All this is just more folly from sellers that have apparently mistaken 2007 for 2005.
——-

For 2.4 mil I want my own pool.  In my own back yard.  Not one that I have to drive to and share with noisy, bratty neighbor kids. 

skye

Does anyone think these houses might have been staged?  They don’t look like anyone really lives in them.  Look at the kitchens and the family rooms.  The couches look really cheap, their is nothing on the counter-tops, and very little wall hangings.  Maybe it’s just me but I wonder if these are flips gone / going bad / worse.

These are tract homes with a value of about $850,000. It will be a few years before we see them selling below a million but they will. With nobody purchasing at the bottom there are no move up buyers for these types of mcmansions. They will sit on the market for 4 years. Then one of the early purchasers that has to get out and paid $700,000 will let it go for $850,000 and that will be the new price. It is only a matter of time.

Dillusional home sellers will wait, and wait and wait for a buyer.

1 New Dawn definitely looks staged except for the blue bedroom which has a bunch of shoes under the bed!!  That is very weird.  (A professional stager would never leave something like that, because it gives the impression that there is nowhere to store your clothing.) 

#23 might be staged, too, but someone left an expensive grand piano and big screen tv there.  Maybe the owners still live there or maybe they just haven’t figured out what to do with the piano, now that they have been forced into an apartment.   

(Professional stagers, by the way, usually strongly suggest losing the big tv’s, unless they are flat screens attached to the wall.  Those big projection sets are ugly!)

#46 looks staged too, except for the fact that the built-in book shelves are filled with books, computer printers, etc.  A stager would get rid of that junk and just add a few books and things here and there on the shelves “for effect”.  So I would guess that either someone is still living there or they left in a hurry, without packing up all their belongings.

skye

OK.  You think homes like these will go for less than $180 per square foot?  Have fun waiting for that.  Yeah, the current sellers might be delusional with their asking price, but waiting for homes like these to hit $180 sq/ft is also delusional.

NW - your calling of the bottom is bad as the WTF prices the sellers are asking. 

The first house was purchased in 2002 for close to 1.1M.  2002 pricing was higher than the 90’s but not by a lot.  I think most people would consider 2002 pricing fair and affordable and would jump at it.  Remember, it was before the crazy run ups and after years of flat or even decling pricing.  Based on charts of the previous cycles, it looked like prices dipped below the flat line for a while so I can see these houses dipping closer to 1M and then settling at 2002 pricing.  But I simply can’t see it falling to 850K.

IR, this is one of the best groups you’ve published in a while.

Thanks!

SCHB

Ugh,

For 2 ExtraLarge, you don’t even get an undermount sink?

Glad to see that the “other half” don’t have it as good as they show on TV.

Looking at the price tags really makes you go WTF!!  Although if you look at the price per sqft (#23) and its less than $400. If you just do a sq ft comparison to the rest of Irvine that looks reasonable (as reasonable as it can get in Irvine)

Do price per sq ft not work the same for the top of the housing market? I think it would since you are buying a bigger house.

Call me crazy, but it is possible I think that we will see prices hit 90’s prices.  I think that it will get mind-blowingly ugly, and people may over sell the market.  We may get to a point that no one is willing to buy a new home.  It has become the ugly duckling with which people have become so disenfranchised, they won’t touch real estate.

There simply is no rule that states homes must sell for a certain price per sq ft.  There are of course market fundamentals we look at such as buying vs renting calculators and price vs income.  Regardless of the state of the market and how overly-priced or undervalued homes are, you still have the psychological component.

I do not think it is a far-stretch to say ALL the gains made from 2000-2001 till now will be erased.  2003 was the year to refi.  All these 5/1 ARMS @ 4.5%-5.75% are going to adjust in 2008.  These borrowers are going to be in bad shape.  In order for them to afford the house at the higher rates, they need a value BELOW what they bought it for.

Well Said!

I had to laugh when I read your comment about the big screen TV sitting out. I went to an open house a bit ago where there was not only a big-screen TV out, but half the time it felt like the house was semi-vacant or the sellers were on the way to moving out, and other times it felt like there were actually people living there who were just very into minimalism (VERY little furniture in the house and not really much decoration on the walls if anything…a computer desk in sort of the middle of the floor was the only furniture in one of the spare bedrooms…downstairs living room/kitchen virtually empty except the TV and a couch, little furniture in the master bedroom other than the bed…yet closets full of clothes).

Felt a little unnerving…

25K per year just in prop taxes - EVERY year. Good luck with that!

Prop #1: 5bd/5ba @ 4200sq ft does not leave alot of sq ft for the common area rooms. At least it has a nice pool and yard. I like the place very much and it should be around 1 mill or less in a normal market.

One thing I am seeing in my area, which is heavely Asian - they have multi-generation families buying the 1+ mill homes. They all contribute to the costs. I could never live this way, but I can see that this strategy allows people to buy a more expensive house.

Funky Toe,

Yes, $180.00 per square foot. Why don’t you think this can happen? Who do you think is going to purchase these homes for north of 1.5 million dollars ? The buyers are gone for all the reasons discussed a thousand times on these blogs…....and the prices will drop…............The stupid real estate poni scheme is over.

Personally, I’ve owned two large homes. One was 3500 sq ft, and the other was 3000 sq ft.(large to me) I gotta tell you, its a pain in the arse. You have to pay a gardener, a handyman, a home cleaner, a pool person(if pool) to keep the place going. I prefer smaller places now…........around 1200 - 1400 sq ft.

Do the math and then tell me who can afford these homes….......

Taxes: 1,900,000 X 1.8%(with mello roos)= 34,000 per year
Suppose a 400K down- 1,500,000(7%) = 117,000 per year

With out the extra expenses like repairs, hoa, etc that comes to 12,583 per month. At this level the AMT will take away much of the tax gain.

So if housing is about 35% of your income(remember we use the old rules now) that is an income of about 450,000 per year.

Guess what, there are not a lot of people that make that much, and if they do they want to live in Newprot beach or some where nice…...not some trashy mcmansion in the flatlands of irvine.

Interesting point. I am new to this blog, so I don’t know whether there has been a post before about how expats affect the Irvine housing market. But it has to be a real phenomenon. If you are on an expense account and coming from a place like Tokyo, then (i) Irvine seems cheap, (ii) you don’t have to worry about a loan, and (iii) you don’t care how much it costs anyway. And there are lots of expats in Irvine.

Anyone willing to touch this topic?

This kept the housing market going in San Marino for a while in the 1990’s. Five families would buy a house and let the kids live there so that they could go to the good schools.

Oh, did we forget the “McMansion Carbon penalty” currently proposed?  That eliminates the tax deduction for mortgate interest on homes over 3,000 square feet.  And the property taxes aren’t deductible for Alternative Minimum Tax (which, you’re making enough to qualify for this home, you are certainly in AMT).  So….no deduction for interest, no deduction for property taxes, Mello Roos isn’t deductible nor is the HOA.  And Jumbo rates are streaking towards 8.00%.  Yeah, these factors might impact the economics of purchasing these things.  Is $180 psf likely - No.  Is it reasonably possible - absolutely.

There’s a house across the street from me (San Diego) which was purchased in July 2005 for $700K. It got put on the market last week for $869K.

Why the price jump? Have they added an addition? No. Have they added a bathroom? No, it still has just one bathroom. Have they read the papers to see the market is heading south instead of north? No!

The only thing that could have happened was - their ARM just reset - two years to the month after purchase. I have this home and a few others on my own personal WTF list. How these people think they deserve an extra $85K a year for home ownership is beyond me.

Funny you should bring up San Marino because this is one of the areas near me that I was referring to.

Why the thories about these people being desperate?

We don’t have liens information, but it would seem they all have skin in the game.

I think they’re fishing.

Who can blame them?

Do you think this hurts anyone?  If anything, it makes the competition look better.

Yea, I know “Chan Marino”

The value of a property is only as much as someone is willing and able to pay. These homes rose in price becasue of the “easy money” that is discussed so often on these blogs. Take away the money and take away the prices…...its very simple.

I believe that we will see at least 10 years of very stringent lending standards…much stricter than was in place back in 2000 when the housing run up got started. The stricter standards will be mandatory for the financial markets to take the mortagage industry seriously.

As I recall, 3500 sf is pretty much the break even where you have to hire help to clean and maintain grounds and house.  If you are working, the regular weekly maintenance and cleaning of a house and grounds at 3500 exceeds your available free time.

The general rule of housing is as square feet go up, price/square foot goes down.  For these tract home megaliths, 180 may be possible.  They are big, but their functional space is really quite poor.

Mello Roos aren’t percent based, they are flat fee.  A $2700 Mello Roos remains $2700 whether the house is $1,000,000 or $500,000.

OK…....so they only need an income of 400,000 to purchase the place….

Thanks for the info on Mello Roos.

You note on the tax record, that both 1 New Dawn and 23 New Dawn pay the same User Fee/ Special Assessment taxes on the treasury site.

NP, that confused me at first too particularly since it seems most RE agents have it wrong too.  They’ll say the tax rate is 1.25% or something.

Desperation will set in in about 12 months…....when a greater percentage of the listings will be from people that have to sell becasue of:

a) Relocations
b) Death
c)  Forcolsure
d) Divorce

It is my opinion that the market will be driven by people that purchased before 2000 and have substantial equity and need to sell. Suppose they purchased a home for 300K in 1995 and it had a comp of 1 million in 2005. In 2008 they want to sell, they will take 600K and be happy.

I heard from a loan officer in 2004 that people from South Korea were buying houses with big down payments, Samsung has offices in Irvine.

Why do you think that in 12 months we will see more relocations, death, foreclosure and divorce?  And why do you think that the people that purchased before 2000 will be any greater factor than people that purchased after 2000?  If anything, the people that purchased over the last few years that should never have purchased to begin with are going to drive prices down, not those that purchased 10 years ago and can afford to stay put.

I’m thinking that people who are just “fishing” their home won’t put much effort into marketing it.  In other words, they are not going to want to clean it every Friday evening and then vacate it every weekend for open house.  A real hassle to do all that!

If these properties have open houses, then I would say they want to sell.  If not, then maybe they are fishing.

I’m no expert but what NanoWest posted above seems to ring true.  The issue of value has little to with recent historical pricing since that pricing was supported, to one extent or another, by a mortgage market that was operating on totally unrealistic principles (or a complete lack of principle if your prefer).

I don’t where the bottom is.  I don’t know what time period “the bottom” might be related to but I think it’s reasonable to assume that mortgages are not going to be what they have been for the last five years or so for a very long time.  So unless we see an enormous rise in employment and wages, who will be buying these homes?

I think the common mistake to make is part of the industry, the comp.  But the comp ceases to be relevant when the conditions under which all those comps were purchased disappear or change significantly.

Someone tell me where I am wrong here.

My house in Turtle Rock was purchased by Chinese (Taiwan) immigrants recently (late 2006).  They made a big down payment but also got a loan.  The fact is, historically, foreign money tends to buy at the top of American asset bubbles.  This one will be no different.  A lot of these Asian nationals that don’t understand the American (now global) credit bubble will become bag holders.  The Japanese were over-represented as bag holders in the last downturn in the early 90s.  I suspect the Chinese (including Taiwan, Hong Kong, and now Mainland China) and the Persians will lose a lot of money here.

The fact of the matter is there truly is a lot of foreign money around.  A lot of the recent knife catchers in Irvine are Persian or Chinese.  They will slow down the decent but I think they will be like speedbumps.  The credit overhang in SoCal is just too great for a relatively small amount of overseas money to stop.  It is quite possible the magnitude of the decline will be somewhat muted, but there will still be a very significant decline in Irvine over the next several years.

I cashed out of the OC in early 2006.  My current house (2004 build, near Columbus, OH) is larger than these featured homes, on a larger lot, similar amenities, similar interior finishes, best schools in the state.  I paid less than 500k. 

Whoever above said that these homes are coming down to 700k is right.  I believe that the nicer parts of OC will always maintain a SLIGHT premium over flyover country.  But 4x?  5x?  Ridiculous.  These sellers should immediately drop to $1M and feel extremely fortunate if they can sell for that.

Of course there are these factors in play now….but it will take time for the inventory of the truely desperate to build up to the point where there is substantial downward pressure on the market. If you look at Zip realty now, I bleieve what you will see is a bunch of homes on the market by people that are still looking to cash out with a few hundred grand of profit…........still looking for the all but extinct greater fool.

When people want to(need to) sell an asset, they reduce the price, its that simple. We are not seeing substantial reduction yet.

As for the people that purchased from 2001 to 2007 they will have to stay put or take huge losses or go bankrupt…..........3 choices…..staying put is the best alternative. The other two are not much fun.

OSCAR,

Voice of reason….

Thank you

Ice,

You are absolutely correct…..this is a “who moved my cheese” situation.

Ugh, Columbus, OH.

Near the bottom of my list.

Just exactly how many posters are submitting from different time zones?

I have a home.

I won’t be “desperate” no matter what unfolds.

It’s monopoly money.

It goes up.  It goes down. ...

Future title article of the La Times and OC register:

“The Great Switch.  The day homeowners became renters, and renters became homeowners.”

When will this happen? 2008…2009…???

Maestro,

You will come out unscathed?

Even with a recession?

A depression?

“The fact is, historically, foreign money tends to buy at the top of American asset bubbles.”

This is true for a reason.

Asset bubbles are tied to low interest rates.

Interest rates have an adverse effect on the dollar vs foreign currency. Interest rates go down, Dollar gets devalued.

Asset values keep going up.

So our assets then become really cheap to them comparatively.

wow. snooty.

I really doubt that Oscar cares what you think about Columbus.

Probably not.  But I work for a large bank, and my position is with the retail portion of that bank.  To further break it down, I am actually located out of 2 branches here in OC.  My job CANNOT be outsourced.  If the market goes to holy hell and all wholesale operations are shut down, retail call centers shut, down etc..we’ll still have the branches open, and we’ll still need to have someone like me.

I fully expect to see massive slow downs in certain areas of my business.  Jumbo business is dead.  period.  I am doing note modifications, Helocs, and conforming products.  As other people go out of business it is better for me in the long run.  In the end, nobody’s job is truly safe if they are involved in real estate.

I have to laugh at the built-in superiority complex that most (not ALL) native Californians seem to have.  I grew up in the midwest, took a great job opportunity in the OC for a few years, then moved back to raise my family here.

I have had a few native Californian friends fly out to visit, and upon seeing the large houses, large cared-for lawns, friendly neighbors, upscale shopping, low cost of living, etc. have said…“this place really isn’t THAT BAD.”  Not good, not great, certainly not better than California.  But not THAT BAD.

It’s not their fault, and I just laugh about it.

I love California.  I wish it didn’t have a grave financial reckoning in its immediate future.  But it does, and the built-in superiority complex may very well be one of many things that swirl down the drain.

I’m sorry, I thought he complained first.

I wasn’t speaking of California.

How about the entire west coast and the entire east coast?

From Washington State to Florida, all are widely considered more valuable places to live.

That is not a new paradigm.

Don’t YOU be so judgemental.

You’re both insane.  Period.  No place in Ohio is comparable to any place Irvine.  You wanna dig your car out of the snow 4 months a year? You wanna swat your way through swarms of mosquitos?  You wanna enjoy a summer of overcast skies, thunderstorms, and terrible humidity? 

If so, Ohio, and the rest of flyover country is for you.  As for me, and the vast majority of rational people around the globe the “Mediterranean Climate” is the way to go. 

Don’t kid yourself (or anyone else) that you will every see sub-$200/sq.ft. prices anywhere in Orange County at any point in the future.  Obviously some poor bastard wasting away in Ohio (sorry dude), who previously bathed in the glow of Southern California, is going assuage is cognitive dissonance and rationalize his downgrade to the wastelands of the midwest. Thanks those of us who actually enjoy fresh air twelve months a year, California, particularly 10 miles from the ocean in Southern California, has always and will always command a substantial premium to far less desireable locations.

Final Point: They aren’t making anymore land in Southern California.  More importantly, they aren’t making anymore land within the temperature controlled coastal zones (unless the Feds open up Pendelton).  Scarcity, desirability, climate, business centers, etc. etc.

How are the beaches in Ohio?

Get over yourself.  Go enjoy your “valuable” coastal home, while it can still be called that.

If you’re not speaking of California…why are you here?  To see if someone on a California-focused housing blog will happen to mention Boston, Miami, Seattle, or some other “valuable” locale?

Hey… what if you put Solar Panels on the roof?

With a 4000 sq foot home’s roof, you might be able to generate 15Kw/Hr and power half the neighborhood.

I lived in Ohio and Minnesota most of my non-cali life and I can tell you that while the weather is not great.  I’m going to play devils advocate and say, sometimes I miss the change in seasons.  There’s nothing like autum in the midwest/ northeast part of our country.  It gets kind of monotonous out here.

That being said, I could not imagine being a kid growing up in these stucco boxes, packed in next to each other here in CA.  Sometimes I miss not being able to see or hear my neighbors.

It’s definitely harder to raise a family out here with the cost of living.  I feel for all the hard-working 30-40 somethings out there with families.  What are they going to retire on?  Certainly not their homes.

Thanks for the laugh, and for proving my point about Californian arrogance.

Q.E.D. - I’m done here

OscarDeLaJolla,

I don’t think its the native Californians that have this attitude problem.  I know tons of natives that are itching to leave, but their wifes or something of that nature is keeping them here.
Its usually the transplants that are arrogant.

Regardless, everyone talks about the whether.  But at least to me the only season in Ohio that is unpleasant is the summer due to the humidity (But its really not that bad).  But there is a big difference between the local economies of California and Ohio.  I decided to move back to CA largely because the economy here, but whenever I tell people that I just moved from PA all they mention is the damn weather.  With that said a lot of companies are starting to move out of California and aren’t lowering their wages when they do it.

FamilyGuy—how’s it feel to be a bagholder?

CapWorks—that played out “no more land” argument.  Lol.  Does it matter whether there’s no more land when 10-15% of the homes are vacant?  If I didn’t know any better, I’d think you were Ken from the OC Register blog, thinking OC is a supercity.

Oh jeez.. not again.

Time for the posters to get off those high horses… my place is better than yours and you Californians are so stuck up and what not…. Jeez, Louise.  Get over it.

I think it’s time for the Eagles.  I can’t just believe a better song to address this.  After all, most Californians came for Ohio and Michigan and Florida and Taiwan and etc….

“She came from Providence,
the one in Rhode Island             - or Okinawa? 
Where the old world shadows hang
heavy in the air
She packed her hopes and dreams
like a refugee
Just as her father came across the sea

She heard about a place people were smiling
They spoke about the red man’s way,
and how they loved the land
And they came from everywhere
to the Great Divide
Seeking a place to stand
or a place to hide.

Down in the crowded bars,
out for a good time,
Can’t wait to tell you all,
what it’s like up there
And they called it paradise
I don’t know why
Somebody laid the mountains low
while the town got high.

Then the chilly winds blew down
Across the desert
through the canyons of the coast, to
the Malibu
Where the pretty people play,
hungry for power
to light their neon way
and give them things to do.

Some rich men came and raped the land,
Nobody caught ‘em
Put up a bunch of ugly boxes, and Jesus,
people bought ‘em
And they called it paradise
The place to be
They watched the hazy sun, sinking in the sea.

You can leave it all behind
and sail to Lahaina
just like the missionaries did, so many years ago
They even brought a neon sign:“Jesus is coming”
Brought the white man’s burden down
Brought the white man’s reign.

Who will provide the grand design?
What is yours and what is mine?
‘Cause there is no more new frontier
We have got to make it here
We satifsy our endless needs and
justify our bloody deeds,
in the name of destiny and the name
of God
And you can see them there,
On Sunday morning
They call it paradise
I don’t know why
You call someplace paradise,
kiss it goodbye”

You know, sometimes I’ll get on the 405, light up a cigar and just play songs like that.  At that point, I do love being in California.  Traffic and all. 

Drive up from San Diego on a winter afternoon and enjoy the sunset on the Pacific on Camp Pendleton.

Ever driven on PCH in a sunny evening?  Gone up to Goleta?  Stopped for dinner in SLO?  Drunk wine in Santa Ynez Valley or Napa? 

Sorry, you guys can keep your Ohios and Private Idahoes.  Great, good for you.  But the less of you that come into this state the better for those of us who live here.

Just enjoy your life and enjoy your place in the sun. 

Meanwhile I’m saving my pennies so I can move to Hilo.

CapitalismWorks, LOL! You’re joking right? These are the same things that were being said to justify the 2005 prices. Sorry if you got ripped off, but it’s time to come down to Earth.

What I don’t get is why Jumbos should be dead.  I would figure this would be a function of the LTV ratios.  If someone with a good paying job and a 740 were to come in with a $700K down payment and needed a $500K loan would they be denied?

I would suppose such a lender would be a better risk than someone asking for a conforming loan, 20% downpayment. 

The market is in a knee jerk mode.

I think it’s funny how the “no more land” argument is always laughed at by extreme bears, but they don’t provide any good arguments against it.  The response is always “no more land, I’ve heard that before, yet prices in California are going down.”

The “no more land” argument doesn’t mean that prices can’t be inflated above and beyond what people are capable of paying.  It does mean that land next to the ocean will always be much more expensive than land just a few miles inland.  What is refutable about that?

There is no need to argue against it, because it is irrelelvant.  It doesn’t matter if “they” aren’t making any more land, because there is enough land to house folks.  There are oodles of empty, graded lots growing weeds right now, because no one wants to buy the land that they aren’t making any more of.  There is tons of undeveloped land.

If jumbos are such a great deal for the lender, why don’t you make the loans.  And not having the money to make the loan is a stupid excuse, because the entities which do make the loans don’t have the money either.  They borrow it.

Cruiser…..

Here is why the no more land arguement is stupid for orange county…........

Take a look at places where there really is no more land….hong kong, new youk, london. You will notice that these places have tall buildings…...30, 40, 50…..stories high.  Do you see these types of building in orange county. When land does actually get scarce you will see high rises…....real high rises…..not just the stupid little buildings on Jamboree in Irvine.

whaaattt?  I’m not on any high horse and neither did I say that Ohio was better than California.  If it were, I’d still be living there instead of busting my ass for 50 hours a week to pay 1785 a month for a 2 bedroom apt.

You’ll have to ask the investment firms why theyll still buy a No-doc 70% LTV loan below 417k for the same cost as a 500K loan with higher credit score, 50% LTV, and full-doc

I can answer my own question…silly I didn’t think it through before I posted it.  Anything that is 417k or less and full-doc or stated can be bought by fannie mae or freddie mac.  Anything non-conforming is bought by other entities, and right now, whether jumbo or not, they aren’t buying them.  Unless you can sell the borrower a very high rate.

Wow, be a little more transparent Janet.  LOL.  Enjoy squatting on that depreciating asset.  Make more bad financial decisions, we’re all laughing at you.

I bet you I come out unscathed regardless of a recession or even depression, even though you weren’t asking about me.  My industry and investments will thrive in such times.

- California does come at a premium, btw, but not at 2x-3x the price of other places. 

- They aren’t making any more land in Tokyo either, and they’ve taken a beating.

- Why am I arguing on the internet?  We’ll both see what happens soon enough.

heard of internet banking or ATM?

I haven’t stepped into a branch in 2 years.

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).

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.

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.

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….

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.

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.

Oscar,

You did all this after your boxing career?

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.

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.

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.

“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

“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…

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.

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.

Is the first conforming and can be sold?

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.

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.

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.

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

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.

So true…amen to Janet.

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.

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.

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

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

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).

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

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.)

Yes, this is a nationwide disaster.

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

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