Hello-

This was also happening in the NYC area last year, where a fall was predicted in NYC prices but plenty of Irish, German and Italian euro holders were looking at apartments to park their money in. apparently, that has not saved even Manhattan prices from declining, albeit slowly.

With the erosion of the dollar, I can imagine this kind of stuff has been happening for awhile in foreigner friendly USA.

We had roughly the same situation here in Dallas during the late Seventies and early Eighties, but with land, not just houses.  Right about the time Ferdinand Marcos was deposed, a lot of folks were amazed at how much unincorporated land he and his family owned just north of Dallas proper.  Even more surprising was that he bought near the peak of the boom in the early Eighties, and it had lost a good amount of its value when Imelda tried to sell it in 1986 and 1987.

Irvine Renter,

Large cash down payments in Irvine have been an interesting phenomenon.  You argue that there is not an indefinite supply of these people.  However, an indefinite supply is not even required to have a long slow price decline with a price premium over other areas.  Only a small volume of cash rich buyers is required based on transaction volume. 

I would agree with your generalization if you were talking about Orange County on a macro level.  There is no way large cash down payments can support the entire Orange County housing market.  Small down payment FHA loans will be required.  When you get on a more micro level, such as a certain neighborhood or area, it’s a different story.  High cash down payments can keep price levels at a premium above rental parity.  This is a price level way below bubble levels, but a premium none the less. 

Most people are getting crushed during this debt deflationary period.  The global bubble is financially debilitating to many.  This is a generalization.  A lot of cash was created and saved during the bubble via low interest rates and global efficiencies.  How many people who read this blog have large cash down payments?  I do, you do, quite a few seem to have the means.  What makes us so special?  Irvine is not Manhattan, but will Manhattan prices fall to rental parity?  Are there other factors besides rents and income that impact prices in a premium area?  I think the answer is yes. 

Your macro analyses have taught me a lot, and I am interested to see how things shake out in Irvine even though I will not buy in Irvine.  Keep up the good work, and good luck with the book.

“...the rest were first timers, move-uppers, or someone buying for someone else (for children or grandparents).”—samuroo

“So the question is will foreign money or the extremely kool aid intoxicated support the housing market?”—IR

Who said anything about foreign money? Sounds to me like the bidders were Asian-Americans, Brazilian-Americans, etc. Foreigners buying real estate in Irvine are unlikely to be first-time buyers, move-uppers, etc. More than anything they’ll tend to be second home buyers or investors.

But the whole “oh, the for’ners are gonna come buy up all our real estate” meme is a real knee-slapper. For’ners are just as broke as Americans. And *if* they wanted to buy real estate, they could just do so in their own lands where the deals are much better. Japan has some very nice real estate, near mountains, near productive rice paddies and farms, even oceanfront, for *cheap*!

Brings back fond memories of all the fear-mongering in the 1980’s about how all the rich Japanese were going to come over and buy up all of America. Look how that turned out. Pebble Beach, anyone? I know a Japanese real estate investor who was once rich, and is now broke.

A friend of ours, an Asian who used to live here and moved back to Asia (who actually is rich and also quite Americanized), came for a visit. She said “now was the time to buy”. I disagreed. She put her money where her mouth was, and she did buy a second home - in the Inland Empire.

That was one year ago…

Isnt a little late to say that foreigners are buying INTO the bubble?  I mean, the bubble was exposed to the most astute in 2005, and we are now into 2009.  I could see foreigners supporting the market during the last throws of “the bubble” in 06, and even 07.  Possibly even 08 but that is a stretch, but 09?

The entire financial universe became unhinged in Fall of 08, there is no one left who believes that “real estate only goes up”.  Any buyers out there now I think are very cognizant of the fact that prices could fall in the short term - they just believe that long term, they will be OK.

My experience is anecdotal, but I know two guys - one French and one Scottish who have bought in the last six months.  The French guy is so bought in Manhattan, the Scottish guys is older so bought a nice penthouse beach condo in Naples, FL.
It was combo of the exchange rate and the “lower” prices that lured them in.  They both have money to invest, so that’s how they see it - a USD based investment.

Wow.  I’m always trying to compare Irvine properties to those in my area, but it’s usually difficult.  This one is easy.  This apartment is barely bigger than my own.  Figuring HOA dues and property tax, this thing is going to run almost $2000/month under 100% financing.  My 800 sq. ft. apartment runs me $515/month in rent.  Granted, Kansas is not THE Irvine, California but I just can’t imaging spending 2K/month for an apartment.  Surely this place would rent for less than that, right?

- Condo is a word realtors made up to make their clients feel better about buying an apartment.

so true! I recall a conversation during the intermission of a Roger Waters concert in Tokyo a few years ago with an Aussie guy who lived in Kamakura, a very upscale Japanese beach town ~ 1 hr train ride from Tokyo. He laughed about how the bank gave him a 0% down 35 yr 2% fixed mortgage for his beachfront house which cost $400K in USD. This was 7 yrs ago, and prices are pretty much unchanged today from then.

You will be surprised at what people are willing to believe. You will be surprised how recent buyers egg on people in their network to buy. You will be astounded how people will listen to their peers and decide to buy at this time. You will be surprised at how people choose to live in their utopia and ignore all the financial meltdown and loss of jobs around them.
It is a crazy world…

“When prices reach levels of affordability, transaction volumes will increase, prices will stabilize, and the market will be healthy again.”

IR, it seems like you are referring to a situation of slower and protracted price decline. Basically the declines in Irvine will be stretched over a longer timeline, although they will come sooner than later. Pretty high ask for those choosing to wait for the decline. Plus there is no way to predict when these cash-rich offers will evaporate.

So I have a new theory:
You know how the low end has dropped SUPER fast, but the high end hasnt seen firesale prices yet?
My theory is that the banks dont realize how much they need cash. Currently, they’re content to sit on the higher priced FCs to milk as much dough out of them as they can (they’d rather wait 6mo than drop the price 200k).

In mid-2009 when they realize how FUBARed they really are, we’ll see firesales on the high end, cause they’ll need immediate cash.

Or has TARP given them the cash they need and we likely wont see firesales at the high end?

Irvine and vicinities real estate is the well known spot for corrupt foreign money to park. The question is if this form of money inflow is getting bigger or smaller. And, how much it might be?

Dirty or corrupt money does not really care if the valuation is high or not, or does it?

When you see people from foreign countries evaluating real estate in the US, they have some much different decision factors.

1. Exchange rates.  In some other currencies, the price of US real estate has gone down much further.  Near the peak in 2006/2007 the exchange rate was ~115 yen to the dollar.  Now it’s around 92.  That means it takes 20% fewer yen to pay the same price.  So some currency movements have made Irvine real estate look cheaper compared to home country real estate.  It also amplified the apparent price drops in dollars once converted to yen.

2. In some foreign countries, people are quite worried about their own economy and their own investments.  Most other stock markets have declined by as much as the US.  Some other markets are in for worse home price declines.  Such people are looking around for a good place to put their money.

3. Some foreign countries have people making a lot of money their government doesn’t know about.  Even in the US, home purchases and sales were a way of laundering money.  It’s probably a pretty good way to launder illegal, corrupt, or unreported income from many foreign countries. 

4. Especially for larger homes, some other cultures have traditions of extended families living together.  Instead of a 5 br house with 2-4 people, they might actually have 8 people living there, half or more of them with jobs.

On a trip to St Vincent, we took a cab tour around the island.  We got to see “Cocaine Canyon” with it’s multimillion dollar mansions with body guards, big gates, big dogs and really big rides.  Drug money from Brazil.

Regarding point #4 you made, I see signs of this where I live in Westpark II. 

Many “multi-generational” families buying some of the bigger homes here, and realtors will also tout that in their listings to attract these types of buyers.

I can’t imagine living in a place where I have to dig my car out of the snow every day in the winter.

Some details…

1) While Asians are good at math, they’re bad at finances. For some reason, they push working hard a lot more than working smart. Both should be pushed equally. This leads to #2.

2) Asians has a higher propensity to speculate than others (e.g., gamble).

3) If you look closely at the large cash down, you may find several details such as: A lot of the cash comes in the form of gift funds from family members (e.g., brothers, sisters, parents, cousins, etc.) Now, you’re probably thinking “Damn! Asians are so generous to their family.” Part of this is true. However, much of it is that the family members are being re-imburshed with cash for their “gifts”. This is because these Asians are probably owners of small shops (e.g., nail shops, restaurants, etc.) do not report a significant amount of their cash to the IRS. This leads to #4.

4) Cash-business Asian entrepeneurs who under report to the IRS are limited in their investment options.

May I suggest:

5) On average, Asian American are better educated with higher income and higher saving rate.

I don’t know what I like best about this blog…everyone’s insightful comments or these realtor listings.

“View of trees”...great…so you got two trees in front of your apt.

Sometimes the realtors selling condos in our tract will say “view of the park” in their listings like it’s some nature preserve instead of a small tot-lot with grass.

What you say is true. Many people may not wait, particularly given the huge price declines already witnessed in many nice South OC neighborhoods. Believe it or not, I many not wait. I would certainly like to buy and live in Irvine, but if I find a property in a nice neighborhood trading below rental parity while price in Irvine are still 30% too high, I may buy somewhere else.

I like Irvine; I am not married to it…

a.k.a. brainwashing

The would-be buyers that came through our house, in general, were lurkers, waiting rather patiently, either for a “real good deal” or for a house they loved.  They were well informed enough to know prices could still fall further, but were content to buy “near bottom” and potentially take a 5-10% hit.  Obviously, they didn’t believe there existed the possibility of a 20%+ drop in the coming years.

Preop is correct in that they’re not buying INTO the bubble, but rather it appears they’re buying because they believe the market will turn in ‘09 and they’re buying for a longer term than the flippers who did buy into the bubble, so they’re still expecting equity growth.

To clarify my previous post, the foreigners that made the offers were all local (S. Cal), including the investor.  However, while searching for a rental, we happened upon a property that we learned was bought by Koreans (still in Korea), sight unseen, closed in early November and was immediately listed as a rental.

My .02 cents:

6) Asians tend to have multiple earner’s (generations) in their house contributing.

Does it snow every day in the winter in Kansas? What an odd thing to say.

Lending support to #5, just my personal experience.

I’m a SoCal native, born at Kaiser Sunset. Went back East for college. Always thought of Irvine as being in the boonies. UCI wasn’t even on the radar for college.

But, went to med school in Irvine, picked it over East Coast schools for a variety of reasons - cost being the major factor.

Loved it in Irvine, and would love to live there now, but work is too far away.

Anyway, my med school class 10 years ago was about 15% Asian. Of the Asians, I’d say about 40% have moved back to Irvine after their training. So that’s about 6 people - in one graduating class of 92 people.

Now consider the percentage of Asian Americans in other professional schools who want to live in Irvine…

Granted, they might get their down payment from their family. But they’ll be able to cover the mortgage (3x income, blah blah).

Amen to that.
I don’t understand the obsession with Irvine.

The education obsession is easy to understand but completely ridiculous on a price level.  I will never understand the asian fetish, so I won’t even try. (yes, I opened that up to infinite jokes)

Too bad they can’t pluralize.

You would be shocked at what will rent for $2k out here.  Up in LA county $1800+ is the minimum for a decent one bedroom.  Anything actually nice will run $2.5k+, again for a one bedroom.

The real question is: has this changed fundamentals in Irvine from the 1990s to today.

The mega bubbles over the last 10 years have increased wealth disparity.  Has Irvine changed due to this wealth disparity and demographic differences?  If Irvine has not changed then Irvine Renter should be spot on with his predictions.

Say it ain’t so.  I’d have a hard time calling you SanJuanCapistranoOwner…

I absolutely agree w/ you re: fundamentals.

For the record, I advised my friends to sell a year ago. My father sold. My friends didn’t…

I’m a very happy renter.

My specialty is investing . . .  not real estate.  In fact, I cannot remember how I became aware and addicted to this blog.

Many here are overanalyzing what is currently occuring.

There are short term market rallies and knife catchers in any bear market.  Further, certain sectors can hold off armegeddonf or periods as the investing world around it falls apart.  One lesson learned it that the last sector to fall (or the sector that falls the least) is often the first to rebound.

However, what bubble experience repeatedly shows is that the pain, eventually, is widespread.  Until you have ridden a stock from $250 to $3, you do not understand how many waves of new buyers, with optimism that they have caught the bottom, come along for the ride. 

However, the phenomenom of multiple families moving into a home - the worldwide model but for the US and a few other select countries - is on its way here and will be a viable alternative to avert job loss. 

Helocs are now offering cash or gift cards in exchange for closure of unused heloc lines, and credit card lines are being reduced nationwide.  We will quickly see a time when people do not have credit for discretinary spending.  (Lets see how Starbucks is doing them)  This correction is going to take time.

Actually, I rented a 2br townhouse in a nice complex in a good part of LA for $1900 a year ago.  Pools, tennis courts, nice landscaping, responsive maintenance, garage, 1200 sf.

They have a lot of sign twirlers there on weekends with specials.  Seems that they have a decent number of vacancies.

mailiburenter:

Could you post info on your rental ( a link would be great)? I have a good friend looking to rent in LA?

Thanks,
George

The hardest thing to do is to realize that the only way to buy here in Irvine is to either find a foreclosure or a tear down without mello roos, in a decent area where you are allowed to rebuild. Because anything else you buy will go down in price it will be quite some time before prices start to go back up because they were so over inflated. It’s been on a ten year rise in prices. So if you buy a place, pay the taxes you want an asset that is gaining in value not losing.

Job loss will cause continued lower prices as people are forced to sell. Buying now is high risk because if you lose your job your house is now going to sit with the rest of them as well. So the risk to owning is extremely high and we don’t even know if Arnold will raise property taxes.

Renting a older home is the best thing to do you can use your extra cash and try to make money another way. Owning a home is an investment vehicle you have to look at it this way or else you will be losing your hard earned money.

Only those that bought before the big bubble can sit this mess out those caught up in it are hoping to keep their jobs, those who lost their jobs are selling. Those fearful of losing their gains are selling. Builders are holding onto high prices for dear life.

Those of us caught wanting to buy have a long wait for correction or go find that tear down/foreclosure. I don’t see any other way to buy here.

” We will quickly see a time when people do not have credit for discretinary spending.”

Actually, it’s worse than that.  Credit cards are still profitable for most issuers.  One problem is whether the banks can get enough credit to provide credit to cardholders.  Another problem is the paranoid fear that a massively larger portion of their cardholders will increase their borrowings and default.

While it is a nuisance, credit cards are still a comparatively easy item for the creditworthy to move.  If you want to have a steady line of credit, look for a steady lender.  Treat it as if they were borrowing from you and you were doing a credit check.  They’ve lost 90% of their stock value in the last 12-18 months?  Downgraded to BB-?  That should matter to you if you don’t want sudden spastic cutoffs and flailing changes in card terms and rates.

Oh and for a fyi—a friend was looking to rent a home one in Northwood was going for 2400—too much for them so found another townhome type place the listing was for 2500 (off of Harvard)—the next day the landlord called them and offered them 2k—-so they went to their IAC complex and they offered them 1600 to stay- and without a contract—-Imagine that one from IAC—

So rentals are coming down if you walk away—

I just made a realization. Theres an old saying ‘when your barber tells you to buy a certain stock, its time to get out.’
Well, my father is my ‘barber’. In 2005, he told me that RE was the best investment anyone could make. In July 08, he told me that energy/oil was where to put money.

I’ve long heard that once *everyone* believes prices will continue to go down, the bottom is very, very near. When my dad tells me not to buy cause its just gonna keep falling - I’ll be putting in offers that day

For people with kids who are already attending school, unless they are pretty small, you don’t want to move them.  It’s much better to keep them in the same school.  Under these circumstances, the buyer may not be in love with Irvine but feels it’s the lesser of two evils.

Is there any data out there that shows how invested each bank is in the commercial RE sector? I remember seeing similiar data for Subprime and Option ARM residential loans. That would be very interesting to see if it was the usual offenders (Wamu, B of A, etc…).

Echoing George8’s sentiment, could you post the info for the place please?  I’m paying $1800 for a top floor 1 bed + loft.  Not a bad place, but for the price…

and oil going to 200 was based on demand—LOL

never believe what anyone tells you—do your own DD

I am torn too.  I have been driving around Covenant Hills and Ladera recently, and there are going to be some VERY tempting reasons to leave Irvine in the next couple of years, especially if Orchard Hills is delayed yet again or they do start to build it and it’s priced sky high yet the FCBs and zealots are willing to pay.

I don’t want to leave Irvine but…if I can get in Ladera/CH a beautiful, SFH with a large yard and lots of neighbors who share my cultural heritage…especially a home which may have come down from a million bucks to a more feasible half-million….the temptation will certainly be there.

Eroding against what? The dollar has been gaining against the Euro and Yen. And has been gaining on the English Pound until very recently - it will probably start gaining again since the UK is completely screwed.

www.xe.com Tools\Currency Charts

I’d rather pay an extra $100K to live in Irvine and have no commute than to get the same place in Ladera. 

Heck, maybe an extra $150K all other things being equal…  The $100K for the time value of the commute and another $50K to offset gas and additional mileage on the car.

Personally I’d much rather have an extra $500 per month in mortgage payment if the trade off was 30 less hours driving per month.

“You will be surprised how recent buyers egg on people in their network to buy.”

I’ve had this happen to me recently.

http://www.summitatwarnercenter.com/2/Apartments-for-Rent-in-Woodland-Hills-California/

An assortment of 2br 2.5 ba places for $1900-2000/mo.  Currently offering 1 month free.  I’ll bet you could get some other concessions too.

In addition to the one listed above, if you want to live closer to downtown, try Park LaBrea.  Huge place, lots of open areas.  Typical 2br prices are $1500-2000.

Drawbacks: no central air, no balconies, you might or might not like the congested part of LA it’s located in.

Unusual advantages: stunning views from the higher floors. The amount of green space.

You would be surprised.  You can find some deals if you look around.

I rent an OK one bedroom (tall ceilings, 2 fire places, balcony, one parking space, W/D in unit, central air) in a small building in the Mar Vista/Marina Del Rey area for $1260. 

Its close enough to the beach that I can ride my bicycle to hit the happy hour bars in Santa Monica after work.

...and there in lies the premium
there may only be one ipop
but another support level is created by those who shorted their house during the bubble… they are likely to jump in early, at least they should…

pigs get fat, hogs get slaughtered

this is only one of several bubbles that created huge wealth, there is still money from the tech bubble, asian equities bubble, and commodities bubble… the biggest buble of all is the US stock market over the past 40 years…

1. Assuming everyone ethnic (ex. Asian or Brazillian or whatever) is “foreign” is a poor assumption (ie. many are likely US citizens and quite a few grew up in the US).
2. If you want to talk “intoxicated zelots” then it’s not about Irvine per say, it’s all about the overwhelming desire for the best schools (and the Irvine schools happen to be excellent).  I can see with all the school budget cutbacks in California talk why buying in Irvine might be attractive (ie. enough foundation & private cash to help the California budget shortfall form biting as badly as elsewhere).

Re ” Do you think the market can selectively crash? Will condos drop 60% while SFDs only drop 20%?”

Actually Gary Watts answered this one recently.  Kinda sad that this is what passes for super optimism these days…

http://lansner.freedomblogging.com/2009/01/06/forecaster-watts-eyes-slow-recovery-for-pricier-oc-homes/10664/

You lost me at “no central air.”

Just don’t let him know he’s your bellwether.  That’ll ruin a good forecaster at your disposal.

What were they paying IAC before?  What sized condo?

7) Asians are soulless, shifty-eyed little munchkins who want to buy all the valuable real estate out from under whites, blacks, and hispanics.

Is it that the schools are excellent, or simply that the school population is heavily weighted to children of educated parents? It’s much easier for a school or school district to look like it’s better than others when it’s not dealing with a large number of English language learners from low-income homes. Kids whose parents are highly motivated, educated professionals will always score better on standardized tests than kids whose parents are of low income and dealing with all the stress that accompanies being poor, regardless of what the school is doing. It’s not an apples to apples comparison.

MalibuRenter:

Thanks for the great info. I wonder if you or anyone know some good rental deals in or around Pasadena?

Looking for 2 bed.

Kirk: Spent the New Year holiday with a friend who sells houses in Davis CA. Most of the group I travel with now ask me “When is the Bottom?” I refer them here to IHB. My friend said that there were no REOs in Davis. I showed her about 30 on Trulia. She then maintained that Davis would not see meaningful reductions. While I agreed that there was a premium for her city, I politely pointed out that there was simply no credit available and that Davis could not avoid a fall, given that my fair city (twelve miles away) has already seen 50% off. I was then able to disabuse her of the idea that the current low rates would not prevent the recast hell that is about to be unleashed, because of the fact that most sales in the late bubble now owe 115%. As a high end RE market, I suspect Davis is rife with Option ARMs. She then tried to paint a positive picture for commercial RE. I was nice, she is a friend and she actually accepts as fact that which she espouses. I feel like Will Hunting, having attained a free high quality education for the cost of internet service. I guess it would be free if I went to the library. I hope everyone has fun tonight, I’m a bit jealous.

SB

2/2 2k before (no garage) not in a nice area—

Did you go to the big bhudda in kamakura, and go in the budda’s belly?

A have a friend that bought recently with a good size downpayment. I believe this is and will be common.

There is one BIG reason a lot of people are putting a lot of money down for the downpayment, and that is, because otherwise, they would struggle with the monthly payment and expenses.

There is plenty of “cash” in the sidelines, mostly from people that sold their property at or near the top, or that recently sold and they still had equity because they didn’t HELOC themselves. Just like the market giveth, it will taketh.

Trust me, with carry trade, that Aussie was smart to do so until mid-last year when AUD went to the gutter.

Hopefully he cashed his AUD for JPY when all the deleveraging was taking place.

You are full of crap. I used to live in Redondo Beach and had an apartment that was walking distance to the beach for only $1100 a month for a 1BR.

If you go inland a bit, it’s even cheaper. A good friend of mine lives in Redondo just off Artesia and he’s paying $800 for a 1BR with a garage. It’s not walking distance to the beach, but it’s a quick bike ride away (find me a place in Irvine where a young guy in his late 20s can ride a bike to the beach!)

Rents are too high - they’re only so high because it’s still cheaper to rent than to buy a home. Once home prices drop, rents are going to follow. When adjusted for inflation, the drops are going to be even greater than they look.

There’s all kind of loan portfolio data available through the fdic website - you can get it for individual banks or download data for banks that you select (all banks in CA, for example.).  See the Banker section, top picks…see Insitution Data or UPBR’s…but you’ll have to spend a little time digging unless you find someone familiar with how to download info…Thrifts (i.e. WAMU) have capital limits on how much they can hold in non-res RE loans but not low enough that they’d be unscathed by a big downturn in CRE.  The majority of Banks in CA have what the regulators consider to be ‘high concentrations of CRE’...and that was before their capital levels eroded this year due to losses.

Not much less. Maybe $1500 but probably more.

“Well known”?  Do you have any citation for that claim?  Or failing that, anecdotal evidence to relate?

Do any of the people who’ve bought on Turtle Ridge realize that it borders a former dump? Wouldn’t that fact alone diminish the prestige of the neighborhood? As someone who grew up in Irvine, I’d think that it would be among the least desirable places to live. I am confused, but maybe foreigners or people who’ve relocated from other cities in the East just don’t know better.

What a singular comment!

Actually rugman, 2000/month is high but its not THAT high for irvine, honestly. I mean its still high, but renting a place in Irvine is exorbitant.  Most of the apartments are TINY too, 650-700sqft.  I’m guessing (only a guess) that the 800 sqft on this one doesn’t include the loft because of the way california sq ft laws work (in order for sq footage to be counted it has to be ‘livable’ space and that means the ceiling must be greater than x feet high—a lot of lofts don’t qualify for htat). 

Anyway a 1br apartment in Irvine is like 1400. I pay 1300/month for my HB apartment, 760 sq ft and under a mile to the beach but no washer dryer and only one carport.  This is a relatively good price and we go against traffic to work.  We could move inland and save 150 a month but have to pay for air conditioning and such which we don’t now.  Anyway given that this place has an extra bathroom and that little loft I’d think that 1400/month wouldn’t be totally unreasonable.  Its about what most of us are paying in rent right now for a 1br1ba, but rents are probably going to decline a bit given the economy (I suspect some people currently renting a 1br alone will switch to renting a 2br with a roomate).

Anyway just wanted to chime in as an OC girl that although I realize our rent seems insane to people from the midwest its actually kind of normal to us.

(PS no one in OC can get 100% financing on a condo anymore. Literally NO ONE.  You need 10% down.)