Irvine Housing Blog

Future House Prices - Part 3

Price Decline Influences

There are a number of factors that will influence the timing and the depth of the price decline. There are a number of psychological factors and technical factors in play. [1] These include:

• Smaller Debt-to-Income Ratios
• Increasing Interest Rates and Tightening Credit
• Higher Unemployment
• Foreclosures
• Decrease in Ownership Rates
• Government Intervention

Smaller debt-to-income ratios impact the market because buyers tend to put a smaller percentage of income toward housing payments during price declines. Increasing interest rates decrease the amount borrowers can finance and use to bid on real estate, and tightening credit decreases the size of the borrower pool and thereby lowers demand. A deteriorating economy and higher rates of unemployment means there are fewer buyers with the income to purchase homes, and more homeowners are put in financial distress. High rates of financial distress caused by unemployment or the resetting of adjustable rate mortgages in a higher interest rate environment leads to more foreclosures. Large numbers of foreclosures adds to market inventories and works to push prices lower. The ultimate unknown factor is the meddling of the US Government in the financial markets. A bailout program for homeowners or lenders could radically alter the course of price movement.

IHB News 5-15-2010

I hope you are enjoying this beautiful weekend. I have a nice middle-class overpriced Irvine property for you to look at. 

Irvine Home Address ... 34 DEER Spg Irvine, CA 92604
Resale Home Price ...... $699,000

The Mechanism For Diverting Bank Losses to the US Taxpayer

The GSEs made many bad loans during 2008 and 2009. Loan buyback clauses in mortgage-backed securities deals insured by the GSEs is how these loans will become the responsibility of US taxpayers.  

Irvine Home Address ... 28 BELMONTE Irvine, CA 92620
Resale Home Price ...... $675,000

Riverside County: 90% of mortgages underwater, 23% of mortgages 60-days late

The mortgage statistics out of Riverside County are pretty grim. Will the substitution effect pull prices down here in Irvine? 

Irvine Home Address ... 40 SALT BUSH Irvine, CA 92603
Resale Home Price ...... $4,995,000

The Cash Value of Real Estate Explained

With an understanding of the relationship between mortgage interest rates, capitalization rates and market rents, the cash value of real estate can be readily calculated. Today, I show you how. 

Irvine Home Address ... 1 WINTERSWEET Way Irvine, CA 92612
Resale Home Price ...... $1,188,000

The Lender Decision Tree and Limited Resale Inventory

Lenders have limited options for dealing with delinquency. So far lenders are holding current price levels by keeping properties from the market. 

Irvine Home Address ... 7 Capobella Irvine, CA 92614
Resale Home Price ...... $675,000

Future House Prices - Part 2

Price-to-Income Ratio

Since incomes and rents are closely related, evidence for the Great Housing Bubble that appears in the price-to-rent ratio also appears in the price-to-income ratio. National price-to-income ratios are quite stable. There has been a slight upward drift with the decline of interest rates since the early 1980s peak, but from the period from 1987 to 2001, this ratio remained in a tight range from 3.9 to 4.2. The increase from 4.1 to 4.5 witnessed from 2001 to 2003 can be explained by the lowering of interest rates; however, the increase from 4.5 to 5.2 from 2003 to 2006 can only be explained by exotic financing and irrational exuberance.