Irvine Housing Blog

The most important things about real-estate: location^3.

We bought about 6 months ago, but I still monitor the comparable for-sale properties.  There is one, new construction, in new neighborhood, built in 2008, still unsold.  The assessed lot value is $100k, and the home is worth maybe $450k.  The builder was also the developer, so his lot cost is much less than $100k.  The neighborhood has 30 lots, 3 completed homes, and 1 sale.  That neighborhood is not just in for a grind, but a long hard slog.  Prices have not cratered in my town (down maybe 10% from peak), but this neighborhood is in a small city (17k) between my town and another similar sized town.  Plus the neighborhood is pretty much cluster homes for retirees.

It is sad because my wife and I did business with the builder’s wife and she was very nice.  But I wonder what made them think that these were a good idea to build in this area, this type of home?  If you’re talking retirees, cluster homes are OK, but they have to be close to amenities, or have lots of in-neighborhood things to do.  I think banks just didn’t pay much attention to the idea that new home construction would not keep increasing indefinitely.  The guy also got hit with terrible timing - first homes in a neighborhood being finished mid-late 2008, but there have been 30 homes built in our new neighborhood over the past year.  Some homes are being built, somewhere - I know not many, but some.  My prediction is that it will be 20 years before all those lots are developed, probably with much less expensive homes.

From 2400 miles away, Irvine has two things going for it: a critical mass of jobs and amenities (schools included) that keeps demand strong, and a managed supply.  The value that really modulates during bubbles is the value of land.  If you don’t let builders keep building new construction on ever decreasing lot prices, you keep a main negative influence on existing home prices out (if a new home sells for less than an older identical home, the older home’s price will come down).

is florida a buy (yet?)

No pictures of the cozy fireplace?

I’m totally digging the giant mirror wall next to the kitchen table so we can all get our jollies off by watching one another eat breakfast.

The decorations are spot on as well.  The lone racquet attached to the living room wall really brings out the warmth and coziness.  Does the association’s outstanding amenties include a Badminton court?  Perhaps IrvineRenter could form the IHB Badminton Team but no whacking of each other’s shuttlecocks please.

California plans $2-billion program to help distressed borrowers

http://mobile.latimes.com/wap/news/text.jsp?sid=294&nid=38149672&cid=16689&scid=-1&ith=0&title=Business

http://www.bubbleinfo.com/2011/02/10/get-free-cheese-program/#comments

Government out of ammo?  Not so fast.  More bailout is on the way for Californians.

i used to think the bottom was in for the san francisco low end.
we’re not anywhere near there yet.

i just checked prices in the projects/ghetto where my girlfriend grew up (robbery 4.5 times national average; motor vehicle theft 3 times national average; lareceny 1.6).

her parent’s place is next to a drug dealer on one side, and another drug dealer in front. the neighbor in front fixes other people’s car on the street(so you see all these s.h.i.t boxes parked out front). my gf’s uncle was shot and murdered a few years ago in this neighborhood. everyone in my gf’s family has been robbed at least once while living there.

there are virtually no white collared workers. no one is making six figures. there are often multiple families (typically 2 generations, sometimes more) per household. people are working retail, low wage blue collar jobs.

median sold house price: $450k.
at a 4 times multiple, household income should be around $110k/year to support a $450k price.

this “low” priced zip code is certainly still in bubble territory.

across the SF bay in places like Hayward, Union City, Newark, 30 miles away, you can find comparable houses in the $300k range with much more space, much better schools, and much lower crime.

i’m using this ‘low-end’ neighborhood as my gauge to indicate when things are close to normal.

if prices get down to $200k-$250k or the demographics of the neighborhood change (ie gentrifies - good luck with that) then i’ll become more bullish. seems like it’s going to be another 5 or 10 years before we get back to sane prices if we get there at all.

the good news is peak prices (circa 2006) were about $700k and have dropped $250k in the last 5 years.
another $200k drop over the next 5 years and we should be back to normal prices.

My rent finances my landlord’s retirement at $2500 a month.  I am just hoping I will save a huge downpayment for a future purchase.  Any price drop will work in my favor but this long drawn out process is tiresome.  I want to see a precipitious drop, not some dripping torture.

Here’s another beautifully staged dwelling, what with the kitchen a mess and junk furniture all over the place. Could the real estate agent have given the seller a call and told him to clean the place a little before it was photographed/

Just a little Math reminder - If you buy a new home today with a 30 yr fixed rate, in one DECADE you will have paid down an additional 18.1% of priniciple.  In other words, in the first third of your mortgage term you pay down less than 20% of what was borrowed.  This makes sense and is just amortization. 

Now, consider that for every 1 point rise in 30yr fixed rates you loose 10% or so of your purchasing power.  So if you can possibly imagine a scenario where rates rise 2points in the next 10 years…. you will have LOST ALL of the paid for equity! 

Now, what are the odds that rates would only go to 7% in the next decade?? 

It’s not the price you buy at that matters..it is the price you sell at!!!  We use 4.5% rates with the FFunds at zero and trillions of dollars in QE…but, oh my….rates will be here in a decade…

Right…get real. 

BD

oops… strike “additional” principle.  Only 18.1 percent of priniciple period.

I always worry about my posts here.  I only get crickets following. 

I wonder if I have been too much of a ‘downer’ or ‘ass’.  I’m sure I have been both. 

But, I never here or see people look forward in their analysis.  I only here about how this is the best time to buy because affordability has never been higher in the last 20 years in OC. 

Of course, all of the analysis I read from the OC register or from bloggers here only look at a static representation of factors that go into buying property.  People say with rates at 4.5/5.0% and wages where they are, and with 2% down we have obviously hit bottom. 

Honestly, I would have thought with all of these great “Irvine Schools” I would have heard somebody say, but what if rates don’t stay low and wages don’t rise, and what if, new rules require 20% down - what would that do to pricing of SoCal homes in the next decade or two?? 

It makes me realize this is the basic difference between people that live in the now and those that prepare for the future.  We apparently have lots of ‘gifted’ Irvintes that can do math and understand that based on our current economic variables of income, and rates, and down payment - that they can now “afford” good Irvine / SoCal RE. 

What you all need to think about is the “FUTURE”.  Ask any investment bank if they would be buying SoCal RE now - following a 20-30-40% decline?  They all say no.  Why??? Because they have models of what is likely to happen going forward!!!!  I know this for a fact. 

My wealthy collegues say I will buy out of Irvine and SoCal and take the rest and invest.  You can litterally afford to live in a big house in Vegas, send your kids to private schools and take a plane to your apartment on the water in Laguna on a monthyl or twice weekly basis and still break even. 

Please all of you…look forward in your analysis.  Don’t give me facts about today unless you can also make a case for why these facts will be materially different in decades going forward.  Most of these facts that are most important to buying power like rates and downpayments and salaries - WILL ALL go against us in SoCal for many, many, many years. 

BD

More crickets??? IR do you think this is deserving of some discussion of future values for Irvine and SoCal?  Or, other high-priced markets? 

The minute people have to pay cash for RE and not use other people’s money and put real money down things seem to change. 

I would like to see some basic “what if” scenarios in your cost of ownership analysis. 

For instance, do I believe that I or others in general, will make a lot more in a decade?  Well, how much more??  What do I think 30 yr. fixed rates will be in that decade??  Well, how much more or less??  And, finally what do we think downpayments will be required as a percentage of purchase price??

For instance, what if I make DOUBLE what I make now in 10 years and rates only rise back to their median over the last 75 years??  And, I only half to put down 2% or 20% money?? Then what happens to values if people buy our ‘move up’ property have to pay that??

...just tired of hearing crickets I guess. 

BD

Hello All -

As I await IR’s comments on the future cost of RE and high-priced markets. I will only ask the rest of you to do some basic math.  If you are now located in Irvine - you should probably ask your children for help. 

I really don’t have a horse in this race.  I bought in Huntington Harbor before things got nuts.  My rental rates will give me a positive cash flow from here to forever (unless the world collapses and that is my least concern).  I bought in the 1990s…

So also know that I came from a public school in the MidWest.  We clearly don’t do math as well as you from Irvine and it’s great public schools but, we think. 

I’m on IR’s path.  Buying in markets where prices are clearly less than replacement costs. 

I have a healthcare job but, trade stocks / bonds / derivatives for the “fun money”. 

My only comment to the group is please do the math and anticipate changes in your analysis.  The beauiy of the equity and bond markets is you have nearly instant buy and sell.  The minute we have unrest in Egypt I can either get long or liquidate my shorts on oil. 

Housing is a very illliquidade investment.  It takes years to sell.

My analysis of now and the future 20 years suggest that you should own if you paln to stay and pay.  If you are a young couple or a retiree please don’t need the money - or count on - any appreciation.  It’s just a house.  It doesn’t make things.  And ultimately, it is only worth what it costs to rent. 

We all want to be rich.  But, the first step is differentiating the difference in an investment or a trade and a place to live. 

It’s either sad or nothing new to you but, most of the people who drive MBs, Bentley, and Ferrari do so witout the money to actually pay for those things.  There are clearly exceptions who I know can pay for anything.  But, the vast majority of wealthy clients I know from all over drive honda and lexus and belive it Hundai! 

They are hard working people who have saved and built businesses.  they aren’t ‘silver spoon’. 

They all say the same thing.  I know what is likely to happen in the next 30 years with US policy on rates and other.  CA RE is a place to enjoy.  I will buy and live someplace else.  And, some of these people have 50M dollar jets!!!! 

You would be suprised.  The very wealthy are very much like Warren Buffet…built wealth carefully overtime. 

They won’t risk it… Why would you??

BD