Irvine Housing Blog

Never say Never.

Depends on what type of Correction are we having.
The Stock market corrected earlier this decade - I guess if you bought the DOW or S&P and held you would be saying everthing is great.  On the other hand you would still be hating life it you bought Nasdaq at the top - still over 2000 points below its top.
So what type of housing correction are we having.  If you think prices will hold at last support (2003) then I suspect you also think we are not headed toward a recession.
Next level of support is the previous wave high (98-99) prices.
Next support after that would be a trend line touching all previous housing lows.  At this point would be about 1.8-2.0 times 93-95 lows.
For your sisters house that would be about $290-320k.  Of course if we have a depression then even this trend line won’t hold.

IMHO - I don’t think we will have a depression, but I think there is some danger of one - I’m somewhat suspicious of having a fed chairman who’s life passion is understanding why the great depression occured, and how it could have been avoided.  Bernarke has written extensively on what the Fed did wrong.  If you read his comments you will realize that the Fed cutting the discount window had nothing to do with saving the stock market and everthing to do with saving a Bank.

LOL!  I have to laugh at some of you Sheeple!  Prices at 1990’s levels?  Prices per square foot at $180?  You folks are the reason why there are booms and busts!  Sheeple follow the herd in a “Boom” as well as a “bust”!  Overly optimistic in a boom and overly pessimistic in a bust.  They are the ones saying things like “This is a new paradigm” during a boom and “This market will crash and BURN” during a bust. 

This real estate rally started here in Orange County in 1996...that is when my wife and I bought our Portola Hills house for $255k....by 2002 when we refinanced it appraised for $550k...that my friends is a 100% increase.  Most would call that a “boom”!  This is when long term interest rates first dropped back to the 6% range (followed by 2003-2005 when they were in the 5’s).  This was also before the great wave of “exotic” mortgages began to be rolled out and Sub-Prime mortgages were still in the 10% range.  It was starting in 2003-04 that the great herd of “Sheeple” jumped on the real estate merry-go-round which happened to coincide with the now woefull decision to loosen lending standards allowing for 100% financing on subprime mortgages (New Century and Encore) and “No-Doc” loans (or, “Fog-a-mirror-get-$750k-mortgage” loans).  This was followed by the brief starburst of activity in 2005-06 for the “No money down” crowd of sheeple who are now by and large the folks defaulting on their “underwater” properties!  They were sheeple.  What happens to sheep?  They get SHEARED!  They jump in after everyone else has made money and they DON’T!!!  If this is YOU, then you are one of the “Sheeple”!  Currently, we are in a (Say it with me) “M.A.R.K.E.T. C.O.R.R.E.C.T.I.O.N.” and the people getting corrected are everyone selling/losing a house in the next few years.  If you don’t need to move....DON’T!  If you can make your mortgage payments....MAKE THEM!  It’s pretty simple really!  Prices will NEVER go back to 1990’s levels....NEVER!

Quick story:  My sister bought a home in OC in 1992 with her husband.  By 1995 prices had dropped 20% (which for her was from $210k to about $160k) and her husband had lost his job (as nearly 1 million did in S. Cal during the 90’s home price depreciation era).  She made enough to pay the mortgage but their BRILLIANT decision was to walk away...foreclosure came next, along with Ch. 7 bankruptcy, and it was 8 years before they bought another home.  Had she waited and continued paying the mortgage which she could afford, her husband got another job within 6 months, prices came back to 1992 levels in her neighborhood by 1999, and her credit wouldn’t have been ruined for several years....BRILLIANT MOVE SIS!!! 

The moral?  Sheeple are sheeple because of fear...fear of being left behind by everyone else and fear of the future.  Fear prevents good judgement and prevents almost all sheeple from ever acheiving TRUE success.  Just as “Hope is not a plan”, “Fear is not analysis”!  Don’t be part of the “Sheeple” herd!  Think about this market and realize that prices will definitely go down, it is because of interest rate and market concerns along with credit tightening (back to 2002 standardds by my view) and affordibility issues relating to that...nothing else.  Until you and your neighbors lose their jobs en masse and can’t afford ANY payment, worry but don’t be so ridiculous about it!

I think that the heat is getting to a lot of people with the number of personal attacks, bitter comments, and defensiveness in the comments. Talk about touching a nerve!

But at the same time, it keeps me reading, and definitely entertained.

Sue,
Thanks for all the links you post here, if I’m ever taking a break at the office, there’s a multitude of things I can read thanks to you.

Don’t confuse folks with the facts.

Actually, Genius, I think you may be total moron after all.

Sorry i didn’t see you comments regarding regression.  I was referring to regression to the mean (no multiple regression).  Perhaps I should reverting to the mean. 

As for actual regression, I was referring to regressing long term housing growth rates to inflation.

The filet and ground chuck analogy!  C’mon I loved that one.

100K isn’t enough, sorry.  As they say, the rich get richer.

awgee is right.  House values here in California will be dropping by triple digit figures.  If I was a lender, I would assume that many would walk away from such a loss and leave me holding the bag.  So why would I take that risk ?

Is this some sort of analogy that I’m missing ?

NSR, your tax rate on your new home will be 1.0% of the actual purchase price and it will stay fixed at that number for as long as you own the home. 

http://en.wikipedia.org/wiki/California_Proposition_13_(1978)

The .25% the Realtors speak of may be the additional estimate of Mello Roos ?  Not positive on that though.

oog,

I would just sit tight. The deals will get nothing but better over the next several years.

Sounds like your previous landlord was a fool and it now paying the price for his foolishness. Looks as if he is asking too much for rent and too much for sale. That is a recipe for owning an empty house.

I would be happy to hear what you have to say after you take back your analogy.  I’m still lmao about that.

I have about $100k liquid, and I’m sure that’s enough to get me started.

WOW CapitalismWorks.  ****************.  You just compared regression betting to “regression” to validation.  ************** Please don’t ever talk to me again.  I’m scared your stupidity is contageous.

(Edited by blog administrator)

Personal attacks are not welcome. Please stop.

What builder and what community.  I am surprised the builder dropped so much!

Sorry about the typo above, this house has been on the market for $1,800,000 for 50 days (not $180,000). 
The rent to own ratio would be near 1:300…

I was told about a deal in Costa Mesa:  Builder asking for $900,000.  Someone gave a lowball offer at $600,000.  The builder actually gave a counter offer at $650,000.  The rental value for this property would be about $2500/month.  We decided to pass on the deal for now…

Any thoughts?

Cruiser,

Are you going to stick with that name or change it next week? This is your last warning and I know who you are in the forums too. If you like posting here you do it under one name and one name only.

$72,000 a year on rent!  Talk about wasteful.  Just think of how many houses in Columbus you can buy with that!

Big Fall Reported in 2Q Home Prices
S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987
http://biz.yahoo.com/ap/070828/home_price_index.html?.v=10

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Mortgage Crisis Spreads to High-Cost Real Estate
http://blogs.wsj.com/economics/2007/08/28/mortgage-crisis-spreads-to-high-cost-real-estate/

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Local family looses oldest son in Iraq, fear life insurance money is gone too
http://www.ksby.com/Global/story.asp?S=6981150

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Ex-American Home Mortgage manager going to Prison
http://www.newsday.com/business/ny-bzahm0829,0,1995673.story

Janet,

There is no need to be condescending and trite. I have to say that your comment does sound a little bitter. But for the record let’s see how IR has done. Sales volumes tanking: Check.  Sales prices dropping: Check. Foreclosures increasing: Check. Credit bubble bursting (you should know better than most since it killed your business): Check. So far that is a pretty good record.

Now let’s compare that to yours. Well you have been in denial the whole time and that would mean you are and were wrong. Like I ask all the commenters who want to say that IR and the people at IHB are wrong back it up with some facts. Unknowns? Give us some, any or even one.

Let me help you it isn’t job growth because it has sucked even when you exclude the RE related jobs.

It’s funny CapWorks brought up Japan, but failed to make the connection between Japan and how housing prices can decrease (16 years and counting) when there is no more available land.  I also have to disagree with CapWorks when it comes to the desire of all the US to move out to the OC, if only they could button up their overalls and get the tires back on the Studebaker (between thunder/snowstorms).  Actually, the last 10 years have shown a decrease in US citizens moving to the OC.  But, I’m not really shocked about your comments concerning places like Ohio.  Most Americans have pride in their town, city, whatever, but show it in less obnoxious ways, more humble ways.  But all of those time consuming things like helping elderly neighbors and volunteering and cutting one’s own lawn are impossible for a fellow like you, trapped on the 405 with a sad little hidden feeling in your stomach.

oh-shoveling for four straight months?  Canadian Rockies, maybe.  Summer thunderstorms?  How dreadful, you know, nature and everything.  Four Seasons?  pass!

Steep Home-Price Drop Stirs Fears
http://online.wsj.com/article/SB118831907938011082.html?mod=hpp_us_whats_news

Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.

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Consumer-Confidence Index Fell in August
http://online.wsj.com/article/SB118830657859010931.html?mod=hpp_us_whats_news
The consumer confidence index fell to 105.0 in August from a revised 111.9 in July, which was a cyclical high, the private economic research group said. This is the lowest level of confidence since August 2006 and the biggest drop since the aftermath of Hurricane Katrina in September 2005.

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Gimme shelter
Presidential candidates and the economy
http://economist.com/world/na/displaystory.cfm?story_id=9706894

IR:
While we are looking at the rent to own ratio, I like to share my own case with everyone…

My lease was up in Turtle Rock: 3600 sq ft for $6000 a month.  My landlord would not accept a month to month extension but would like me to stay for another one year lease (no rent increase).  This started my search for other opportunities in Irvine area.

My new lease will be 4000 sq ft for $5500 in Northwood gated community.  Since we are talking about rent to own ratio, this same house has been on the market for $180,000 for 50 days.

I gave my landlord the senario before signing the new lease.  I probably would have stayed at the same house for the same rent and save the trouble of moving if the Turtle Rock house could be a month to month term.  My landlord thought I was looking for a discount and told me he could not lower the rent.  He is now looking at giving up 6% commission hoping for a nice tenent like me :(

I am believe I will be ready to look for a deal in December, 2008.  The reason for wanting a month to month term because I thought I may be able to pick up a forclosure deal in Shady Canyon or Turtle Ridge later this year!  What are your thoughts?

Thanks for this wonderful blog.

PS- there are almost no rent increases from ytd…

The no more land argument… If everywhere else in the world is growing land than this argument might bring some actual debatable value into the conversation.  In regions like Hong Kong, Taipei, Shanghi, Peijing, land is a commodity.  Not because they are not growing anymore, but you have an influx of massive amounts of money that was brought into the region and has created much wealth for many individuals.  If not, there would be no high rises with prices that the average US millionaire can not even afford.  Do I think Irvine is having an massive influx of money?  Is Irvine sucking a good amount of the money the world has to offer?  I don’t think so.  And with the effects of the layoffs from the financial industry and the disappearing mortgage liquidity there will only be less qualified people to sustain the bloated prices many are hoping for. 

As for the well tempered climate in Irvine, unfortunately, Irvine is not the only location in Southern Cal to make that claim.  And not every qualified buyer is willing to put all their financial freedom in Irvine just because the weather is nice.

Please, continue to bring the opposing views.  I don’t know enough predict the future, but the more viewpoints I can get, the better chance I have to guessing it right.

Just as a few years ago when all the news was bullish and the bears were ridiculed into silence, that was not good.  People couldn’t hear both sides and make up their own minds.

Similarly, if all the news becomes bearish for a few years and then the bulls are ridiculed into silence, that would not be good either - I need to hear both sides before I can make an informed decision.

For those who were not here in the early 90’s, I was.  I have lived here all my life.  All houses dropped in value.  I laugh when I hear people say the high end will hold up.  The high end always drops last and HARDEST.  The more expensive the house the greater percentage the house dropped in value.  Also condo’s are toast - they have no land.  I would not be surprised if those high rise condo’s dropped 90% in value.  Houses peaked in 89-90 and bottomed in 93-94.  It took 9 years (98-99) for houses to return to th 89-90 peak.

Correction on the previous figures.  I just realized I multiplied by .77 rather than .66.  The adjusted figures should be lower (though still greater than the very low 3%CPI figure).

Rather than dredging up another example, why don’t we focus tomorrow’s blog on answering the following:

1) What is the call option the renter sells worth?
2) What is the correlation of HPA and inflation over different eras?
3) Are we likely to see higher or lower inflation over the next 10 years (hell what about 20 with the unfunded medicare and social security, and $1.3 Trillion in Chinese reserves alone).
4) What is the liklihood of a Fed rate cut, and at what point can they effectively bail out the marginal homeborrower facing foreclosure?
5) Will the legislature act in defence of home owners independent of a Fed rate cut similar to an S&L crisis bail-out?

IMO the highlighting of examples of “overpriced” sales is tired.  Let’s get the meat of the matter, and start figuring out what could prevent a complete disaster in housing.  I can guarantee thats what they are doing at the Fed.

What McMansion Carbon penalty?  Are you serious?  Can you please post a link to the info?

Yes, but why not rerun the number with a more realistic 6% inflation.

As for the call option the renter sells, it is the call option on HPA.  Assuming an owner uses a hedged mortgage (e.g. 30-Year fixed), there cost of housing does not change.  The renter on the other hand subject to constant repricing on housing costs ever upward with the inexorable climb of inflation.  That is the call option the renter sells, and the owner buys.

As for housing prices doubling in 10 years.  Actually they do just that if they are growing around 7%.  I could argue that population centers with solid business districts in prime locations would enjoy just such growth rates.  In fact I bet we can find a number of metro areas with just such HPA rates all over the country.

Let’s take a little history lesson.  If you were a buyer in Southern Calfornia in let’s say the early 70s you could purchase a respectable starter home for ~$25K.  Less than 10 year later, that same home would have cost you more than 6 times that price at about $150, and in some cases more than $200K.  People back then said the same thing as the bears on this board.  Unsustainable, it has to go back, houses don’t go up that fast, yotta yotta yotta.  In fact they have gone up that fast and stayed there.  In fact those buyers in those houses earned a CAGR of 10.7% over the past 29 years.  (I am using real numbers by the way).

Is 10.7% too high?  Maybe over the next 29 years it will be closer to 3%.  Maybe?

Keep in mind that for the majority of those 29 years we were living a falling inflation environment.  Given that real assets prices are positively correlated to changes and rates of inflation one who naturally expect far more modest growth in HPA over that same period.  Additionally, given that inflation is currently at a near all-time low having been vanquished by a combination of credible central bank policy and low wage exports from the third world (both of which are now abating), I could make that case that HPA in a reflationary environment should be greater than in a disinflationary environment.

Would that be Treeridge?  A measely 3600 sf.

Last sold for $478,500 in 1997.

For sale at a minor $1,580,000.

Yep, Irvine, California, the place to make a 200% return by holding a tract home for a decade.

Hey, that’s a mere 11.6% return. The same as the stock marke.

Tomorrow I have a post coming out with a comparable priced at $1.3M. If is a bit smaller, so some with argue it isn’t a true comp.

The $837K number is too low, but it was arrived at using the methodology you outlined. I put it in to illustrate how far current pricing is detached from reality.

Realistically, in a post-credit bubble world, these will be $1,000,000 properties perhaps a bit less if rates move much higher.

Well, $1.7 Million is still nearly 3X the late 1990s prices from 1998 and 1999.

Now I don’t know about you, but in general, houses don’t double in less than ten years, let alone triple.

I amazed that people can accept 20%+ price growth in a year but such a decline is tin-foil hat worthy.

33% of today’s price would put those units at the top of page at

1) $1,999,800 goes to 1540000
2) $1,999,900 goes to 1540000
3) $2,400,000 goes to 1848000

Now I guess these are WTF prices, but we can quickly look up the most recent sales comps, and I have…

I will say they are from late Q1 07, and the prices are lower close to 1.7, 1.65, but even 33% off those levels give us a fair value price closer to $1.3MM

This i a very very far cry from the ~$850K figure using the bogus CPI growth rate (a bit disingenuous on that one by the way, but is does still help anchor our discussion).

1. In the posts I linked to above, I created detailed tables showing the impact of different interest rates. Lower rates make for higher prices, and higher rates make for lower prices. IMO, rates are going up because the risk premium is going to increase during a credit crunch.

I don’t understand 2 and 3. The only options I see involved are the call options—if you want to look at it that way—purchased by flippers using 100% financing. They got all the upside and passed the ownership risk back on to the banks.

He means gross rent multiplier.  On a monthly basis.  Actually that would be 120-160 for me.  I tend towards annual: 10-13 gross annual.  Which is 120-156.

Typically, rents run $1-$1.5/sf. for SFRs per month.

So, at 2500 sf, at 300X it’s $750,000.  At 200 it’s $500,000.  At 160, $400,000.

wow, I go on vacation for 2 weeks, come back and the sentiment is certainly changed, when I used to say 200 per sf, people called me crazy, now we are talking 180 sf?. while I personally think prices will make sense around 200 sf, watching the credit crunch unfold, plus psychological factors and overcorrection--> 180 sf can be had if you find a bargain esp on the gigantic houses. as nanowest said these houses will not go easily at 1.5 mil, thats a whopping 500k annual income. at 500k my criteria is alot different than these macboxes.

1) Again, how will a drop in rates affect that ratio.  At what prevailing mortgage rate equate current prices to equivalent rents?

2) What is the value of the call option sold by the renter?

3) What is the value of the put option purchased by the owner?

Help me out here.

Yes, I would say 33% off of today’s pricing would put us near rental breakeven. It was about 50% off the peak, but we have declined since then.

Yes, yes, so if price dropped by a third than you would be able to match the rental price of a home correct (or at least roughly correct)?

If I could spell my prior comment might have made more sense.

I have done a whole series of analysis posts discussing all the points you raised above:

http://www.irvinehousingblog.com/analysis/

Inflation is probably not the best measure. Growth in rents wages is much better because people make payments out of their wages. The amount they are willing to put toward rent is a direct proxy for ownership. I covered this in detail here:

http://www.irvinehousingblog.com/2007/05/07/your-buyers-loan-terms/

http://www.irvinehousingblog.com/2007/05/14/the-anatomy-of-a-credit-bubble/

Those two posts will cover your points from 1-5.

You are correct that the cashflow of the property is the key to evaluating its value. Right now, you can’t rent a property and cover even 2/3 of your cost of ownership. IMO, that is a horrible investment.

Please read the gamblers fallacy comments related to the regression to the mean in HPA.  I am sick of hearing this moronic argument.  Please.

Of course, no on is coming to you, because in fact you don’t have the money or the resources.  They are in fact going to lenders all over the country who continue to write Jumbo loans and today’s rate is a mere 7.18%.  Sorry awgee, your ask is a little to high for the going bid.  In fact this disconnect between bearish sentiment and market clearing prices seems to be rampant on this board.

Forgive me, I am not familiar with form of your answer.  Are you saying $250/sq.ft monthly rent?!?

Actually I do.  Do you have more than $5MM liquid?  And can you stand a long lockup period?

Yes, this is a nationwide disaster.

Now we are getting somewhere.  Now let’s continue this line, because I like it.

1) How does one measure inflation?  Do you think CPI is good, core or headline.  How about we strip out the dedonic adjustments.  For example I don’t think the benefit from my Personal Computer is doubled when my processor speed doubles.  Perhaps we could use a more realistic measure of the Cost of living, perhaps the growth in the DJAIG commodity index, which of course captures the prices of a diversified basket of commodities.  It certainly seems that everything that I pay for regularly (e.g. gas, milk, coffee, etc) has gotten expensive faster than 3%.  In fact it is widely accepted that the real rate of inflation is far higher than reported 3%.  I would expect HPA to more closely track the real Cost of living as opposed to ephemeral statistics.

2) Second what was the rent on a comparable unit in 1998, and how has then rent changed over time.

3) How does this rental cost compare with the real cost of ownership over the same period?  Is there a divergence?

4) Keep in mind that all things being equal, renters are selling a call option on housing prices to owners, and receiving the premium in the form of lower payments. (read: the owner should expect to pay more than the renter for the same unit).

5) How much do interest rates have an impact?  Obviously low rates help the borrower and do little for the renter.  How much of what we are currently encountering in housing can be solved by a significany fall in Fed Funds? (awgee and lendingmaestro, please spare me the discussion of the disconnect between mortgage rates and Fed funds, the effect is lagged but the correlation is extremely high).

Ever heard of the gamblers fallacy?  Think about the electronic board as the roulette table that shows the last 25 numbers that hit.  The casinos put this board up so people will look at the numbers and see a pattern (any pattern).  Of course, its independent selection but that doesn’t matter.  So long as the gambler has the illusion of insight he will gamble more… “of course it going to be double-zero, that number is due!” This fallacy often contributes to an over-reliance (and misunderstanding) of regression to the mean. IR, I think I remember you once posted a chart of long term HPA vs. recent HPA as an example of intrinsic value, however this is simply the gambler’s fallacy.

More important is the evaluation of the 1) cash flow generated by property, 2) the call option premium earned by the renter (sold to the owner), 3) the value of the owner’s put option on the mortgage which allows him to put back any loan at the lowest possible rate over time 4) the additional values that arise out of home ownership (e.g. control, privacy, pride, etc.)

Based upon what Wall Street did today, this is the same problem in many other places in the country besides OC.

Sells real state in Akron, OH.

That’s exactly right, IrvineRenter.  There are lots of pros of OC (weather, beaches, great paying work, beautiful shopping centers, the Angels, Disneyland, etc.) and there are just as many serious cons to living here (pollution, terrible congestion/traffic, over crowded tract neighborhoods, irresponsible spending and debt, poorly managed government and home owner associations, superficial and hedonistic people everywhere, etc.).  But the point is well taken that you can get a great estimate of proper valuation of property here by tracking back to a healthy market (when there WASN’T over a year’s worth of inventory languishing on the market and unable to sell) and compound inflation back in.

I would buy one of those houses above for $837,664 right now (though I do think the market may overcorrect a little and dip lower).

Your exactly right, and I don’t think the reality of that has sunk in yet.

So… Anyone know of any good vulture funds?  I’m looking to pick up some cheap debt.

You just became the first Jealous Bitter Owner.  Congratulations.

I’m sorry you lost on your property(s), I really am, but your posts here are mildly retarded at best.  If you have no need to “bargain” with the posters here then what is it that brings you here?

After multiple years of 20+% appreciation, massive forclusures already in the works before even hitting the peak reset month, a tighter fed and the rest of the nation finally pulling the blinders off of their eyes, among other things, I think I can say with CERTAINTY that prices are about to tumble.

NanoWest:

I like the way you broke down the cost of one of these beasts.
I watched the cost run up in san diego where i live for the last 10 years once it got really crazy. I did not understand. I kept thinking who can afford This? who makes that much money?
I did not really know about.
ARM, neg am & intrest only loans. these are carzy concepts to me. or they were. Im old fashoned I buy stuff and pay it off. then keep it for a while. Im talking about cars. but my intention is to pay off a home also.
when i buy. if i hav to i will buy less but I will pay it off. rent free mortgage free That would be cool. thats my dream and my Goal.

So true...amen to Janet.

There you go again IR.

I rarely take you on, because it’s your blog and I know you will simply cut me off.  Real nice, by the way.

You are, without a doubt, the most all-knowing person I have ever encountered in the blogosphere (or in life in general).

I have never onced heard you make any allowance for any unkowns. 

How is it you are so certain of any, and everything?

And why is it that you don’t know how to treat even mildly-opposing views wih anything but disdain and ridicule?

For the 20th time, I have had big (real) losses on another property recently.  And I expect a paper loss on my present home here.  For awhile.

I have zero need to “bargain” with any posters here.

Last time I checked, they do not pay my mortgage.

Senators and Bankers Beg for Jumbo Loan Changes
http://thegreatloanblog.blogspot.com/

Exactly, and anytime someone starts whining about the market being wrong or knee jerk, why don’t they put their money where their mouth is?  Non-perception of value when value actually exists is an opportunity for profit.  I think what folks don’t understand is that it doesn’t matter how valuable a paper looked yesterday, if the market perceives a lack of value tomorrow, that paper is dead.  If you came to me with a perfect credit history, ample income to make expected payments, and a 80% LTV for a $500,000 home, and an interest rate of 8% for a loan, I would turn you down.  The risk, (of the home being worth less than $400,000 soon), does not compensate for the reward.

At present it’s real simple. 

The value of the homes in OC are worth $417,000 + whatever down payment the buyer is willing to put up or less.

100-120.

See.  There’s even disagreement on that. 

Rent stats, are probably one of the few stats that are less reliable than RE Sales stats.

Is the first conforming and can be sold?

I think most people outside the industry do not fully comprehend what you are saying. I suspect when the sales volume completely craters over the next 6 months, the impact will be undeniable.

Easier said than done. Even when I post comparables, people disagree and say it isn’t a fair comparison.

I would note that at the peak the rent to own ratio based on properties being offered both for sale and for rent was at about 300. Lately it has dropped to about 250. It will get down to 160 or less before we bottom.

“You will come out unscathed?

Even with a recession?

A depression?”

Janet,

You are bargaining. Some people here will take pleasure in what is to come, some will not. Some people will be hurt, and some will not. Whether we feel pleasure or pain it will not impact the market.

The storm is coming. Negotiating with the weather is a fruitless endeavor. Although, it does put you one step closer to full acceptance…

“Take that last time you believe housing prices were “fairly valued” or trading at intrinsic value etc. Than compound that price at the prevailing inflation rate since that time until now.”

Take the 1998 price of 23 new dawn of $642,000 and compound that at 3% (which is above the average rate of inflation over the last 9 years,) and you get…

1998 $642,000
1999 $661,260
2000 $681,098
2001 $701,531
2002 $722,577
2003 $744,254
2004 $766,582
2005 $789,579
2006 $813,266
2007 $837,664

LMAO at tonye :D

Maybe on 1-18-08 we’ll see a price rise in NY after it gets destroyed by a big monster.

Inflation, deflation, stagflation… It all looks pretty bad, but I doubt we’ll end up in Japan’s position.  Ben seems reasonable so far, but it’s still way early in the game.  What I don’t like is the fact that my foreign investments seem intertwined with the US market.  I may as well have just thrown all of my money at the S&P rather than diversifying.  Lame.

I would like to request that IR start including rental rates on similar housing units for comparison purposes.  It would certainly go a long way to help identifying intrinsic value.

Very well said, couldn’t have done it better myself.

And Joe, with the personal attacks?  Please find a way to control yourself there skippy.

The two major problems I have with the majority of posts on this board are as follows:

1.  Many here seem to “delight” in the financial misfortunes of others.  Everyone is cast as an evil flipper when, in fact, there are inumerable circumstances under which someone could find themselves in a bad financial position right now.  And I for one do not take pleasure in this pain and anguish.  IR - I truly enjoy your analysis, but you are even more culpable for creating this atmosphere.

2.  I consider myself a pragmatist, and much like CapitalismWorks, fully expect declines in OC RE.  More along the magnitudes of 10-20%, IN THE AGGREGATE, over the next X number of years.  I say X, because I, unlike some on this board, cannot predict the future.  (But I consider myself a quick learner, in case anyone is offering.) So accordingly, I would classify many posters on this board to be classic Chicken Littles.

And regarding the smug OC attitude about there being no beaches in Ohio, please see CapitalismWorks postings.  It’s simply a fact and will always play a part in relative prices.  I beg of you to deny that.

Oscar,

You did all this after your boxing career?

Tokyo too a beating relative to bubble price, yes.  We also have a bubble in U.S. Housing currently.  The difference is that the Japanese economy slipped in a deflationary spiral which they have not yet fully recovered.  I would hope that Bernanke’s Fed, as focused he is on deflation, would stave off Japan type scenario.

You talkin’ to me?

I think I heard Gojira coming down the 405.  I guess he must have been brought up as a baby on a JAL 747 and was nurtured ini Mile Square Park....

Dang new comers… there goes the existing stock of unsold houses.  This should be good for the local RE market, huh?  A few thousand houses burnt to a crisp and plenty of room on the sides of the 405, 55 and Santa Ana to build more lanes.

Oh, no, there goes Costa Mesa-oh… go, go, Godzilla.

The problem with land in Tokyo is that every time they reclaim some land from Tokyo Bay, a damn fire breathing Godzilla comes up from the depths of the nicely graded, mixed high density mode zoned land.

Obviously this is not good for RE values because the darn fire breathing mosnter will trample half of the condos facing the shoreline, smoke the nearby golf courses and then destroy the local rail yards, electric power lines and a couple of thousand Toyotas.

That’s why they’re NOT making any more land in Tokyo and why Real Estate in Tokyo ain’t going nowhere.

Besides, Mothra always fights Godzilla in Southern Japan… that’s why land in Osaka does better.  “Gojira” never gets a chance to destroy it.

Duh....

No more prime coastal land.  Sorry everybody, for full disclosure purposes I bought in 2003, and thought the prices were crazy then.  More than comfortably afford my modest mortgage.  I am not a housing Bull, and fully expect a 10-15% decline within Orange County over the next 12-24 months.  I expect more than that is the Inland Empire.  I expect this is not nearly as bearish as most of the people on this board.

My point was that comparing Irvine to Ohio was like comparing Filet Mignon to Ground Chuck.  Hey you can dress both of them up with spices and sauce and a great chef can work magic but in the end I’ll go for the Filet every time.  Translation to housing: the meat is the location and spices are the structure.  Read: there is a very low correlation between the housing prices in Ohio and housing prices in Irvine.

If you don’t believe the California (especially Orange County) is an extremely desireable place to you are a fool.

Now as for the ludicrous predictions on price erosion, I simply can’t understand how a real asset (last time I checked real estate was the primary real asset), would not continue to grow at least at the real rate of inflation.  Take that last time you believe housing prices were “fairly valued” or trading at intrinsic value etc.  Than compound that price at the prevailing inflation rate since that time until now.  I assume most everybody here is familiar with compound interest growth. 

You can use headline CPI.  You can use Core PCE Deflator.  You can use any inflation measure you would like.  The fact is the number will be higher now than any point in the past at which the unit traded a intrinsic value because inflation is nearly always running forward (unless you are Japanese).

To clarify, for those of you who believe that prices are going to decline to 1990s levels you have to believe that housing prices at some point during that decade that their current instrinsic value is below that starting price plus inflation on the asset.

Now back to location.  There is no more land on the Newport Beach Peninsula.  There is no more land in Manhattan Beach. There is essentially no more land with ocean views anywhere between the southern end of OC to thew Northern end of LA.  Please don’t tell me about weeded lots, they simply don’t exist. I am sure most of you agree.

Moving inland from the coast land becomes less valuable, clearly.  It is still preferable to be 10 minutes from the coast instead of 30, or 60 or more.  The weather is more temperate.  It’s nice to go to the beach.  That’s where the urban and commerce centers are located.  So yes, they are indeed running of land in California, or did ya’all think this was Texas.

That’s fine, I never see the majority of my customers in person.  My lead source is not soley from foot traffic in the branch.

CapWorks - Yeah, they’re not making any more land.  Looks like they’re not making any more flakey loans or foolish buyers, either.  Sorry for your pain, bud (really, I’m not being a wanker).