Irvine Housing Blog

I know Irvine is a nice city (I used to live there), but I’ve always thought it utterly absurd to pay half a mil for a 70s/80s-era 2-bedroom townhome. Unbelievable.

My rule of thumb for rents is the 1% rule. If the monthly rent is at least 1% of the purchase price, it should at least break even. In other words, if I am looking at a property that is listed for $200K, $2000/month in rent is more or less the breakeven point.

“Given how much effort and recourses the government has put into market stabilization ...”

I presume this is a typo rather than sarcasm or wry humor? If only the government had put in place more means of recourse for taxpayers/government to recover their money from the various bailout money pits.

I’m back.  It looks like a misunderstanding of the intent of the govt.  Is the govt. preventing a melt down or delaying a melt down so the liability can be changed?

The Keynesian econ makes sense in the short-term and as long as core growth catches up with spending.  For my 50 plus years in the US, I’ve not witnessed free market econ for the larger business.  The most seen was deregulation to create the law of the jungle with govt supports (subsidies and bailouts).  The little guy sees free markets without supports, other than welfare when hitting rock bottom.

The housing market will either be inflated (not by appreciation) or price corrected to substainable levels.  The delays are being used to modify, refinance and finance (upon sale).  The banks need high turn-over of the loans because the prior defective underwritting needs to be corrected to avoid liability to the banks, WS underwriters and insurance companies.  The new loans will default, but the liabilities will no longer be with the banks, insurance companies, WS and investors.  The liabilities will become the US taxpayers’ problem and hopefully your childrens and grandchildrens problem (kick the can down the road).  It will explode when enough loans are converted to govt liable loans.  Narcassism at it best (eat the young).

I don’t see the govt able to convince another counties bank to hold the bag, PRC has refused, Arabs have held it before but are in the US debt again, BOJ is still holding the previous bag, Europe is getting the US to hold their bags.  That essentially leave Russia and S. Korea, who are not known for as bag holders.  My bet is the US leverages S. Korea with the N. Korea card and stirs up the PRC pot with the Korea’s and VN.

FoolishRenter, paying rent, but could of been squatting.

Well, I sure hope they speed up these foreclosures. I’m tired of paying the storage fees for the razor wire and watch towers I’ve invested in.

Well it’s nice to know that the REOs will be dominates by low class areas like Irvine and Newport Beach.

I was worried premium communities like Riverside and Las Vegas may see the bulk of the devastation.

The banking cartel collapse is clearly imminent.  What a joyous day it will be when everyone dances on the graves of the banks with their unemployment checks in hand.

Also thank god I was wrong about mortgage rates heading to 3.5-4, we should be in the 6-8% by next week.  Fantastic predictions delivered here.  Let your money ride on the voluptuous Las Vegas market.

In all seriousness I’ve made a killing on my interest rate bets.  Now that Goldman entered the game rates will be heading lower than I thought, the bet is a winner.

Curious what people think about the above property in terms of owning.  Was looking in the area a few months ago to rent and all of the IAC offerings withing similar size in this community (walking distance to UCI) were much higher than IR’s monthly cost of ownership.  In some cases higher than the monthly cash outlay as well.

IR -

If we assume rates are at a bottom or close.  What will happen if we have a regression to mean around rates - say 6 or 7 or 8% for a 30 year fixed? 

I think we will have serious headwinds against appreciation in housing (socal) for the next 10 years at least - meaning prices could be flat for a decade or more.  I know others don’t believe this and are busy getting in on the ‘buy of a lifetime’ (which they can barely afford with two people making 6 figures). 

Unless wages increase by 20-30 percent a year for the next 5 years, I don’t see how prices can go higher if not much lower. 

My .02

BD

With rates this low it’s becoming more common to see properties at or below rental parity for owner occupants. We saw this as early as 2009 in areas of South County and that’s why besides the fundamental cash flow value we added the IHB fundamental value which uses the historic average interest rate over the past 40 years to give fundamental valuation based upon the cost of ownership.
    It’s likely that rates will not go back to 8% plus until our economy has recovered and there will likely have been wage inflation and rents will likely have rose as well, so the report is static, however, gives a good point of reference and helps to demonstrate why people buying now need to plan for a long term hold. Moreover, for those that will lose sleep if their property loses value and for those with heavy cash positions planning to make large down payments should wait until rates go up even if the property is at or below rental parity. As IR has communicated in the past, historically people are better off buying when rates are high and prices are lower because they can refinance when rates go back down but cannot change their principle without paying it down with cash.  In addition, it’s why we recommend that our clients, who are interested in purchasing regardless, get solid 15 or 30 year fixed financing, plan to hold the property ideally for the term of the loan, and at minimum 7-10 years even if it means renting the property out when they choose to move.

This is BS.I was promised 18 month of squatting in my La Habra stucco crap box. Fannie Mae/Citimortgage suck.

Several comments:
1) You write: “When absorption rates are as low as they are now, lenders will either hold properties forever, or they will need to lower prices to get rid of it.” .... My reply is, the lender will hold it for forever and once the loan-owner is out the property, the lenders will lease it.

2) You reference the recent deal where “MREM acquired a 40% managing member interest for roughly $52 million in a company created by the FDIC to hold all of its loans and REO assets recovered from failed banks. The FDIC will keep the other 60% interest in the company” .... My comment is that this is called a public private partnership; and I’ve provided a link to my blog section where I cover Barry Sternlicht who created a 40%/60% corporation with Sheila Barr  
to obtain luxury condos from the failure of Corus Bank. This is a practice of state corporatism.

3) You relate: “If the GSEs are not forced to back down from this policy due to pressure from lenders, this change in policy and incentives will signal the end of the banking cartel because this will push product on the market whether or not the market is capable of absorbing it. That will push prices down” .... My comment is that the policy will extinguish bank capital as short selling and credit default swaps will quickly and progressively pressure the capital of banks downward. The GSE announced policy of loss mitigation and loan management is the antithesis of FASB 157; it will effectively extinguish banks and transform them into property leasing organizations.   

4) Today, September 10, 2010, the FX currency traders took the major currencies, DBV, and the developing currencies, CEW, higher against the Yen, rallying the European Financial, EUFN, and the banks, KBE, but stocks manifested bearish. But the world stocks, ACWI, and the S&P failed to rally significantly, and closed manifesting a lollipop hanging man candlestick, suggesting that an Elliott Wave 2 up has been completed, and an Elliott Wave 3 Down is ready to commence. This would actually be an Elliott Wave 3 of 3 of 3 Down, the severest of all waves. It is the one that builds wealth on the way up; and for all practical purposes extinguishes all wealth on the way down. We are likely to see a significant fall in stock value of banks, which will compel banks to transform from lending and mortgage servicing into property leasing. 

5) Given what I have written above I expect real estate prices to fall fast and hard.

What he said.