increase of 138% over the decade.  Long-term renters in Venice may have had affordable rent for the 2000s (and renting does have its advantages), but they missed out on owning their roof over their head, and benefiting from among the most superior investment returns around.  Consider that the S & P 500 has delivered a loss of 15% over the past decade (1365 on 10/29/2000 and 1165 on today.)

First up is 126 Vista Place, a picture-perfect Venice Beach bungalow nestled away on a quiet walk street between Main and Pacific. In this blogger’s opinion, these walk streets trump those that head down to the beach by a country mile by virtue of the fact that you don’t get the tourist traffic and there are fewer drivers using Speedway as a rat run. This property is on the market as a trust/conservatorship.

The price has been reduced to a very reasonable $699k. Considering similar properties can often go for around $800-900k, this is quite a bargain. Granted, it could do with a little TLC, but it has a gorgeous little front yard, a good-sized porch, and plenty of parking out back. Having numerous friends who live in the neighborhood and love the walk streets, I know this would be considered a very appealing first-time buy. For not too much more than your rental costs, you could segue into owning a similar-sized home within the same neighborhood and start building equity. There isn’t much room to expand this home, but if you’re sold on Venice, want to maintain the style in which you’ve become accustomed, then I think this one is for you!

If you’re already in expansion mode, check out 1157 Lake Street, a substantial 4 bedroom, 3 bathroom property one block south of Rose and between Walgrove and Lincoln. At $989,000 it’s competitively priced (with 2,000 square feet across a lot size of over 5,000 square foot, it works out at around $500 per square foot of living space) and it has a spacious, light and well-proportioned feel to it. It’s a “flip” with beautiful hardwood floors throughout, a new roof, freshly painted interior and exterior, a garage converted into a spacious den, and new asphalt on the driveway. It’s also a two-story home, which is fairly unusual within this price range. Whilst a million bucks is still a lot for a first-time buyer, you’d be spending around $5k a month to rent a similar single family home.

Unfortunately, whilst this property is close to the outdoor space of Penmar Park and public golf course, it is also under the flight path of Santa Monica airport. Whilst no commercial jets fly out of SM Airport, the noise of those small private charters can certainly distract your swing! However, if you want a piece of real estate, if you can drag yourself east of Lincoln, and you don’t mind the noise of George Clooney’s private Lear jet flying over your house, then this one could be just the thing for you.

If you’re a little more price conscious but still want a bit of space, a yard, room to expand, and an opportunity to do some modest fixing up, check out 1412 Oakwood Avenue. This corner lot south of California and North of Milwood is right in the heart of Venice. I've blogged about it before, it’s been on the market for a while. Again, it’s a good “starter pack” to get your foot on the ladder and with a great front porch and plenty of yard space, it’s a perfect way to play house. It's not got great light in front, and the rooms aren’t too well proportioned, but at $685k it’s a pretty good price. Compared to 1157 Lake Street, you get a lot less "bang for you buck", but if "location, location, location" is your priority and you’re paying around $2,500 per month in rent for a similar style of cottage, then this is definitely something worth checking out.

As I mentioned at the beginning, I’m making some pretty wide assumptions for ye reader: you’ll need to be able to put down a deposit, qualify for a loan, and have a stable income. Unfortunately, gone are the days of mortgage payments being similar to rent. However, if you can stomach an increase in monthly outgoings and you’re ready to pounce, then there’s rarely been a better time to get on the housing ladder.

On The Money: $4 - 12 million Los Angeles Multifamily Sells in Narrow Band of 9.65 - 9.85 GRM in mid 2010

What's happening in the mid-size apartment category in Los Angeles, those with 40 units or more, and priced in the $6 - 12 million range?

A few very apparent trends: 1) Opportunities are few, with thin inventory reaching market; 2) Demand is strong and buyers are willing to pay a remarkable 97.1% of asking price; 3) Returns for these assets are remarkably consistent with GRMs in the 9.65 to 9.85 GRM range; and, 4) The trend (excluding Beverly Hills, natch) was consistent from Palms, Sherman Oaks, Koreatown/Mid-Wilshire to Hollywood. 

Given the attractiveness of the returns on these buildings (cap rates above 6.0%) when compared to other "low risk" investments (like T-bills near 0%), the market dynamics are characterized by a moderate number of well-capitalized investors pursuing a small number of worthy investment properties.  The result: quick sales and finely-calibrated returns.

Buyers seeking distressed options in this market should turn their sights elsewhere.  Financially robust owners of these assets sell them to other sound buyers -- with an absence of short sales, loan work-outs, bankruptcies, etc.  This market segment is stable.

Palms is a perennial favorite for investors who love the Westside location, the proximity to the 405 and 10 freeways, and the below-average 3.8% vacancy rate.  10705 Rose Avenue with 60 units sold for $11,650,000 or $194,000/unit.  The building has 62,116 sq ft of living area and was constructed in 1962.  This complex has two buildings, is freeway adjacent, and is one of the few multifamily properties of this size to come to this desirable Westside market.  GRM was 9.71

Over the hill in Sherman Oaks, 14355 Huston Street, with 74 units sold for $9,400,000.  This amounts to $127,000/unit.  This 1969 complex is set on 1.38 acres, has a fitness center, swimming pool, and "park like" amenities, and was recently upgraded with $850,000 in improvements.  50 of the 74 units are renovated.  The complex has 48,186 sq ft of living area.  Unit mix is 72 (1) bedrooms plus (2) singles.  GRM was 9.85

530 S Catalina Street in the Koreatown/Mid-Wilshire neighborhood with 45 units sold for $6,200,000.  This amounts to $138,000/door.  The building has 36,929 sq ft, was built in 1971, and just had $1.1 million in renovations completed in 2007 - 2008.  This is on the high-end in terms of quality of upgrades in the Koreatown/Mid-Wilshire neighborhood.  GRM was 9.63

At the border of Hollywood and Los Feliz, 1616-1620 Normandie, a two building complex with 46 units, sold for $4,425,000.  The larger building is a 1920's "bricker" and the smaller one of mid-century vintage.  The sale is at $96,000/sq ft, although the average unit only amounts to 544 sq ft (total is 25,032 sq ft).  This multifamily property is adjacent to the high-end homes of Los Feliz as well as Griffith Park.  GRM was 9.65

There are exceptions to every rule, and in the Los Angeles market Beverly Hills is that case that breaks the mold.  133 N Almont Drive, near Wilshire and Doheny,  sold for $5,775,000 or $304,000/unit.  This was a court-ordered sale, the majority of the 19 units are unrenovated (and with below market rents), and average between 1,100 - 1,400 sq ft.  In total, the 1961 building has 26,291 sq ft.  This Beverly Hills property "tips the scales" in terms of cost per door.  The reality is, few assets of this sort are for sale, and like in all other property types, the "Beverly Hills premium" is very much alive and well today.

Silver Lake-Echo Park Home Market Mid-2010: Reservoir-Side Mid-Century Cool Sells Alongside Hillside Bungalow REO Shacks; 25% of Sales Foreclosures or Short Sales

Silver Lake-Echo Park is one of the most eclectic neighborhoods in Los Angeles, with properties ranging from vintage $1 million + Mid-Century and Spanish homes with views of the Silver Lake Reservoir, to shacks (and we mean shacks) on stair streets in the Echo Park hills with no parking (and virtually no home and no land.) 

What Silver Lake-Echo Park offers is a character neighborhoods with a wide range of property types, a funky vibe, and some of the best views and vistas (and twisty, winding streets) in the city. 

What has also characterized Silver Lake - Echo Park in the past 6 months is a "hot" market and an abundance of distressed properties (foreclosures and short sales), most selling under $500,000.

On the higher end (the top 25% of sales, homes selling at $715,000 and above), the average days on the market was 27.  This is by any standard is considered a highly competitive market in which buyers are forced to view and then write offers on homes without a long consideration period.

A full 25% of sales in the past six months have been distressed properties, presenting a "clearing" of bank inventory and homes owned by delinquent buyers.  This market seems to have reached a capitulation point where many sub-prime loans which owners could not afford have now been voided from the market, offering dramatically lower prices for these B- and C-quality properties.

But the A-quality properties are very much in demand, with five homes selling for more than $1 million during the period.

The highest priced sale was 2503 Silver Lake Terrace, adjacent to the Silver Lake Reservoir, which sold for $1,400,000, over its asking price, after 17 days on the market.  This 1939 home was updated in 2005 and has 3 bedrooms, 3.5 baths, 2,659 sq ft of living area, an 11,325 sq ft lot, and a 900 sq ft remodeled studio.

Across the Reservoir, in the Moreno Highlands, 2214 Panorama Terrace sold for $1,150,000.  This 3 bedroom, 3 bath mid-century home has 2,478 sq ft of living area, a 5,000 sq ft lot, and a pool.  It sold after 33 days on the market.

 

One of the fastest sales was just down the road at 2143 Panorama Terrace.  This ultra-cool 1953 mid-century sold for $1,136,750 after only 7 days on the market.  This home has 3 bedrooms, 2 baths, 5,170 sq ft of living area and a pool.

Another 7 day sale was 2081 Balmer Avenue, also in the Moreno Highlands, which sold for $1,079,996.  It has 3 bedrooms, 3 baths, 2,032 sq ft of living area and a 6,490 sq ft lot.

Now, let's take a detour to other parts hither and thither in the diverse Silver Lake-Echo Park neighborhood.  2122 Vestal Avenue in Echo Park, a remodeled cottage of sorts, has 2 bedrooms, 1 bath, 870 sq ft of living area and a 2,760 sq ft lot.  After 5 days on the market, a buyer paid $501,000 for this home, amounting to an astonishing $576/sq ft.

Finally, our grand prix winner for "best buy" goes to 2112 Loma Vista Place in Echo Park.  Located on a "step street" (yes, accessible by a stairway and not by road, and we mean a long stairway), this cute 1914 1 bedroom, 1 bath bungalow (with heaps of deferred maintenance) on a 2,680 sq ft lot sold as a foreclosure for $200,000.  It's interesting to note that the home sold for $195,000 in April 2002.  After the recent real estate bubble, we consider this a "reversion to the mean."

Off Beachwood and Vine: Touring A Couple of Vintage Homes in the Hollywood Hills East in the Rain

This is a post by Luke Jones. The Hollywood Hills have a certain allure and will always attract buyers. However, it’s harder these days to sell vintage homes that have not been upgraded. With financing hard to come by, many buyers are loathe to carry out major renovations and are seeking something that is “plug and play”. However, sometimes you spot a house with loads of charm and think, “someone’s going to make a project of this.” That’s the first home I’ll describe, 2769 Westshire Drive, in the Hollywood Hills East.

 

Located just east of Beachwood Canyon and a stone’s throw from the Beachwood Café, 2769 Westshire Drive has spectacular views and is in the very heart of historic Hollywoodland. This 1926 original Spanish Colonial has 4 bedrooms and 3.5 baths with an unusual rotunda entryway and a hexagonal dining room and matching room below.  The house is 3,262 sq ft with a 6,200 sq ft lot.

The kitchen needs to be entirely replaced, the interior needs modernization and the exterior of the back of the house could do with some work, but the home has tons of character with fabulous natural light throughout. It’s priced at $1,395,000 and may need a couple of hundred thousand to bring it back to its former glory. However, it’s one of a kind and is just waiting for that perfect buyer to come along.

Alternatively, sometimes you walk into a vintage place that’s “done done done” and still retains its character and you think, “awesome!” 2701 Creston Drive, in the Hollywood Hills East high in the hills above Vine, with fabulous views over the city and to the sea, is precisely one of those homes.

  

These roads are a nightmare in heavy rains, but the view is the payoff! The 2,900 sq ft house has 4 bedrooms and 3.5 baths with a beautiful master boasting two decks, one overlooking the city and the other looking over the spacious yard with infinity pool. The lot size is over 10,000 sq ft with ample room to develop. At $1,849,000 it’s not cheap – but as I say – if this is your cup of tea, you’ll love it.

FOR SALE: Adner Realty Group Presents 14,587 sq ft of Vacant Land on Sunset Boulevard in the Dynamic Silver Lake-Echo Park Neighborhood of Los Angeles with Plans and Permits to Build a Mixed-Use Residential and Retail Complex

2014-2022 Sunset Boulevard Project Rendering

Adner Realty Group is pleased to announce we have been retained as the exclusive marketing representative for 2014-2022 Sunset Boulevard, fully entitled land with approved plans for a mixed-use multifamily and retail development in the Silver Lake - Echo Park neighborhood of Los Angeles (90026).

View of Lots at 2014-2022 Sunset Boulevard

The subject property consists of two parcels of vacant land approximately 2.0 miles from Downtown Los Angeles.  2014 Sunset Boulevard (APN #5404-003-011) comprises 7,087 sq ft, and 2022 Sunset Boulevard (APN #5404-003-012) comprises 7,500 sq ft.  In aggregate, the two lots comprise 14,587 sq ft.



Architectural plans and permits exist for the construction of a five-story mixed-used retail and multifamily property consisting of 23 residential rental units, five (5) ground-floor retail spaces, and one level of subterranean parking.



Apartment mix includes eighteen (18) two-bedroom, two-bath units ranging in size from 855 to 1,158 sq ft, and five (5) one-bedroom, one-bath units ranging in size from 606 to 751 sq ft.  Total apartment square footage is 23,070 sq ft.  Some units have gas fireplaces or decks.

Intersection of Sunset Boulevard and Alvarado Street

The subject property is adjacent to the intersection of Sunset Boulevard and Alvarado Street.  Sunset Boulevard is a primary traffic corridor extending from Downtown Los Angeles to Hollywood and Westside neighborhoods.  Alvarado Street is a major axis that provides access to the 101 and 2 Freeways. 

Bus Line on Sunset Boulevard

Several bus lines operated by the Los Angeles County Metropolitan Transit Authority (MTA) serve this Sunset-Alvarado intersection.

Edendale Public Library Branch on Sunset Boulevard

This high-density neighborhood has experienced a recent boom in building activity, including the Edendale Branch of the LA Public Library, constructed across the street from the subject property, and the LA Unified School District’s Central Regional Elementary School #10, built less than 1,000 feet from the subject property.

Nearby retail tenants in this vibrant neighborhood include Vons Supermarket, Starbucks, K-9 Lofts, Citysip Wine Bar, and American Apparel.


Elementary School #10 Constructed 1,000 ft from subject Property

The vacant land at 2014-2022 Sunset Boulevard offers an opportunity to build new and capture improving rents at this hub near the urban core of Los Angeles.

Offered at $2,190,000

2014-2022 Sunset Boulevard Loopnet Listing

Los Angeles Office Market Q3 2010: Holy Concession, Batman! Depressed Job Market Correlates with Sinking Rents and Office Demand and the Best Pro-Tenant Market in Decades

In case you hadn't heard, there's a recession out there and droves of jobs have been lost for various and sundry reasons like (1) we're crawling out from under a twenty-year financial bubble that's popped, (2) we're in the midst of globalization that's sending jobs from urban centers like Los Angeles to locales overseas, and (3) we're experiencing technological advances that are making it more and more pointless to heat, cool, and pay for office space for workers who are most frequently not at their cube.

Given the dire state of traditional employment, the rapidly shifting economic landscape, and the lack of visibility moving forward, it should come as no surprise that the fundamentals for the office market in Los Angeles are just south of rotten.

Consider these grim statistics: overall vacancy across the Southland was 20% in Q3 2010, up from 17.5% in the same quarter a year ago.  Vacancies are now at a 15-year high, and the average asking rent is $2.35/sq ft, $.13/sq ft less than a year ago.

 

Some markets have been impacted worse than others.  The Downtown Los Angeles market has been flat for for years.  The building boom of the late 1980s and 1990s resulted in office space that's never been fully absorbed, even in the "go go" days of the dot-com area of the mid-2000s.  Downtown vacancy was nearly 18% in the 3rd Quarter, compared to 16.6% on the Westside.

By any measure, these are grisly statistics.  However, Los Angeles has been through this cycle before, and it's entirely possible that little by little, over years, the office space will be absorbed, and market dynamics will improve in favor of landlords.  (It's noteworthy that at the lows of the last economic cycle, around 1991, office vacancies were as high as 23%).  But for the time being, here's some advice for tenants: put your feet up on your desk, kick back, call your landlord, and listen with glee as they accept your rent reduction and cater to your every concession.

Los Angeles Times: Tenants Rule Commercial Real Estate Arena

Venice, California -- Small Investment Opportunities Abound In High-Rent, High-Demand, Hi-Style Neighborhood by the Beach

This is a post by Luke Jones. A couple of months back I blogged about 421 Grand Avenue, in Venice, a small lot consisting of two beach cottages of about 650 sq ft each with a separate and secure garage on site. The price of this property has now been lowered to $949,000. With vacation rentals of a similar size going for as much as $3,600/month or even $250/night for short term stays, one could live in one of the cottages, let the other, and look at clearing around $30,000/year after vacancy and expenses. This would go a long way towards any mortgage payments. So, it got me thinking that I could explore some other similar opportunities in and around Venice for this post. Here’s what I found out there in the market.

902 Milwood Avenue, Venice is priced at $1,295,000 and is located just one block west of Lincoln and about halfway between Rose and Venice. (We love Milwood Avenue and represented buyers on the purchase of a property on the 700 block.) This California bungalow has a second home/income property that could be let for around $2,500/month. I wasn’t able to see the two bedroom rental property, but the main home is beautifully maintained and well appointed with three beds, two baths, and a large grassy yard with front and back porch area with swings. The interior has detailed paneling, original features, and built-in 1920’s cabinetry. There is also a spacious garage that could easily accommodate one large car or two small cars. The price on this property has been reduced and I think the owners are highly motivated. They’ve already moved abroad, have hired a company to stage the home and will consider offers.  With the income property bringing in around $20,000/year (net), this could make mortgage payments very similar to what one could expect to pay in rent for something similar.

An investor with an eye for opportunity may be interested in 667 Marine Street. Technically Santa Monica, this 3,700 sq ft corner lot is just west of Lincoln between Rose and Ocean Park and still has that Venice vibe. It’s a really cute area with a local grocery shop directly opposite, and the property is just seven blocks from the beach. At $779,000, it’s a steal – but here’s why: it’s pretty much a tear down. But the upside is clear. The existing house (740 sq ft) is in good enough condition to move into right now whilst building a new house in the spacious yard. Or one could tear the whole place down and build a sizeable property instead. It’s being sold in “as is” condition, which means buyer beware!

For an investment property that you would actually live in, check out 3007 3rd Street, Santa Monica, listed at a highly competitive $645,000. This area is known as the San Francisco of the South due to the landmark buildings, hilly streets and walking community. West-facing, with an ocean view and 42 steps up from street level, this bright and breezy 1908 California bungalow definitely has a San Francisco vibe. The house needs some TLC, but for around $50,000, one could spruce it up to a very high standard. The compound used to consist of four duplexes (8 units), but was converted a few years ago into four freestanding bungalows with two beds and two baths each.

All four properties are owned as a “tenancy in common”. In layman’s terms, this means that any new owner would become an equity stakeholder in all four properties with equal ownership and rights. The obvious downside meaning that you would have to consult with your tenants in common over matters such as improving, maintaining and managing the property. Again, the price has been dropped recently and the other co-operative tenants in common are motivated to sell. The listing agent lives in one of the units and has extensive knowledge of the property. She has also gained permission from one of the other tenants in common to convert their basement into a two-car garage and she is offering one half of this garage for the use of the new owner.

Finally, for the Vacation Rental by Owner (VRBO) investor, 447 Grand Boulevard, Venice, offers a very high rate of return. The property consists of three immaculately maintained and well-appointed one bedroom, one bath vacation properties, and is priced at $1,650,000. They have been remodeled with sustainable/green features and include washer/dryers, dishwashers, full kitchens, WiFi and 42” HDTV’s. Renting at either $250/night or around $4,000/month, these properties yield a “back of the envelope” 5.8% cap rate based on 65% occupancy. If one were able to market more aggressively or secure longer-term tenants, the cap rate could be as high as 9%. For Venice, this is an exceptional yield. The current owners have built a solid brand and have loyal returning clients. This existing client base and the brand awareness of these rentals would be “goodwill” that comes with the property.

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If you have a question about Venice, Santa Monica, or investment properties, please call us at (310) 845-6810 or email us by clicking on this link. We'd like to hear from you!

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Beverly Hills Development Watch: 9900 Wilshire, Coveted Robinsons-May Site in Beverly Hills Sells for $148 Million - 65% off Previous Sale Price

Many developments follow a simple course, going from raw land to finished final entity with nary a speedbump along the way.  That's not quite the case for 9900 Wilshire Boulevard, one of the most valuable real estate sites in the nation, which just sold for $148.3 million, after a rocky couple of years.

To recap, this site, home to the former Robinsons-May Department store, sold in 2004 for $33.5 million.  In 2007, jet-setting British developers Candy & Candy purchased the site for $500 million,  with ambitious plans to create a 235-unit condo/townhouse complex designed by Richard Meier, fabled architect of the Getty Center.

Needless to say, a global recession later, Candy & Candy were out, and Carlos Slim, Mexican billionaire and co-financier of the purchase, foreclosed on the $365 million loan.  The land was auctioned privately, and just closed this week.

The buyer is Joint Treasure International, a Hong-Kong-based private equity firm, with plenty of experience in this property type.  Since 1995, the group has owned the Beverly Wilshire Hotel, just down the road.  Joint Treasure intends to develop luxury condos and has had preliminary meetings with Richard Meier, but it's unclear, ultimately, what will emerge on the site.

We think now is an excellent time for the group to hit the drawing board with the intention of creating some of the best luxury housing ever to emerge in Los Angeles.  Perhaps five years from now, when the units open for sale, the global doldrums will have receded, and a cadre of world-class buyers will be lining up to get in on the excitement.

Beverly Hills Development Watch: Developers of 9900 Wilshire Surrender 8-Acre, $500 Million Site to Bank

Los Angeles Times: Coveted Beverly Hills property sold for $148.3 million

Mortgage Watch: FHA Tweaks Loan Formula -- Upfront Costs Lowered from 2.25% to 1%; Mortgage Insurance Increased from .55% to .9% Annually

Effective today, the FHA is tweaking its fee structure that will result in higher monthly costs for most borrowers in the first five years.

To recap, the FHA is in the business of insuring loans -- and not originating loans.  FHA loans were originally intended to help buyers with low downpayment (as low as 3.5%) and/or a low credit score.   As recently as a few years ago, FHA loans accounted for only 3% of the mortgage market.  Now, some estimates put FHA loan market share as high as 50%.

The good news is that upfront FHA loan origination fees will be lowered from 2.25% of loan amount to 1% of loan amount.  Most buyers roll these fees into the loan principal, resulting in marginally lower mortgage payments for the life of the loan.

The bad news is that mortgage insurance for FHA loans is increasing from .55% to .9% of loan principal annually.

Let's take a look at how this will impact the financing of a $500,000 purchase with 3.5% downpayment, resulting in a $482,500 loan.

Old Scenario:

Total Loan = $482,500 + 2.25% loan fees = $482,500 + $10,856 = $493,086 loan principal @ 4.5% interest = $2,498/month

Monthly Mortgage Insurance = .55% of loan amount annually = $493,086 x .0055 = $2,712 annually or $226 monthly

$2,724 monthly payment

New Scenario:

Total Loan = $482,500 + 1% loan fees = $482,500 + $4,825 = $487,325 loan principal @ 4.5% interest = $2,469/month

Monthly Mortgage Insurance = .9% of loan amount annually = $487,325 x .009 = $4,386 annually or $365 monthly

$2,834 monthly payment

Bottom Line:

For the purchase of a $500,000 property with 3.5% downpayment, the new fee structure will result in a $110 increase per month in payment, but the amount borrowed is $5,761 less.  Mortgage insurance is typically required only for the first five years of the loan, or until equity is above 20%.  After 5 years, the monthly payment under the new structure is $29/month less.

FHA loans have helped many borrowers purchase properties who otherwise would not qualify for a conventional loan.  These loans have experienced a high rate of delinquency (as of June 2009, there was an 8% delinquency rate on FHA loans), and it's no surprise that the FHA is raising their mortgage insurance fees.  These FHA loans remain a great resource for the buying public.