Another excellent post.  There are, of course, many alternative future outcomes but you bring some real rigor into your analyses.  It would be nice if you are off a bit on the bottom; perhaps, as apparently happened during the ‘90s, prices will rise miraculously to end the pain.  With interest rates at rock bottom now and nowhere to go but up, that seems pretty unlikely.  Once we get to a more sustainable interest rate level there will be considerable downward pricing pressure to offset whatever positive market fundamentals exist.  I hope that we can at least bounce along near the “bottom” here for the next 24 months or so, numbed, but no longer in pain.  I will count it as a victory if there isn’t another dramatic fall in prices.  We can weather the current financial blizzard if there aren’t any additional major shocks.

Is this a condo?  It looks attached.

Did somebody call bullshit?

IR:  Thanks for the clear and insightful post.

The misinformation that is out there now is probably thicker than in 2004, 2005 or 2006.

It looks like a luxury garage. All I see is a gigantic door to drive a car through and a few windows up above.

I disagree.  We are definitely at a bottom-past it, even.  Prices are starting to rise a bit, or at least have stopped falling.  That’s a bottom, folks.

The question is, are we at the bottom?  There is definitely a chance of a double dip in prices, with prices falling again as more foreclosures show up.  But it’s not guaranteed, either, no matter how many pre-foreclosures are out there.  Inventory of actual foreclosures is still very, very small.  If the pre-foreclosures never turn into actual foreclosures, or do so over an extended time period instead of all at once, we may be past the absolute pricing bottom.

I originally thought the bottom would be in 2012.  I have changed my mind.  In real dollars, the bottom will not be in until 2015.

LOL. I laughed so hard I almost had Java City french vanilla coffee coming out my nose

Where you are in Riverside, perhaps.
Where we are in Irvine, I really doubt it.

I appreciate your courage to present and defend your views.

I agree great read again!  Thanks.

http://www.redfin.com/city/9361/CA/Irvine

Look at the graph in the middle of the page.  Leaving it on both (as opposed to just condos or houses), and looking at sold figures, the bottom was March 23rd, at $316 a square foot.  It’s currently at $333 a square foot.  Condo alone is more flat, with the bottom being on March 16th, at $306/sq ft; currently $312/sq ft.  House alone is most dramatic, with the bottom being on March 2nd at $320/sq ft; currently $347/sq ft.

Great post IR.  I was one of the bloggers on the OC Register berating this guy.  UCLA housing forecast must have gotten a big kickback from the CAR, their cheerleader mentality is disgusting.

He dismissed shadow inventory completely.  Did he mention anything about government intervention?  Without the massive government intervention we have seen in the last year…this market (especially in OC) would probably be 10 to 20% lower than it is today. 

As usual, time will tell who is right.  I just hope all these bottom callers offer a big public apology if they are wrong.  And I think they will be dead wrong.

So then, the real question is what is the unemployment rate in Irvine. Is it trending up or down?

I’ve said it before many times here: Low housing prices are the solution to our problems, both in real estate and the economy in general. Low housing prices means reasonably affordable mortgage payments, which will free up cash for consumers to spend elsewhere, driving our economy. Banks won’t be happy in the process, and neither will anyone who still has a vested interest in mortgage backed securities, but in the long run it’s the only way to make things better.

DON’T buy because you think we’ve hit bottom. Buy if you found a house you like and you can reasonably afford it. To me, that doesn’t mean throwing 35% of gross income toward housing, but that’s just me.

There are still too many artificial props. The question is whether those props are sustainable long enough for things to stabilize and function on their own.

Price charts rarely move in straight lines. In bear markets there are always headfakes and bear rallies that brings in new money. There is no way to look at a price chart of our recent bear rally and make a conclusive statement about whether or not this change in direction of the trend is permanent or if the downtrend will continue.

It is being driven by affordability of payments, so to the degree you believe 5% interest rates are permanent and that there is no further inventory issues is the degree to which you can be bullish. Since I believe interest rates will rise and inventory will be crushing, I am not bullish.

There is a correlation between things like the unemployment rate and house prices, but it’s not a perfect correlation-that is, just because unemployment (a lagging indicator) is still going up doesn’t mean prices will automatically go down.  There is a shortage of inventory and still a lot of pent up demand from people who were priced out during the bubble.

Home prices in Irvine are going up.  This is a fact.  They are higher than they were in March and are still climbing.  In fact, house prices in Irvine are significantly higher than they were this time last year, so this isn’t even a seasonal thing.  In fact, if it was a seasonal thing, prices should be falling, not climbing.

That is, despite the unemployment rate, there is currently not enough supply to meet current demand, which means prices are increasing.  Now, if all the pre-foreclosures come on the market at once, this would change.  But that hasn’t happen yet, and if they manage to keep trickling them out slowly like they’ve been doing, it may never happen.

I agree.  That’s exactly what I said in my first post.  There is certainly a signficant chance that we will have a double dip and prices will fall again.  But they are going up for the moment, and a double dip is not guarateed.  It is also very possible that the absolute bottom of the Irvine housing market was back in March.

Calculated Risk has pretty convincingly demonstrated that the expiring 8k first-time tax credit was a short-term boon to housing.  That at 5% interest rates have been enough to generate a small bump on a longer downhill slope. 

If you believe we’ve hit a bottom, I’ve got a condo on Jamboree to sell you.

That’s funny you should liken the UCLA Anderson forecast to a used car salesman pitch IR. I was test driving a new truck just yesterday and got to talking with a sales guy at the dealership who hit the bubble jackpot.

It turns out he bought a house in OC in 2000, sold in January 2006, pocketed almost 350 grand in cash. He’s currently renting and planning on buying in 1-2 years.

The difference is of course is that this used car salesman put his money where his mouth is. I wonder if Anderson would do the same?

So you met a truck salesman and he told you a story about how amazingly smart he is? Did that increase his credibility to you? Did he provide any evidence at all to back his brilliant results?

Do you think he might actually stoop to an out and out lie to win you over to sell you that truck?—hmmmm

http://seekingalpha.com/article/170526-property-values-set-to-fall-43-from-current-depressed-levels?source=feed

Property Values Set to Fall 43% from Current Depressed Levels 13 comments
by: Michael David White November 02, 2009

I recall some Fed. White papers in c.a. 2004-2006 saying the housing prices were at proper values and only small local corrections were expected.  But looking at the Fed’s graphs, I drew the opposite conclusion, but was tempted to buy anyways.

IrvineRenter, When will you be doing blogs on buying at court house auctions?

“But that hasn’t happen yet, and if they manage to keep trickling them out slowly like they’ve been doing, it may never happen.”

Wishful thinking at it’s best.  If the Fed signals that interest rates are due to rise then the banks will want to unload their inventory quickly otherwise they will behind the 8 ball in terms of qualified buyers and the spread.  So, keep thinking that this is all “contained” and there’s future appreciation you can count on. I’m not counting on it.

Thank you for addressing this nonsense that we are bottom and prices are going to skyrocket next year.  It’s nothing but crappery.

Wow, the freeway is almost in this house’s backyard.  The pollution and noise must be really bad.

I also agree that in a declining market such as this is/was that undesirable properties take a bigger hit than better ones.  You can see this easily in the difference in condo and house prices in Irvine-condos bottomed later and stayed there, while house prices bottomed earlier and have since recovered slightly, since SFRs are the superior product.

I doubt the Fed will raise interest rates significantly until unemployment falls by a lot, or until significant inflation occurs.  Both are unlikely in the next year or two.  If the banks are smart (a big if, of course), they could trickle out the REOs at about double their current very low rate and keep prices low but steady.  If they dump them all at once, for whatever reason, prices will fall dramatically.  But there’s been absolutely no indiciation they are doing that.

Listing says “1 common wall”, so yes.

Geotpf - Do you understand the difference between a bottom and a bounce?

+1 on “IrvineRenter, When will you be doing blogs on buying at court house auctions? ”

+2

Anybody with some good primer/reading material on buying at court auction?  I want to get a head start on understand the process, pitfalls, traps, and how to pick a good one and how to avoid a bad one.

The following are a couple of quotes:

“It never was my thinking that made the big money for me. It always was my sitting.”
–Jesse Livermore, Reminiscences of a Stock Operator

Livermore suggests that making money, big money, you have to be right and sit tight. This is the kiss of death for most traders and investors. Often being right is doing something that the masses deem foolish, stupid, unpatriotic, you name it. To be right, investors face isolation, ridicule, and labels. This pressure is simply too much for most individuals. The drive for social acceptance from group is very strong in humans. It’s easier for the psyche to get slaughtered as a group than stand alone and be right. Even those that have the discipline to stand alone and be right, it is often very hard to sit tight long enough to make the really big money. - Unknown

+3

2012, 2015 - what’s a few years between friends? 

all this sitting and observing of magical Irvine, California.  It’s actually quite hilarious - let the suckers come in and bid the place up / sustain the inflated pricing. 

But to wait 5-6 years before buying a house—that’s a lot of apartments and uncertainty for me (I say uncertainty as I have had landlords move back to their rental=boot us out of the home; also family members with horror stories living in FC’d rentals). 

There has to be some value placed on putting down roots and establishing your family in a community—the PTA, HOA, Scouts, church, schools, etc can change dramatically, even in the same city.  To me and my family, putting down roots was a huge emotional change as our lives are so intwined with our kids, community activities, circle of friends, neighbors.

I’m fortunate to be in an area that’s corrected at least to have incomes in line with home prices; it begs the question: Unless prices correct, why not skip Irvine altogether?

Go ahead and skip Irvine.  If you get involved in your local PTA, whether renting or owning, you’ll be helping your local school give you results more in line with Irvine schools.’  Better to be active in your rental community than overburdened with crushing debt in your mortgaged house.

I don’t have a reading recommendation for you, but a big caution: you often don’t know the state of the house or its finances if you’re bidding on it at auction.  You can get stuck with a property that owes more in back taxes than it’s worth (Detroit is full of these just now), or with extra liens and liabilities on it that you just can’t know about.

Do a lot of careful research on the individual property you’re interested in, esp. on title and loan owners, before you bid.

Good luck!

I have been in discussions with two different trustee buyers, and many different potential cash buyers. So far, once we explain the perils of buying at auction (like you often do not get to see inside a property), nobody has taken the next step of working with a trustee buyer.

If we take someone through the whole process, and if they give us permission, I will blog about it. I think it would be great.

There is nothing that would excite George W Bush more than to see his mark on the Dow Jones Industrial Average, or any other chart of significance. The markets are all fixed, boys, and the vandals that have fixed them are not beyond graffiti. I expect a W shaped recession, and I am not the only one.

Norcal,
I understand the back taxes, but what other liens are NOT WIPED OUT upon court auction?

Once inspected, how to prevent the house from being trashed between inspection and possession?

Well, that credit’s not expiring anymore,thanks to the taxpayers.

Gonna’ be awhile.

I was thinking the same thing—a good salesman will also try to find a common denominator, and lying about market one’s market timing ability seems to be a pretty obvious ploy.  There is no real way to tell if that guy was telling the truch.

So, this is all part of GWB’s great master plan?  Wow, that guy sure is a lot smarter that I had thought.

Wow a bunch of skeptics we have here today

Actually he brought it up. We were joking about how most people buying new cars were pulling the $$ out of their houses to pay for them.

At the end of the test drive he did to ask me the usual sales pitch “So how do you plan on paying for your vehicle purchase? we have great financing right now….”

I was thinking about telling him “oh I’ll just take out another line of credit” but that would be a lie. I told him don’t need financing. His ears immediately perked up. I bet he doesn’t hear that everyday.

There is a heat map of Irvine real estate prices at

http://www.localetrends.com/st/ca_california_home.php?X=-117.82222&Y=33.66944&ZL=13&MAP_TYPE=re_r&CITY_DATA=Irvine

As a current MBA student at UCLA Anderson, I’m a bit surprised at the severe shortsightedness of the past few Anderson Forecasts. While I am not involved with the forecast, nor do I know the individuals who are, it seems to me that they are championing preconceived hypothesis rather than actually forecasting the data. Looks like they did a good job with the commercial market, and while they certainly aren’t the first to point it out, they are one of the few who actually acknowledge the tidal wave to come. Everyone else prefers to just put their heads in the sand.

I have to disagree that housing did not bottom until 1997 - When I was shopping for a home at that time in west LA, not all that far from orange county, prices had clearly bottomed a few years earlier and were rapidly climbing back to their peak pricing.  Perhaps the stats show something different, but that is what was happening “in the trenches.”