Irvine Housing Blog

Should I apply the 1999 price of commodities too? 

As for wages… not too sure how that works since most of us should be making more than we did in 1999. I know for our household, wages have budged quite a bit.

Irvine HO -

Stop being dense.  IR_Fan is not saying that nobody has gotten a pay raise since 1999.  The point is that people still make the same amount of money on a relative scale.  A senior level engineer makes in 2010 about the same as a senior level engineer in late 90’s.  When you foolishly talk about your salary having increased you are just showing that you have gone from one pay level to another (moved from Jr level to Sr level).  If you are smart enough to be worth a pay raise then you should be smart enough to understand what was meant.

lol @ David

I was being sarcastic. Talk about dense.

In nominal terms, people are making more than they did in 1999. We have argued about this multiple times. You always like to say there is no reason why prices should be higher than 1999 and that incomes have not gone up since 1999. In nominal terms, the income of people has gone up since 1999…

this is too funny.

But But But

and don’t forget to apply 1999 income levels too since nominal wages haven’t moved a budge in 11 years

You were being sarcastic?  LOL!  If only it were not true.

For some additional humor, check this out.

Whose yer daddy?

Dave -

You miss my point which is why I said I’m not sure how we can accommodate for the exact scenario I mentioned—and you so “astutely” pointing out.

There is a percentage of the population that could be above the mean disproportionately compared to 11 years ago. The same could be said for below the mean. I know for a fact that the jobs some people are holding now pay 40% or more than they did in 1999. Heck… realtors and brokers at the height of the bubble probably made 200%+ more than in 1999.

So… a Sr. level salary in 2010, could have budged much more than a Jr. level salary comparatively. To illustrate, a Jr. makes $40k in 1999, and makes $45k now, while a Sr. could have made $60k then and $95k now. And since Irvine probably attracts more professionals than neighboring cities, the demographics now are different from 1999. Does that explain what I was saying better? Or am I still being dense?

you still don’t seem to understand the difference between NOMINAL and real earnings. house prices are in nominal terms. the wages I said in NOMINAL terms have gone up.  you are clearly my daddy since he is 92 and has bad eye sight and can’t read either.

The median household income in Irvine was 72k in ‘99 and is ~92k now per the census.  Numbers not adjusted for inflation.  You could factor in interest rates, but for this median family you cannot account for a 2x’ing in prices mentioned below.  However in 1999, 22% of Irvine had SELECTED MONTHLY OWNER COSTS AS A PERCENTAGE OF HOUSEHOLD INCOME IN 1999 > 35%, while in their most recent survey, that was 38%.  So you have some portion of price increases from income increases, attribute a little more to interest rates, but a big factor is people putting more income towards a mortgage.  I’d say the median DTI went from a shade under 25% to a little over 30%. 

Rising incomes are the way for home prices to rise sustainably.  Counting on continuing low interest rates, and actually for prices to continue to rise, you need ever lowering rates.  And increasing DTI is unsustainable.

The county I grew up in is one of those near-nightmare areas of FL (not as bad as SW FL, but it has an 18% delinquency rate, even after a ton of foreclosures.  Its median household income rose about 25% nominally, but the percentage of households putting > 35% of their income to a mortgage went from 22% to 44%.

For my current county, the >35% of income to mortgage group went from 13% in 1999 to just 7% now…

You don’t need ever lower interest rates. If you have a permanent shift in interest rates down where the norm is now 5% instead of 7% because of a global saving glut that is partially cycled through the US bond market, then prices will be about 30% higher across the board. Add in the NOMINAL higher wages, and the home prices should be about 60% higher. Far cry from 100% appreciation but even a further far cry from returning to ‘99 prices because “wages haven’t budged” mantra that AZDave keeps advocating.

Maybe in AZ their NOMINAL wages have gone down over the last 10 years.

My point about interest rates was for them to fuel continued appreciation (or limit the decline of prices), they need to keep going down.  Low rates can partially explain current prices, but unless rates are moving, they should have no ability to move prices.  If you attribute higher prices to lower interest rates, then you have to be ready for the lower prices if interest rates rise.  Counting on interest rates never getting back to 7% is like counting on home prices never falling.

The thing that will cause the most trouble is the increasing DTI.  That explains a lot of the price increase and is something that will have to come down.

Dave:

How much was that 3br/2ba 1800sft house in 1999?

About 225K I don’t mind “overpaying” slightly if the rental equivalent is not that far off.

In Irvine, a brand new 3br/2ba 1800sft house was $300k in 1999. Now, a brand new detached condo in the same class (not SFR because they don’t make them that small anymore), is about $600k.

The difference in appreciation magnitude is another factor you haven’t considered. Do you still think we’ll see 1999 prices across the board in Irvine? Even the 80s/90s bubble didn’t get back to the baseline prices.

applying 1999 interests rates to 1999 pricing and adjusting for inflation, $300K now at current interest rates might be very close to the same affordability.

They do it already. Jobs gone overseas, this is the main reason of the current Depression.

I predict that in 15 years Broadcom will relocate to India or China. Nobody will prosecute its founders there for inviting prostitutes or saying bad words to their assistants.