Irvine Housing Blog

I am not one usually to advocate strategic default, but if the comps in your ‘hood are > 2/3rds off what you paid in 2004 (! what were people paying in 2006?), there is little reason to stay, as long as you can rent for considerably less than what you’re paying.  Don’t feel bad for the banks.  They wrote the loans that inflated the bubble in that area, there’s no reason for residents to shoulder a disproportionate share of the pain.

It requires caution to write about prices falling when even the WSJ article singles out LV and parts of CA/AZ/FL.  The high concentration of foreclosures is itself concentrated in the bubble areas with the weakest non-housing/RE economies.

There were two foreclosure sales in our neighborhood in 2009.  They were builder foreclosures largely the result of legal troubles for the builder.  For one there was a minimal discount (the other was not complete, so there was a significant discount).  They are a small number of the homes in the neighborhood and didn’t budge comps.  Two homes on our street will sell for more than they did new in 2007 (one already did and the other is under contract).  Two homes that have not been sold & on the market for 2 years are both being rented.  One of which has to be rented for more than the mortgage payment.

The biggest issue with home prices, and one that seems to be very important to Irvine is supply and real demand.  It’s not that a given median income will support a given home price.  This is how I smelled the bubble in FL.  They kept building $500k-$1M homes like it was going out of style, but I could see NO new jobs supporting those types of home prices.  Looking back, it was probably all either people using bubble equity or speculators absorbing all that new inventory.  No matter what home prices do, I can’t see enough jobs moving to that area to support that housing stock.  A lot will turn into very expensive part-time homes for Canadians and South Americans.

As much as I hate to say it, South Cal is unique.  People want to live here.  They are willing to pay a premium to live here.  Their purchasing power is not just based on income; yes most who buy here have very good salaries but also they often have other compensations like stock options and investments which generate additional income to their salaries.  Also don’t underestimate the amount of purchasing money contributed from other memebers of their immediate families.  To a lot of cultures, buying a house (a nice one in a nice neighborhood in one of the most desirable part of the U.S.) is a familial effort.

Southern CA is more desirable?  I guess with nicer weather it makes being homeless easier.

Good schools sell houses.  Period.  Looking around, those neighborhoods with excellent elemtary, middle and high schools almost always fare much better than others with lower ranking schools in a down market.  A lot of people recognize the importance of childhood education and are willing to pay a pretty penny to be in an area with excellent schools.

“Are the shadow inventory deniers still making fools of themselves, or has everyone accepted that shadow inventory is real and not that hard to find?”

Did I read that correctly?  Are you saying someone else looks like a fool?  Am I not reading the Benedict Arnold of bubble blogging?  The guy who can ridicule “Irvine Ponzi’s” in one paragraph as his ‘Irvine Renter’ persona, but then seamlessly transition into ‘Larry Las Vegas’ in the next paragraph—the parasite who relies on the misfortune of desert “ponzi’s” to operate his vulture house flipping business?

Do what you have to do, it is a tough economy and I am sure you may be involved in business ventures you would not have in the past—- in the interest of caring for your family.  But as you mock others don’t forget the old saying about those who live in glass houses.  Think about that as you head to the New Year.  Think about how YOU might have gone a different direction—against your previous beliefs—- to support your family.  Then apply that to the ‘ponzi’s’ you mock here for all their friends and family to see.  Do you really know what drove their behavior? Think about those Buddhist teachings you implied you followed in the past.  Given your ‘flip’ in the last year, maybe a little restraint in how you view the misfortune of others might be in order?

So that’s enough of this drivel for me. I should have stayed away after my year hiatus from IHB.  Damn that peson who told me I needed to come back and read this blog again, that I would be amazed.  They were right about the amazed part, though. 

Happy New Year!

Entertaining article on HoA politics:

Housing Pain Pits Neighbor Against Neighbor in Florida
http://online.wsj.com/article/SB10001424052748703326204575616340542578852.html

Thanks for sharing your thought: “I don’t believe house prices will fall a large amount from here”.

In 1997, I stumbed across the book En Route to Global Occupation by Gary H. Kah; it shaped by conviction that one day I would see the economic collapse of the United States. That day is very near. From here I expect a fast economic fall; and as a consequence, I see practically no house sales and in that sense, the bottom is going to come in quite low.

Although I am not an Austrian Economist, I read their web sites to get an economic understanding of debt and currencies.

Michael Pinto in linked article Rising Rates Reveal Debt Reality relates: “the conceptalling interest rates and reduced durations have merely given the illusion of solvency to the US as compared to these other ailing sovereigns.”

“Right now, the US national debt is the biggest subprime ARM of all time. Much like homeowners who thought they could afford a mortgage that was 10 times their annual incomes, Messrs. Krugman and Wesbury are blinded by deceptively low current rates of interest. These ostriches won’t poke their heads up to see the writing on the wall: low rates and quantitative easing cannot coexist for long. As rates continue to rise, the reality of US insolvency will be revealed.”

Bank insolvency will probably show first….This country and county needs more jobs now….. debt reduction later. How much did housing prices fall during the 30’s depression peak to valley? Do you really think they will fall another 20% from here? Here’s for a better New Year in 2011…...

speaking of falling prices, dja’ all c this?

harry potter, i mean, henry paulson, after he TARPed the banks $700 large LOST a cool mill. on his OWN (i am sure fashionable) DC home.

and i quote:

Paulson sold his three-bedroom home in a tony Washington neighborhood last week for close to a third less than his initial asking price and more than $1 million below what he paid for it more than four years ago.

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/31/AR2010123103722.html?hpid=sec-business

Although prices have fallen since the peak, they are still far above their previous lows in 1996, even after adjusting for 40% or so inflation since then.

Why?  Well, the difference is entirely due to government intervention in the housing market.  Future taxpayers have been designated as the payers, to pay to keep home prices high.  For young buyers, that means you will be paying the taxes that distort the market now, forcing you to pay more for a house today.  A little double hit.

How low can house prices go in Southern California?  It’s a cyclical market, and the last cycle bottomed in 1996.  We are still way above that level, and the only reason is government intervention.  Where prices go is not a function of the market.  It is a function of Federal Reserve quantitative easing actions, and FHA and Fannie and Freddie supports for below-market loans.

This is not an anti-government rant.  It’s just a statement of what factors will determine house prices in So Cal in the years ahead.  The market has lots of room to go down (or up), as evidenced by history.  All that matters now is the amount of money the government will direct at the housing market.  They can dial the price level at will, and have already done so.  I don’t know what they will decide to do next year, or in 5 years time.