Thank you for your hard work and interesting posts IrvineRenter. I really appreciate it as I don’t have quite as good of a grasp on the math.
One question though. When you are looking at the numbers, do you think that prices will vary differently from city to city in Orange County? Specifically, will places like Newport and Laguna experience much more severe drops because they are so much more expensive or will these cities fair better because they are so desired?
Eventually, I would prefer to buy in Newport or as close as possible in Irvine because both my husband and I live there, so I am curious how this might affect us. As for now, we have decided to move into a nicer apartment than we would normally pay for so that we are comfortable and not itching to buy for a few years.
Thanks again!
Posted by CoupleWaiting on 03/11/07 at 06:56 PM
As correct as your prediction is, I hope it is too conservative. When my wife and I started dating three years ago, I told her we would be in a house in two years. Three years later, we’re married but still in an apartment.
At the two year mark, when we were about ready, I saw the bubble in full form and opted not to participate in the inevitable voluntary group slaughter occurring around me by the masses.
To compensate I moved us into a bigger, nicer apartment and realizing we might be here awhile, we painted, fully decorated and hunkered in for the long haul. According to your numbers, and I fear they will be close to reality, I don’t think we can wait that long.
I can only hope that there are so many first-time buyers waiting on the sidelines like us…good credit, some cash in the bank, good jobs, etc… that the rally to price decline will occur more rapidly than you have predicted.
I just can’t imagine with the tightening lending standards, foreclosures, NOD’s, rising inventory and the inevitable growth in number of the want-to-own-a-home population such as myself that we will ALL be forced to sit on the sidelines from between 5 and 10 years, starting now. In that time, we should change the name from Orange County to Rental County since that’s all they’ll be able to build that anyone can afford.
And lastly, we are not trying to time the market, and wait for the absolute bottom… we know what kind of house we want, where we want it and what it SHOULD cost us at a fair market value…when the market declines to that price, we will buy-in, fully expecting additional depreciation but we will be happy to ride it out in a house we want, in a place we want, at a price we can afford.
Five to ten years seems like such a long, long, loooong time. ——-
Irvinerenter - Thank you for your posts. They are all well thought out, clear and to the point and you have great charts. I thank you too because I know how much time and effort it takes for topics like this with this much information.
My favorite chart is the historical interest rates. Notice how rates drop as prices fell? Looks like lower interest rates didn’t save the market then and it won’t save us this time either. Plus Big Ben will hold steady.
Posted by GrewUpInIrvine on 03/11/07 at 07:04 PM
Do the various market data lend well to a statistical deviation model? Or some other “confidence” factor for a 10, 20 30% drop in prices… It seems that the data should present a conic projection for future valuations with a mean and extremes…
“According to your numbers, and I fear they will be close to reality, I don’t think we can wait that long.”
Rein her in.
Sorry to be a jerk, but spousal units + shaky finance = ticking bomb.
Posted by mah on 03/11/07 at 07:59 PM
I love your charts and your analogy, but I’m starting to believe the government is going to inflate this problem away. It is the easiest way for them to solve the American fcuk up of the last 60 years. They can also tally up that little problem called the US debt by simply inflating our currency.
With that said; I think by 2013 prices may be around the levels you predict in inflation adjusted prices, but not in today’s prices.
Meanwhile, America sells more bonds.
p/s/ They don’t call him Helicopter Ben for no reason!
Posted by Aeneid on 03/11/07 at 08:20 PM
I hope that the prediction will come true. Otherwise, I will be a perpetual renter.
Posted by dj on 03/11/07 at 09:26 PM
Great work,
Who knows how this will all play out over the next 5 to 10 years but I’m following the more bearish points of view until there reason.
I can add that I just went through the approval process last week and was approved for less than I was in 05. We make more now, credit 800’s, serious cash from the sale of our last home, 18 years saving to both 401k’s etc… and almost no debt.
WF rep. basically said it’s going to get tight for almost all loans.
The girl who cuts my hair told me last week she has been trying to refi for two weeks and said “it’s like nobody cares like they use too” and are not very helpful. She had no idea what has transpired over the last couple of months with credit etc.
Come to find out she has been late on both condos but managed to catch up, this hit her credit but the rate she is getting is “just to high” and she can’t handle the new loan amount. 2 years ago she was on the RE high with another co-worker and now she said they both need to sale,(must-sell inventory). They were both first time buyers and she said ‘we never knew there was a reason why it was so easy and everyone wanted to give us a loan to buy more houses’.
Posted by CoupleWaiting on 03/11/07 at 09:26 PM
oc_fliptrack
“Rein her in. Sorry to be a jerk, but spousal units + shaky finance = ticking bomb.”
Not sure if I am interpreting this correctly. So I can only say… she’s definitely on board which is great for me. I showed her everything I saw right from the beginning, and she sees it too.
She believes the bubble is out of control and only a fool would buy in now or anytime soon. In fact, she talked her brother and his new wife from buying in during the fall of last year by telling them everything I had told her. Lucky for them.
To your comment, that’s exactly why it makes sense for us to stay out of the market, to keep renting. Right now, we have money, we have savings, we live well, we have fun and we have the disposable income to relax and enjoy different things and places together.
If we bought now, the monthly nut might give us a house, but our quality of life would plummet. Luckily for me, neither of us are willing to trade our current happy stress-free life just to get squeezed into a stucco box.
Posted by gn on 03/11/07 at 09:49 PM
IrvineRenter,
Great post ! You said it so well.
In addition to :
“It’s the Foreclosures, Stupid!”
We should add :
“It’s NOT the interest rate, stupid!”
“And it’s NOT the job market/economy, stupid!”
Posted by AKRon on 03/11/07 at 10:14 PM
Re inflating the US debt away. Unfortunately the Feds almost completely turn over their loans every 5 years, with a significant fraction of the nat debt refloated each year. Thus, they would REALLY have to hyperinflate to save money, otherwise the interest rates would rise on the debt and they could find themselves in a real fix.
As far as devaluation, I am very pessimistic. It doesn’t matter squat what Ben wants- the Chinese, Saudis, Indians, Japanese etc are on the plus end of huge trade deficits and are already sitting on trillions of dollars. The Chinese and Japanese gov’t in particular are presently resisting devaluation the dollar to the extent that it should be devaluated (a good guess is by 25%)- it will be there decision to start dumping dollars, not Ben’s. Anyway, if Ben is anti-devaluation, he sure isn’t talking to Paulson, who just was in China begging them to devalue the dollar to reduce the trade deficit!
mah - I am not sure if your point is coming across as clear as it should be. Correct me if I am wrong but I think you are saying that Helicoptor Ben will just keep printing money/bonds? If that is what you are saying that is actually bad for the dollar and will only cause it to drop more. China and Japan are big holders of our bonds and if they lose value they could sell hurting the dollar more and cause rates to rise as well. A good site to check out is http://calculatedrisk.blogspot.com/ Great topics about the Fed and the dollar. I don’t agree with everything on the site but the majority of the info has been very educational for me.
Posted by Edyang on 03/11/07 at 10:56 PM
I’ve thoroughly enjoyed your treaties on the market as you see it, and am discouraged and encouraged at the same time.
My wife of just 3 months owns a house in La Puente which we are looking to sell so that we can relocate closer to Fountain Valley where I work…2 hour total commute times a day is really killing me after 1.5 years. But with the state of the market, I fear we will get much less than I thought.
Having looked at Plan 4 in Decada of Portola Springs, we put our name on the list for the next phase release; sadly, $648,000 for a 1700 sq ft place sounded quite reasonable after the insane prices of the last few years.
After reading these forums which validated my nagging suspicions—that it just isn’t the right time to buy—I’ve decided with my wife to rent for the time being. We’ll list our house and take what we can get for it, put the cash into a CD, and find an upscale 2 bedroom apartment either in Irvine or somewhere north OC to wait and see.
Maybe prices will decline for the next 5 years as you’ve posted, maybe they won’t. All i know is, something is seriously wrong with a market when a couple’s combined income is $160,000 a year and we can barely afford a 1700 sq ft box. For all the hardworking professionals out there that just want a decent sized home for a reasonable price….here’s hoping the market declines to a sane level.
Yes, many will be hurt, but many made a killing during the boom as well. As we should have learned from the stock market bubble and collapse, anything that rises so fast almost always comes back down to earth.
Kudos again to this excellent forum. I use much of your info to counter the bulls who feel that we’ve bottomed out and Spring 2007 is the return of double digit gains.
Ed
Posted by Anon on 03/11/07 at 11:04 PM
Kudos for a nice series, IR.
I won’t even try to predict the speed or duration of the correction, but I will note that I’ve looked at the housing cycle relative to economic cycles.
The time to buy is just as the next recession bottoms out and we start seeing economic growth again. There will be another bubble, and they always start after the market has overcorrected below fundamental value and people start buying as the economy improves.
This too funny. Amazing how the bear-bloggers provide real data, charts, research and info that makes complete economic sense versus the perma-bull realtors that paint a rosy picture with “Things are great!” and not much else to back up why.
Posted by IrvineMom on 03/12/07 at 08:34 AM
SoCalwatcher - I looked at the graph of Active and Pending Sale - the spread is HUGE! This does not look rosy at all for price stabilization.
Foreclosures May Hit 1.5 Million in U.S. Housing Bust
http://tinyurl.com/32b3fm
It’s the Foreclosures, Stupid!
Posted by OC Hunter on 03/12/07 at 09:26 AM
Thanks for a great post Irvinerenter. I have been following your posts very closely. I have been sensing the market for over three years that it was overpriced back in 2004. However market doubled again from 2004 to 2006/2007. I would at least think for sake of fundamentals that if market doubles in two-three years, it can come down much harder with all market factors are combined. Like we hear now, lending standard have been tightened so much that even a good credit score person may be required to put 20% down in the coming years and you can imagine the downpayments for first time buyers! It would range in the $100,000’s. I believer the biggest factor that will bring the costs down drastically would be the foreclosures. All subprime home owners with ARM’s will end up in default, the ones who have negative equity. The simple reason being that they are already stretched, when mortgage resets, their home value would be less than what they owe and the new mortgage bank would require them to pay the difference in order to get the financing, difference which we all know may also be in the $100,000’s. I think market will deflate to the 40% range within three years. I work in construction industry (commercial) and am already feeling the impact on our business with fewer projects in the pipeline.
Posted by Larry on 03/12/07 at 11:01 AM
Commendable analysis you’ve done, thank you. I can’t disagree with your projections, except to say that inflation is the wildcard that is not really well accounted for. I bet we see price declines of 30% max, and in a short period of time if they’re going to happen (before 2009) because anything further than that is too wild to predict on the premise that inflation could allow rents/wages to catch up before another wave of foreclsures are forced.
Posted by OCMan on 03/12/07 at 01:12 PM
Irvine Renter,
Do you know how closely the real historical house price has followed the fundamental price? I’m thinking the actual price may be cyclic sinusoidal curve with the fundamental price line in the middle.
Another question. If I buy a median priced house now (w/o any discount), it would take 15 to 17 years to get back to purchased part. With buying and selling costs, that’s like renting for a very long time even with interest and tax break. Am I wrong or is pride of ownership that expensive.
BTW, thanks for the charts. May not happen exactly but good to see some technical anaylsis. I guess no one will make money on houses in OC for awhile unless you are an agent or mortgage broker.
Excellent stuff! I’m impressed and think what you have laid out may have a good chance of occurring. I just go back to the fact that no one, and I mean no one predicted 150 to 175 percent appreciation over 5 years in Orange County. This was unprecedented especially in a climate of low inflation and stagnant wages. If inflation was up in the double-digits then maybe there would be some economic ties to the asset run-up but since this isn’t the case, we are starting to see this bubble starting to pop.
As you know, my sentiment was that stubborn sellers and wishful thinkers would dominate 2007. With this “sticky” market view, I was projecting that ALL of California would be negative year-on-year by Q4 but in the low to high single digits. Not sure where that leaves us at this moment with the subprime implosion only starting to catch fire here in Orange County.
I’m cautious about making any prediction because I only need to look back 5 years and see that NOT ONE pundit, reporter, or book claimed triple-digit appreciation so quickly. And I think all bubble readers realized that this was an unsupportable mania; those that got caught up in the S-Storm will realize how heavy their mortgage really is.
The hard thing to factor in IrvineRenter is market psychology and behavioral economics. What pushed this market up will ultimately collapse it; somehow this is poetic justice considering New Century Financial is unable to make its own payments on its debt.
Dr. Housing Bubble
http://drhousingbubble.blogspot.com
The fundamental value will always be at the bottom of a sinusoidal graph of prices because this is the price level where the market finds support.
“If I buy a median priced house now (w/o any discount), it would take 15 to 17 years to get back to purchased part. With buying and selling costs, that’s like renting for a very long time even with interest and tax break. Am I wrong or is pride of ownership that expensive.”
It will take 20 years for fundamentals to catch up to current prices, but your estimate of 15 to 17 is probably good for prices as we will undoubtedly start another bubble before then. And, yes, the pride of ownership is very expensive.
Dr. Housing Bubble,
Thank you for stopping by. As you noted, market psychology is really the X factor. You see panic selling all the time in stocks, but it isn’t very common in residential real estate. If a real panic ensues, prices won’t be very “sticky.”
I love the irony of New Century Financial drowning in debt. They gave each of their customers an anvil and told them to tread water.
In a market downturn, there is always a “flight to quality.” In other words, people dump the dumps and buy the good stuff. That being said, all prices will decline. The better, more desirable areas will decline less. In fact, if you compare the projections on the chart in this thread to the chart in the previous thread where I looked at prices in all of Orange County, you will see I am projecting a 40% decline in Irvine while I think prices will drop 50% in greater Orange County. Therefore, some areas in Orange County will drop more than 50%. A good guide would be to look up the median income statistics and compare that to the median home price. The median income determines the fundamental value. Also, I would take a look at location. Areas on the fringe are always hurt more than areas that are more accessible.
Posted by WaitingInOC on 03/12/07 at 05:39 PM
Very nice analysis. I know we’re all guessing somewhat here (not as to whether prices will drop, but as to how far and how fast). While I recognize that you could very well be right on both the price and timing, my own biased guess is that the time to bottom will be faster - say late 2009 or early 2010. My reasoning is that I think that the combination of ARM resets, tighter lending standards (including required down payments - even if only 5%), and layoffs due to the bursting housing bubble will lead to more foreclosures and some panic selling, which will make this decline faster than previous downturns (when ARM resets were not really a factor). I think the only thing that would prolong it is if the toxic loan resets keep coming in any significant numbers after my predicted bottom because I don’t think that we can really hit bottom until the number of loans resetting are reduced to the point where they are not putting any significant downward pressure on prices.
As I said, this is just my own biased opinion, and it is biased because I have been waiting for this bubble to crash for awhile now (I recognized it in 2004) so that I can finally buy my first house. So, I want it to crash sooner rather than later, and I know that may affect my analysis even though I try not to let it as I am conscious of my bias. The reality is that I will buy when it makes sense for me to do so financially, and that may be before the bottom. But, as long as I don’t catch a falling knife and buy too far away from the bottom, and buy at a price that is comfortable for me to afford with a 30 year fixed rate, then I’ll take that chance and enjoy my new home. Unfortunately, I’m pretty sure that means waiting for at least another 2-3 years.
Again, thanks for your fine work on this. The foreclosure numbers over the next few months should be interesting.
Posted by Bkshopr on 03/12/07 at 08:43 PM
I have been following all your posts for quite sometime. I think your price dropping theory is way too unrealistic. The income that are charted are income reported to the IRS. Most of the the population in Irvine are Asian about 40%. The graph predictions do not apply to Asians.
Hot Asian market are often over-inflated than most other non-Asian location. For examples, In San Gabriel Valley, the home price in Monterey Park, the poor section of El Monte and Rosemead are way over inflated due to the Asian buyers.
One can not predict the wealth of Asians. Their house spending budget are disproportionate to their income earned. Asian will do anything to have their kids attend a good school at any price. Many older Asian are extremely frugal and they spend less than 20% of their earnings. No vacations, no hanging around at a bar, no ski trips, no fancy four Seasons hotels, no Nordstrom at full price, no shopping at Gelson’s and no high maintainance vehicles. Many also cook at home instead of eating out.
Frugality and coupon shopping at the stores and frequent trips to South Coast Plaza to find sales or shopping at the Cabazon outlets are just some of their ways to get the best brands at a bargain. Lexus, Honda, and Toyota are vehicles that Asians drive. These cars have excellent maintanance records.
When It come to buying a home no one really can predict the bags of cash that Asian buyers bring to the purchase. Many older grandparents give their children huge downpayment to purchase their homes so their grand kids can attend the local top rated school to becoming a scholar and a musical prodigy. Purchasing a home in Irvine at any cost has made the Irvine Company very wealthy. During the last recession the Asians were the primary buyers at Westpark and Tustin Ranch. The momentum of the Asians expansion also rejuvenated the older and tired strip retail centers in Irvine as well as inflating the affordability of homes.
While the rest of us are waiting for the price to tumble the Asian buyers are coming out in flocks with the cash that they hid under the mattress.
The Irvine Company does not need to sell land and build houses to sustain its cash flow. While its competitor land owners and builders like Lennar is desperately unloading its inventory at Columbus and risking everything to going “urban” to keep their public shareholders interested and happy. The Irvine Company is just too diversified and recession proof. It is also private. During this slow time it will just focus on its other specialties like retails, office expansions, Pelican resort Villas and hotel constructions, Island Hotel, collecting trophy high rises in San Diego, West LA, and the Silicon Valley and most importantly building more Irvine Apartment Communities to capture more of your and my hard earned rent money while we are still waiting for the price to drop. Do not try to job transfer to San Diego or San Jose, Irvine Apartment Communities are there too to collect your money.
I think The Irvine Company will just let the land sit vacant and wait for the favorable climate to build again. The land is still perfectly good the next time around. I also think the design of the upcoming homes will be designed especially to target the Asian buyers like having good Feng Shui and good Wok “chi”.
Very good work. Thanks for sharing with us! I just want to share several of my observations.
Since your prediction / model are driven by “fundamental value”, which in term driven by rental rate /ratio, one of the main drivers here is “rental inflation rate”. In the 40% drop model you kindly shared with us, the “rental inflation rate” is 3%.
I am not sure I would agree with you that the 3% is a good number. Rental rate is driven by supply and demand (just like housing price). If your crashing theory stands, the rental demand has no place to go but UP. This increased demand will be driven by the following:
a. During the bubble years, many people got into housing due to creative financing and/or subprime loans. Now that banks are tightening up standards and making it harder to get loans, there will be less people leaving rental market to become home owners.
B. For those can afford a house via conventional mortgage; they are staying in their apartment longer due to market uncertainty. Many of the folks on this blog probably is in this category.
c. Our “crashing” theory is not based on major economic down turn scenario in south Ca, therefore I don’t see number of people leaving OC will be a lot greater than the previous years. This means there is no meaningfully net demand loses.
d. A lot of us believe that there will be more foreclosure coming. Well, unless those folks just leave OC, there will have to find a place to rent. Not all of those get foreclosure will leave OC.
I don’t know for sure how much this will drive up the rental rates. But I think 5% is a more likely number than 3%. I rented between 1998 to 2000 in Laguna Nigel. When I moved in, the rent was 1100, when I left after 2 years, the rent was 1275. That is about 7.5% a year. For a $2000 apartment, increase of on average of $100 / year in a tight market is expected.
So if we use 5% in your model, the overall drop will be 29% vs. 37% in your analysis. If we use 6% in your model, then the overall drop will be 25% vs. 37% in your model.
I would argue that 37% drop probably is the worst case scenario with low probability ( due to the very conservative rental rate inflation assumption). I would argue that a 25% to 30% drop from all time high is probably the base case and expected case ( based on a 5 to 6% rental inflation rate)
I have seen some new housing dropped 20% already. FYI, The 51 Sanctuary example you used previously, the builder is selling the same house for $300,000 less than what the home owner is asking for. That is about 20%.
The conversion of owners to renters has a zero net impact on rental rates because many of the homes people used to own will become rentals. People will not be able to bid up rental rates unless they make more money. If this crash is really bad (which looks likely) incomes in Orange County and Irvine will not be going up very fast. Think of all the realtors and mortgage brokers whose incomes just fell off a cliff. Historically, rental rates have leveled off during housing busts because of the associated recession (look up the chart on rent vs. prices for LA in previous threads.)
You may be right that inflation, particularly wage and rent inflation, may work to bail out the FB’s. I am not concerned as much about the price level as I am about the crossover point. At whatever price level it becomes less expensive to own than to rent, I will buy.
I fully expect OC’s population growth to swing negative within 2-3 years. Indeed, the first-time homebuying demographic (ages 18-34) is already shrinking. I think this will keep rental inflation in check for quite a while.
Posted by pioneer10 on 03/13/07 at 11:17 AM
Just want to say great work on all of the pieces so far.
Making me really consider pulling a money out of equities and building up cash to buy investment property 3-4 years into the future if this bubble plays out like you’re predicting
Posted by red on 03/13/07 at 07:22 PM
I dont want to take anything away from what IrvineRenter has done. I think he obviously has done an excellent job in making a strong case for housing crash. And if you’re thinking about buying now, you should definitely consider the risk and calculate the rent vs. own trade-off.
But below is an article that touches on subprime lending and explains why experts make mistakes in predicting “extreme outcomes”.
So what’s going to happen? I dunno. But when I’m weighing the likelihood of a prediction coming true—or worse, making a prediction myself—I try to remember some of what I’ve learned from psychologist Philip Tetlock. He’s made a study of expert predictions, and he’s found that they really aren’t very good. They do about as well, he says, as “the moderately attentive reader of good newspapers.”
That doesn’t mean you shouldn’t listen to experts like Roubini; you just shouldn’t overvalue them. But what’s even more interesting about Tetlock’s work is why experts make mistakes. One problem experts tend to have is loquacious overconfidence: They have a lot of information, so they can put together very convincing stories to describe extreme outcomes. Tetlock also found that experts were more likely to predict extreme events if they were forced to imagine specific story-lines.
Posted by Albert on 03/14/07 at 08:19 AM
Do you all feel Silicon Valley up north will drop 40% like the article predicted of Irvine? I like to think Irvine is the Silicon Valley of SoCal. Irvine is floated with technology companies. I somehow do I think Silicon Valley home prices will drop 40%. I sold my home in Irvine a year and half ago when the housing market peaked. Now I am just speculating. Although I do not have any facts or data to back my gut feeling, I do not feel Irvine will drop 40%. 5 years ago, a 2000 square ft home costed about 500k. following a 5 year appreciation in Irvine, without counting subprime lending factors, that house should be around 580-600k.
Portola Springs - Paloma home - 2280 sq ft for 800k - real value probably 680k to 700k. After their price drop from 930k to 800k, all their homes are sold out, does that indicate they hit the perfect price?
i think at most irvine housing will drop 15%.. and pick back up in 5 years, depending on how the lending industry responds to what has been happening. You never know, there might be new programs and new laws.
i do not know much about foreclosures but i would assume they will still sell at market going rate. who is going to buy? Irvine is a college town that is growing massively, technology town, people move around in this industry, A LOT.
So i don’t know, a lot of what I wrote is just thoughts in my head. just don’t forget, Irvine is a wonderful place to live in… great weather, low crime, master planned, you really think it’ll drop that bad?
Posted by OC Hunter on 03/15/07 at 06:50 AM
Hi Irvinerenter,
I have a request for you. You seem to hit perfectly on most posts and I truly admire your knowledge and senses. It would be a great post if you could shed some light on the NAR’s misleading Median Home Pricing philosoply. I somewhat understand meaning of median prices, however in the declining market where sales and prices are constantly falling, a report came out today that medial in Los Angeles went up 8% and in OC it went down 0.5%. I have people who constantly debate this issue saying that median prices are going higher and higher and they dont believe that prices will come down.
Could you post an article on this?
Posted by bayarearenter on 03/25/07 at 09:07 AM
@Albert, to answer your question, and
if you have the time, why dont you crunch the
numbers for the silicon valley , according to the theory
so masterfully laid out by Irvine Renter—
This will benefit many people including myself.
Posted by miles2go on 03/30/07 at 04:16 PM
Excellent work. However, you left out the anticipated effect of job losses due to the slowdown in real estate related industries. The Irvine/OC area has the highest concentration of mortgage brokers, title companies, etc. anywhere in the states. As these relatively high paying jobs fall off more home supply will hit the market, further depressing prices.
Your analysis is spot on.
Posted by Billydog25 on 04/06/07 at 05:50 PM
I wonder what impact foreign investment could have on the SoCal market? My friend is a R/E agent in Newport Beach, a VERY smooth character indeed, and that is his response to me when I throw out the facts—he thinks foreign investment, perhaps due to the weak dollar, will end up bailing out the market after about a year. Perhaps that is an X-factor since I dont believe that stat is tracked… any thoughts and/or research about that?
One thing to Albert—experience in every investment realm in the world will show people do nothing if not over-react. When a public company has a bad quarter and loses 25% of its stock value the next day, I think that’s an example. Don’t under-estimate the mob over-reaction….
Foreign money is always late to the party. They are often the bagholders who take the most serious losses in the decline. I hope foreign money does come into the market in the next year or two. Somebody has to own these properties while they lose 40% of their value.
Posted by Melissa on 03/12/07 at 02:08 PM
Thank you for your hard work and interesting posts IrvineRenter. I really appreciate it as I don’t have quite as good of a grasp on the math.
One question though. When you are looking at the numbers, do you think that prices will vary differently from city to city in Orange County? Specifically, will places like Newport and Laguna experience much more severe drops because they are so much more expensive or will these cities fair better because they are so desired?
Eventually, I would prefer to buy in Newport or as close as possible in Irvine because both my husband and I live there, so I am curious how this might affect us. As for now, we have decided to move into a nicer apartment than we would normally pay for so that we are comfortable and not itching to buy for a few years.
Thanks again!
Posted by CoupleWaiting on 03/11/07 at 06:56 PM
As correct as your prediction is, I hope it is too conservative. When my wife and I started dating three years ago, I told her we would be in a house in two years. Three years later, we’re married but still in an apartment.
At the two year mark, when we were about ready, I saw the bubble in full form and opted not to participate in the inevitable voluntary group slaughter occurring around me by the masses.
To compensate I moved us into a bigger, nicer apartment and realizing we might be here awhile, we painted, fully decorated and hunkered in for the long haul. According to your numbers, and I fear they will be close to reality, I don’t think we can wait that long.
I can only hope that there are so many first-time buyers waiting on the sidelines like us…good credit, some cash in the bank, good jobs, etc… that the rally to price decline will occur more rapidly than you have predicted.
I just can’t imagine with the tightening lending standards, foreclosures, NOD’s, rising inventory and the inevitable growth in number of the want-to-own-a-home population such as myself that we will ALL be forced to sit on the sidelines from between 5 and 10 years, starting now. In that time, we should change the name from Orange County to Rental County since that’s all they’ll be able to build that anyone can afford.
And lastly, we are not trying to time the market, and wait for the absolute bottom… we know what kind of house we want, where we want it and what it SHOULD cost us at a fair market value…when the market declines to that price, we will buy-in, fully expecting additional depreciation but we will be happy to ride it out in a house we want, in a place we want, at a price we can afford.
Five to ten years seems like such a long, long, loooong time.
——-
Posted by graphrix on 03/11/07 at 07:03 PM
Irvinerenter - Thank you for your posts. They are all well thought out, clear and to the point and you have great charts. I thank you too because I know how much time and effort it takes for topics like this with this much information.
My favorite chart is the historical interest rates. Notice how rates drop as prices fell? Looks like lower interest rates didn’t save the market then and it won’t save us this time either. Plus Big Ben will hold steady.
Posted by GrewUpInIrvine on 03/11/07 at 07:04 PM
Do the various market data lend well to a statistical deviation model? Or some other “confidence” factor for a 10, 20 30% drop in prices… It seems that the data should present a conic projection for future valuations with a mean and extremes…
Posted by oc_fliptrack on 03/11/07 at 07:35 PM
“According to your numbers, and I fear they will be close to reality, I don’t think we can wait that long.”
Rein her in.
Sorry to be a jerk, but spousal units + shaky finance = ticking bomb.
Posted by mah on 03/11/07 at 07:59 PM
I love your charts and your analogy, but I’m starting to believe the government is going to inflate this problem away. It is the easiest way for them to solve the American fcuk up of the last 60 years. They can also tally up that little problem called the US debt by simply inflating our currency.
With that said; I think by 2013 prices may be around the levels you predict in inflation adjusted prices, but not in today’s prices.
Meanwhile, America sells more bonds.
p/s/ They don’t call him Helicopter Ben for no reason!
Posted by Aeneid on 03/11/07 at 08:20 PM
I hope that the prediction will come true. Otherwise, I will be a perpetual renter.
Posted by dj on 03/11/07 at 09:26 PM
Great work,
Who knows how this will all play out over the next 5 to 10 years but I’m following the more bearish points of view until there reason.
I can add that I just went through the approval process last week and was approved for less than I was in 05. We make more now, credit 800’s, serious cash from the sale of our last home, 18 years saving to both 401k’s etc… and almost no debt.
WF rep. basically said it’s going to get tight for almost all loans.
The girl who cuts my hair told me last week she has been trying to refi for two weeks and said “it’s like nobody cares like they use too” and are not very helpful. She had no idea what has transpired over the last couple of months with credit etc.
Come to find out she has been late on both condos but managed to catch up, this hit her credit but the rate she is getting is “just to high” and she can’t handle the new loan amount. 2 years ago she was on the RE high with another co-worker and now she said they both need to sale,(must-sell inventory). They were both first time buyers and she said ‘we never knew there was a reason why it was so easy and everyone wanted to give us a loan to buy more houses’.
Posted by CoupleWaiting on 03/11/07 at 09:26 PM
oc_fliptrack
“Rein her in. Sorry to be a jerk, but spousal units + shaky finance = ticking bomb.”
Not sure if I am interpreting this correctly. So I can only say… she’s definitely on board which is great for me. I showed her everything I saw right from the beginning, and she sees it too.
She believes the bubble is out of control and only a fool would buy in now or anytime soon. In fact, she talked her brother and his new wife from buying in during the fall of last year by telling them everything I had told her. Lucky for them.
To your comment, that’s exactly why it makes sense for us to stay out of the market, to keep renting. Right now, we have money, we have savings, we live well, we have fun and we have the disposable income to relax and enjoy different things and places together.
If we bought now, the monthly nut might give us a house, but our quality of life would plummet. Luckily for me, neither of us are willing to trade our current happy stress-free life just to get squeezed into a stucco box.
Posted by gn on 03/11/07 at 09:49 PM
IrvineRenter,
Great post ! You said it so well.
In addition to :
“It’s the Foreclosures, Stupid!”
We should add :
“It’s NOT the interest rate, stupid!”
“And it’s NOT the job market/economy, stupid!”
Posted by AKRon on 03/11/07 at 10:14 PM
Re inflating the US debt away. Unfortunately the Feds almost completely turn over their loans every 5 years, with a significant fraction of the nat debt refloated each year. Thus, they would REALLY have to hyperinflate to save money, otherwise the interest rates would rise on the debt and they could find themselves in a real fix.
As far as devaluation, I am very pessimistic. It doesn’t matter squat what Ben wants- the Chinese, Saudis, Indians, Japanese etc are on the plus end of huge trade deficits and are already sitting on trillions of dollars. The Chinese and Japanese gov’t in particular are presently resisting devaluation the dollar to the extent that it should be devaluated (a good guess is by 25%)- it will be there decision to start dumping dollars, not Ben’s. Anyway, if Ben is anti-devaluation, he sure isn’t talking to Paulson, who just was in China begging them to devalue the dollar to reduce the trade deficit!
Posted by graphrix on 03/11/07 at 10:24 PM
mah - I am not sure if your point is coming across as clear as it should be. Correct me if I am wrong but I think you are saying that Helicoptor Ben will just keep printing money/bonds? If that is what you are saying that is actually bad for the dollar and will only cause it to drop more. China and Japan are big holders of our bonds and if they lose value they could sell hurting the dollar more and cause rates to rise as well. A good site to check out is http://calculatedrisk.blogspot.com/ Great topics about the Fed and the dollar. I don’t agree with everything on the site but the majority of the info has been very educational for me.
Posted by Edyang on 03/11/07 at 10:56 PM
I’ve thoroughly enjoyed your treaties on the market as you see it, and am discouraged and encouraged at the same time.
My wife of just 3 months owns a house in La Puente which we are looking to sell so that we can relocate closer to Fountain Valley where I work…2 hour total commute times a day is really killing me after 1.5 years. But with the state of the market, I fear we will get much less than I thought.
Having looked at Plan 4 in Decada of Portola Springs, we put our name on the list for the next phase release; sadly, $648,000 for a 1700 sq ft place sounded quite reasonable after the insane prices of the last few years.
After reading these forums which validated my nagging suspicions—that it just isn’t the right time to buy—I’ve decided with my wife to rent for the time being. We’ll list our house and take what we can get for it, put the cash into a CD, and find an upscale 2 bedroom apartment either in Irvine or somewhere north OC to wait and see.
Maybe prices will decline for the next 5 years as you’ve posted, maybe they won’t. All i know is, something is seriously wrong with a market when a couple’s combined income is $160,000 a year and we can barely afford a 1700 sq ft box. For all the hardworking professionals out there that just want a decent sized home for a reasonable price….here’s hoping the market declines to a sane level.
Yes, many will be hurt, but many made a killing during the boom as well. As we should have learned from the stock market bubble and collapse, anything that rises so fast almost always comes back down to earth.
Kudos again to this excellent forum. I use much of your info to counter the bulls who feel that we’ve bottomed out and Spring 2007 is the return of double digit gains.
Ed
Posted by Anon on 03/11/07 at 11:04 PM
Kudos for a nice series, IR.
I won’t even try to predict the speed or duration of the correction, but I will note that I’ve looked at the housing cycle relative to economic cycles.
The time to buy is just as the next recession bottoms out and we start seeing economic growth again. There will be another bubble, and they always start after the market has overcorrected below fundamental value and people start buying as the economy improves.
Posted by SoCalwatcher on 03/12/07 at 08:14 AM
http://www.ocrealestateblog.com/blog/_archives/2007/2/26/2766985.html
This too funny. Amazing how the bear-bloggers provide real data, charts, research and info that makes complete economic sense versus the perma-bull realtors that paint a rosy picture with “Things are great!” and not much else to back up why.
Posted by IrvineMom on 03/12/07 at 08:34 AM
SoCalwatcher - I looked at the graph of Active and Pending Sale - the spread is HUGE! This does not look rosy at all for price stabilization.
Posted by IrvineRenter on 03/12/07 at 08:58 AM
Foreclosures May Hit 1.5 Million in U.S. Housing Bust
http://tinyurl.com/32b3fm
It’s the Foreclosures, Stupid!
Posted by OC Hunter on 03/12/07 at 09:26 AM
Thanks for a great post Irvinerenter. I have been following your posts very closely. I have been sensing the market for over three years that it was overpriced back in 2004. However market doubled again from 2004 to 2006/2007. I would at least think for sake of fundamentals that if market doubles in two-three years, it can come down much harder with all market factors are combined. Like we hear now, lending standard have been tightened so much that even a good credit score person may be required to put 20% down in the coming years and you can imagine the downpayments for first time buyers! It would range in the $100,000’s. I believer the biggest factor that will bring the costs down drastically would be the foreclosures. All subprime home owners with ARM’s will end up in default, the ones who have negative equity. The simple reason being that they are already stretched, when mortgage resets, their home value would be less than what they owe and the new mortgage bank would require them to pay the difference in order to get the financing, difference which we all know may also be in the $100,000’s. I think market will deflate to the 40% range within three years. I work in construction industry (commercial) and am already feeling the impact on our business with fewer projects in the pipeline.
Posted by Larry on 03/12/07 at 11:01 AM
Commendable analysis you’ve done, thank you. I can’t disagree with your projections, except to say that inflation is the wildcard that is not really well accounted for. I bet we see price declines of 30% max, and in a short period of time if they’re going to happen (before 2009) because anything further than that is too wild to predict on the premise that inflation could allow rents/wages to catch up before another wave of foreclsures are forced.
Posted by OCMan on 03/12/07 at 01:12 PM
Irvine Renter,
Do you know how closely the real historical house price has followed the fundamental price? I’m thinking the actual price may be cyclic sinusoidal curve with the fundamental price line in the middle.
Another question. If I buy a median priced house now (w/o any discount), it would take 15 to 17 years to get back to purchased part. With buying and selling costs, that’s like renting for a very long time even with interest and tax break. Am I wrong or is pride of ownership that expensive.
BTW, thanks for the charts. May not happen exactly but good to see some technical anaylsis. I guess no one will make money on houses in OC for awhile unless you are an agent or mortgage broker.
Posted by DrHousingBubble on 03/12/07 at 01:44 PM
IrvineRenter,
Excellent stuff! I’m impressed and think what you have laid out may have a good chance of occurring. I just go back to the fact that no one, and I mean no one predicted 150 to 175 percent appreciation over 5 years in Orange County. This was unprecedented especially in a climate of low inflation and stagnant wages. If inflation was up in the double-digits then maybe there would be some economic ties to the asset run-up but since this isn’t the case, we are starting to see this bubble starting to pop.
As you know, my sentiment was that stubborn sellers and wishful thinkers would dominate 2007. With this “sticky” market view, I was projecting that ALL of California would be negative year-on-year by Q4 but in the low to high single digits. Not sure where that leaves us at this moment with the subprime implosion only starting to catch fire here in Orange County.
I’m cautious about making any prediction because I only need to look back 5 years and see that NOT ONE pundit, reporter, or book claimed triple-digit appreciation so quickly. And I think all bubble readers realized that this was an unsupportable mania; those that got caught up in the S-Storm will realize how heavy their mortgage really is.
The hard thing to factor in IrvineRenter is market psychology and behavioral economics. What pushed this market up will ultimately collapse it; somehow this is poetic justice considering New Century Financial is unable to make its own payments on its debt.
Dr. Housing Bubble
http://drhousingbubble.blogspot.com
Posted by IrvineRenter on 03/12/07 at 02:03 PM
Thank you all for your comments.
OCMan,
The fundamental value will always be at the bottom of a sinusoidal graph of prices because this is the price level where the market finds support.
“If I buy a median priced house now (w/o any discount), it would take 15 to 17 years to get back to purchased part. With buying and selling costs, that’s like renting for a very long time even with interest and tax break. Am I wrong or is pride of ownership that expensive.”
It will take 20 years for fundamentals to catch up to current prices, but your estimate of 15 to 17 is probably good for prices as we will undoubtedly start another bubble before then. And, yes, the pride of ownership is very expensive.
Dr. Housing Bubble,
Thank you for stopping by. As you noted, market psychology is really the X factor. You see panic selling all the time in stocks, but it isn’t very common in residential real estate. If a real panic ensues, prices won’t be very “sticky.”
I love the irony of New Century Financial drowning in debt. They gave each of their customers an anvil and told them to tread water.
Posted by IrvineRenter on 03/12/07 at 03:40 PM
Melissa,
In a market downturn, there is always a “flight to quality.” In other words, people dump the dumps and buy the good stuff. That being said, all prices will decline. The better, more desirable areas will decline less. In fact, if you compare the projections on the chart in this thread to the chart in the previous thread where I looked at prices in all of Orange County, you will see I am projecting a 40% decline in Irvine while I think prices will drop 50% in greater Orange County. Therefore, some areas in Orange County will drop more than 50%. A good guide would be to look up the median income statistics and compare that to the median home price. The median income determines the fundamental value. Also, I would take a look at location. Areas on the fringe are always hurt more than areas that are more accessible.
Posted by WaitingInOC on 03/12/07 at 05:39 PM
Very nice analysis. I know we’re all guessing somewhat here (not as to whether prices will drop, but as to how far and how fast). While I recognize that you could very well be right on both the price and timing, my own biased guess is that the time to bottom will be faster - say late 2009 or early 2010. My reasoning is that I think that the combination of ARM resets, tighter lending standards (including required down payments - even if only 5%), and layoffs due to the bursting housing bubble will lead to more foreclosures and some panic selling, which will make this decline faster than previous downturns (when ARM resets were not really a factor). I think the only thing that would prolong it is if the toxic loan resets keep coming in any significant numbers after my predicted bottom because I don’t think that we can really hit bottom until the number of loans resetting are reduced to the point where they are not putting any significant downward pressure on prices.
As I said, this is just my own biased opinion, and it is biased because I have been waiting for this bubble to crash for awhile now (I recognized it in 2004) so that I can finally buy my first house. So, I want it to crash sooner rather than later, and I know that may affect my analysis even though I try not to let it as I am conscious of my bias. The reality is that I will buy when it makes sense for me to do so financially, and that may be before the bottom. But, as long as I don’t catch a falling knife and buy too far away from the bottom, and buy at a price that is comfortable for me to afford with a 30 year fixed rate, then I’ll take that chance and enjoy my new home. Unfortunately, I’m pretty sure that means waiting for at least another 2-3 years.
Again, thanks for your fine work on this. The foreclosure numbers over the next few months should be interesting.
Posted by Bkshopr on 03/12/07 at 08:43 PM
I have been following all your posts for quite sometime. I think your price dropping theory is way too unrealistic. The income that are charted are income reported to the IRS. Most of the the population in Irvine are Asian about 40%. The graph predictions do not apply to Asians.
Hot Asian market are often over-inflated than most other non-Asian location. For examples, In San Gabriel Valley, the home price in Monterey Park, the poor section of El Monte and Rosemead are way over inflated due to the Asian buyers.
One can not predict the wealth of Asians. Their house spending budget are disproportionate to their income earned. Asian will do anything to have their kids attend a good school at any price. Many older Asian are extremely frugal and they spend less than 20% of their earnings. No vacations, no hanging around at a bar, no ski trips, no fancy four Seasons hotels, no Nordstrom at full price, no shopping at Gelson’s and no high maintainance vehicles. Many also cook at home instead of eating out.
Frugality and coupon shopping at the stores and frequent trips to South Coast Plaza to find sales or shopping at the Cabazon outlets are just some of their ways to get the best brands at a bargain. Lexus, Honda, and Toyota are vehicles that Asians drive. These cars have excellent maintanance records.
When It come to buying a home no one really can predict the bags of cash that Asian buyers bring to the purchase. Many older grandparents give their children huge downpayment to purchase their homes so their grand kids can attend the local top rated school to becoming a scholar and a musical prodigy. Purchasing a home in Irvine at any cost has made the Irvine Company very wealthy. During the last recession the Asians were the primary buyers at Westpark and Tustin Ranch. The momentum of the Asians expansion also rejuvenated the older and tired strip retail centers in Irvine as well as inflating the affordability of homes.
While the rest of us are waiting for the price to tumble the Asian buyers are coming out in flocks with the cash that they hid under the mattress.
The Irvine Company does not need to sell land and build houses to sustain its cash flow. While its competitor land owners and builders like Lennar is desperately unloading its inventory at Columbus and risking everything to going “urban” to keep their public shareholders interested and happy. The Irvine Company is just too diversified and recession proof. It is also private. During this slow time it will just focus on its other specialties like retails, office expansions, Pelican resort Villas and hotel constructions, Island Hotel, collecting trophy high rises in San Diego, West LA, and the Silicon Valley and most importantly building more Irvine Apartment Communities to capture more of your and my hard earned rent money while we are still waiting for the price to drop. Do not try to job transfer to San Diego or San Jose, Irvine Apartment Communities are there too to collect your money.
I think The Irvine Company will just let the land sit vacant and wait for the favorable climate to build again. The land is still perfectly good the next time around. I also think the design of the upcoming homes will be designed especially to target the Asian buyers like having good Feng Shui and good Wok “chi”.
Posted by Cory Barnett on 03/13/07 at 07:53 AM
Checkout www.lenderimplode.com
Cory Barnett
www.FreeShortSaleSecrets.com
www.DiscoverShortSales.com
Posted by Irvine123 on 03/13/07 at 08:38 AM
IrvineRenter
Very good work. Thanks for sharing with us! I just want to share several of my observations.
Since your prediction / model are driven by “fundamental value”, which in term driven by rental rate /ratio, one of the main drivers here is “rental inflation rate”. In the 40% drop model you kindly shared with us, the “rental inflation rate” is 3%.
I am not sure I would agree with you that the 3% is a good number. Rental rate is driven by supply and demand (just like housing price). If your crashing theory stands, the rental demand has no place to go but UP. This increased demand will be driven by the following:
a. During the bubble years, many people got into housing due to creative financing and/or subprime loans. Now that banks are tightening up standards and making it harder to get loans, there will be less people leaving rental market to become home owners.
B. For those can afford a house via conventional mortgage; they are staying in their apartment longer due to market uncertainty. Many of the folks on this blog probably is in this category.
c. Our “crashing” theory is not based on major economic down turn scenario in south Ca, therefore I don’t see number of people leaving OC will be a lot greater than the previous years. This means there is no meaningfully net demand loses.
d. A lot of us believe that there will be more foreclosure coming. Well, unless those folks just leave OC, there will have to find a place to rent. Not all of those get foreclosure will leave OC.
I don’t know for sure how much this will drive up the rental rates. But I think 5% is a more likely number than 3%. I rented between 1998 to 2000 in Laguna Nigel. When I moved in, the rent was 1100, when I left after 2 years, the rent was 1275. That is about 7.5% a year. For a $2000 apartment, increase of on average of $100 / year in a tight market is expected.
So if we use 5% in your model, the overall drop will be 29% vs. 37% in your analysis. If we use 6% in your model, then the overall drop will be 25% vs. 37% in your model.
I would argue that 37% drop probably is the worst case scenario with low probability ( due to the very conservative rental rate inflation assumption). I would argue that a 25% to 30% drop from all time high is probably the base case and expected case ( based on a 5 to 6% rental inflation rate)
I have seen some new housing dropped 20% already. FYI, The 51 Sanctuary example you used previously, the builder is selling the same house for $300,000 less than what the home owner is asking for. That is about 20%.
Posted by IrvineRenter on 03/13/07 at 09:04 AM
Irvine123,
The conversion of owners to renters has a zero net impact on rental rates because many of the homes people used to own will become rentals. People will not be able to bid up rental rates unless they make more money. If this crash is really bad (which looks likely) incomes in Orange County and Irvine will not be going up very fast. Think of all the realtors and mortgage brokers whose incomes just fell off a cliff. Historically, rental rates have leveled off during housing busts because of the associated recession (look up the chart on rent vs. prices for LA in previous threads.)
You may be right that inflation, particularly wage and rent inflation, may work to bail out the FB’s. I am not concerned as much about the price level as I am about the crossover point. At whatever price level it becomes less expensive to own than to rent, I will buy.
Posted by oc_fliptrack on 03/13/07 at 10:43 AM
I fully expect OC’s population growth to swing negative within 2-3 years. Indeed, the first-time homebuying demographic (ages 18-34) is already shrinking. I think this will keep rental inflation in check for quite a while.
Posted by pioneer10 on 03/13/07 at 11:17 AM
Just want to say great work on all of the pieces so far.
Making me really consider pulling a money out of equities and building up cash to buy investment property 3-4 years into the future if this bubble plays out like you’re predicting
Posted by red on 03/13/07 at 07:22 PM
I dont want to take anything away from what IrvineRenter has done. I think he obviously has done an excellent job in making a strong case for housing crash. And if you’re thinking about buying now, you should definitely consider the risk and calculate the rent vs. own trade-off.
But below is an article that touches on subprime lending and explains why experts make mistakes in predicting “extreme outcomes”.
http://money.cnn.com/blogs/generationrisk/2007/03/is-this-subprime-apocalypse-or-is-it.html
So what’s going to happen? I dunno. But when I’m weighing the likelihood of a prediction coming true—or worse, making a prediction myself—I try to remember some of what I’ve learned from psychologist Philip Tetlock. He’s made a study of expert predictions, and he’s found that they really aren’t very good. They do about as well, he says, as “the moderately attentive reader of good newspapers.”
That doesn’t mean you shouldn’t listen to experts like Roubini; you just shouldn’t overvalue them. But what’s even more interesting about Tetlock’s work is why experts make mistakes. One problem experts tend to have is loquacious overconfidence: They have a lot of information, so they can put together very convincing stories to describe extreme outcomes. Tetlock also found that experts were more likely to predict extreme events if they were forced to imagine specific story-lines.
Posted by Albert on 03/14/07 at 08:19 AM
Do you all feel Silicon Valley up north will drop 40% like the article predicted of Irvine? I like to think Irvine is the Silicon Valley of SoCal. Irvine is floated with technology companies. I somehow do I think Silicon Valley home prices will drop 40%. I sold my home in Irvine a year and half ago when the housing market peaked. Now I am just speculating. Although I do not have any facts or data to back my gut feeling, I do not feel Irvine will drop 40%. 5 years ago, a 2000 square ft home costed about 500k. following a 5 year appreciation in Irvine, without counting subprime lending factors, that house should be around 580-600k.
Portola Springs - Paloma home - 2280 sq ft for 800k - real value probably 680k to 700k. After their price drop from 930k to 800k, all their homes are sold out, does that indicate they hit the perfect price?
i think at most irvine housing will drop 15%.. and pick back up in 5 years, depending on how the lending industry responds to what has been happening. You never know, there might be new programs and new laws.
i do not know much about foreclosures but i would assume they will still sell at market going rate. who is going to buy? Irvine is a college town that is growing massively, technology town, people move around in this industry, A LOT.
So i don’t know, a lot of what I wrote is just thoughts in my head. just don’t forget, Irvine is a wonderful place to live in… great weather, low crime, master planned, you really think it’ll drop that bad?
Posted by OC Hunter on 03/15/07 at 06:50 AM
Hi Irvinerenter,
I have a request for you. You seem to hit perfectly on most posts and I truly admire your knowledge and senses. It would be a great post if you could shed some light on the NAR’s misleading Median Home Pricing philosoply. I somewhat understand meaning of median prices, however in the declining market where sales and prices are constantly falling, a report came out today that medial in Los Angeles went up 8% and in OC it went down 0.5%. I have people who constantly debate this issue saying that median prices are going higher and higher and they dont believe that prices will come down.
Could you post an article on this?
Posted by bayarearenter on 03/25/07 at 09:07 AM
@Albert, to answer your question, and
if you have the time, why dont you crunch the
numbers for the silicon valley , according to the theory
so masterfully laid out by Irvine Renter—
This will benefit many people including myself.
Posted by miles2go on 03/30/07 at 04:16 PM
Excellent work. However, you left out the anticipated effect of job losses due to the slowdown in real estate related industries. The Irvine/OC area has the highest concentration of mortgage brokers, title companies, etc. anywhere in the states. As these relatively high paying jobs fall off more home supply will hit the market, further depressing prices.
Your analysis is spot on.
Posted by Billydog25 on 04/06/07 at 05:50 PM
I wonder what impact foreign investment could have on the SoCal market? My friend is a R/E agent in Newport Beach, a VERY smooth character indeed, and that is his response to me when I throw out the facts—he thinks foreign investment, perhaps due to the weak dollar, will end up bailing out the market after about a year. Perhaps that is an X-factor since I dont believe that stat is tracked… any thoughts and/or research about that?
One thing to Albert—experience in every investment realm in the world will show people do nothing if not over-react. When a public company has a bad quarter and loses 25% of its stock value the next day, I think that’s an example. Don’t under-estimate the mob over-reaction….
Posted by IrvineRenter on 04/06/07 at 08:09 PM
Billydog25,
Rich Toscano addressed this issue here:
http://piggington.com/the_dumb_money
Foreign money is always late to the party. They are often the bagholders who take the most serious losses in the decline. I hope foreign money does come into the market in the next year or two. Somebody has to own these properties while they lose 40% of their value.