Irvine Housing Blog

John—I’m sorry, but that is not the definition of a bubble. Austin is booming not bubbling. There is no subprime lending going on. I’m sorry. It’s just a healthy HOT market here where you can actually build equity. A lot of money moved in from California and NY. Where do you think all that HELOC money sucked out of homes in Irvine ended up? Austin, that’s where.

As for wages/salaries—flips and landlording are still major going concerns here. Check it out: this is in a..ah, “less than desirable” part of town.

http://www.redfin.com/TX/Austin/1804-Wildrose-Dr-78721/home/31393322

The couple that Ikea’d this place up made 240K in a little over six months. WITHOUT subprime lending! Yes, a house flip. This is happening right now! What do I need to do to prove it you?

Maggie,

Somehow you’re stuck on this thought that there has to be subprime lending for a bubble to occur.

There’s no question that subprime lending had inflated housing bubble exponentially.  But a bubble is a psychological thing, i.e. there can still be a bubble if people with cash are willing to dump their money into houses that actually worth more than their fundamental values.  It just inflates more slowly than without subprime lending.  So when the bubble without subprime crashes, these people just lose more of their cash than back in 2005-06.

And what is the fundamental value of a house?:  it is anchored to rent and income.

That’s why I kept asking you:  “did income in Austin increase at ten percent per year since 2004?”  Not to be a smart ass or anything, but I actually am curious if that did occur.  If your answer is “Yes, income in Austin did increase at ten percent per year” then I agree with you that Austin has a healthy housing market.

If your answer is “No”... well then, you know what’s the implication!

John - sorry if I seemed defensive. The answer, to the best of my knowledge, is NO. I know one person who changed his job and is making 13% more than he was this time last year, but I confess, that is one person. As far as I can tell, the income is the in the form of California equity/IPO wealth/investment property wealth.

FWIW I thought supply and demand were what supported fundamental values. Rents are really high here, too.

“And what is the fundamental value of a house?:  it is anchored to rent and income.” 

This is one of the false-ities that helped to create the bubble.  Value of single family homes and individually owned condos is based NOT on rent, but on INCOME.  Commercial properties are based on the income the property produces.  Residential properties are based on the income of the borrower.  That’s why IR’s “rental parity” formula makes no sense if it doesn’t include HOA, Mello-Roos, insurance.

Of course, supply and demand is always at work, but demand in a bubble is a false demand, a psychological demand, not real demand based on fundamental.

Wouldn’t say there’s a demand in housing in Irvine in the early 2000’s?

I’ve been to Austin, like the city a lot, and would not mind moving there if there is job opportunity.  But I think part of housing demand there is real, and part is bubble, especially now.  Just like anything in a bubble, if you get in early, you get the benefit of a bubble.  If you get in late, you’ll be screwed.

I miss typed:

Wouldn’t You say there’s demand in housing in Irvine in the early 2000’s?

There was ‘demand’ in the early 2000’s.  If demand is measured by sales.  At TIC then, we had extensive measures to check all the interest lists of every building/project.  Followed up by checking the names/address’ of buyers to see if they might be buying at more than one project/builder.  Everyone had to sign an “owner-occupancy” agreement as part of purchase documents.  TIC expected builders to exercise right of recission of that was violated.

So you tell me….demand?

John—the psychology can’t exist without 1 of 2 key components: either 1.) sudden windfall either from stock cash-outs or equity from a sale in a high priced state like CA or NY, or 2.) expansion of easy cheap credit. In other words, if buyers are provided the facility with which to overpay for something, (anything), they will. No facility, no overpaying.

There is a smattering of the former component here in Austin, but not the latter (EZ credit). We do have subsidies for lower income buyers, but nothing like you saw in the 2000’s in Irvine or elsewhere in places like Vegas or Orlando or Miami. Quite simply, you have a very real exodus of homebuyers from California who move here with their “winnings.” They move here or they move to Portland or Seattle (all of which for tax purposes.)

I like Austin, too. One of the reasons I like it is because I am earning money with my house. It’s actually building equity as I type. Every year I see homes, even some in the ghettos, selling in the high fours. It’s almost 2012, and this is happening. Sorry, but a bubble does not explain it. This is a boom, and there is not an end in sight. If you want to move here, you should do so post haste. Strike while the iron is hot.

“It’s actually building equity as I type.”

“This is a boom, and there is not an end in sight”

Maggie,

I just crinched when reading these lines.

Referring to “It’s actually building equity as I type.”:

It reminds me of the early 2000’s when homeowners (everywhere in the US, not just Irvine) DAILY went on Zillow or similar websites and check to see how much their homes had increase in values compared to the day before, like stocks.

In reference to “This is a boom, and there is not an end in sight”:

Everyone, doesn’t this remind you of the proverbial “House price will only go up, it never goes down”

After all we’ve been discussing about income/wages and fundamental values, and you wrote “It’s actually building equity as I type.”

Well, I’m glad for the Austin residents because you know what this means?  It means that their income also goes up as you type!!!

Sighhhhh, that’s just to show how strong bubble mentality can be.