Irvine Housing Blog

None of those herpetic Californians were buying investment homes in my neck of NC…my parents neck of FL, much more so.

Scroll down to another of my comments - harping on the impact that speculative 2nd, 3rd and higher home-‘buyers’ had on markets.  In 2005 or 2006, 80% of condos in Miami were going to speculators - in your words, herpetic.  That was not the same all across the country.

Your pov is what it is, but I saw that any sort of disease spreading from CA to other bubble areas took place consensually, and that there was plenty of local HELOC/bubble-sale money taken out to specuvest.  You can’t blame the problem on out-of-staters.

Hello Winstongator.  Isn’t one of IR’s points that prices are not falling because of HELOC abuse?  Banks aren’t acting on foreclosures because that would turn the HELOCs on their books into losses instead of assets.  Of course many of these HELOCs are dead loans and will never be repaid, but for banks to get that officially on their books is very damaging. 

Since Irvine is an epicenter of bandit financing and HELOC abuse, that’s one of the factors that keep prices high, at least for now.  If/when unpaid taxes on squatter houses become an unsupportable liability for banks, look to see the foreclosure process speed up, and prices to accelerate their downturn.

@norcal:

Since Irvine is an epicenter of bandit financing and HELOC abuse, that’s one of the factors that keep prices high, at least for now.

Epicenter?

I would really like to see some data that supports that. Again, just because IR profiles HELOC abuse does NOT mean the majority of Irvine’s properties are Ninja loans or ATMs.

I don’t even think IR believes that.

Again, just because IR profiles HELOC abuse does NOT mean the majority of Irvine’s properties are Ninja loans or ATMs.

Look at the HUGE sums of money that many of these folks have stuck everyone else with.  It is astonishing even after 3 years.  And many of them continue to squat without having made a payment in quite a long time.

But go ahead and pretend it’s no big deal.

@AZDave:

Ahh… you must be frustrated because now you’re pulling your “putting words in mouth” manuever.

I didn’t say “it’s no big deal”... but I don’t think Irvine is the “epicenter” either. Again… there are probably more responsible homeowners (and I do mean OWNERS because many have paid ALL CASH) in Irvine than most other cities.

Sorry if I’m bringing some contrarian (or rather truthful) perspective to this blog… but unlike many who are jumping to conclusions based on all the schadenfreude thrown around here, I’ve actually lived here for last 20+ years. Irvine is not the disaster you are looking for.

IR profiles Irvine HELOC abusers because he is Irvinerenter.  I can point to numerous heloc abuses in my parents area of FL, and if you went to Miami-Dade county, you’d see even more egregious cases. 

Miami-Dade - 22.4% 90+ days late, Orange 6.9%.  I can’t tell you why, but those numbers have nothing to do with a bank sitting on a bad HELOC loan.  Once you’re 3 payments late, you’re 3 payments late, and you go into these numbers.

The statistic that would be helpful to see is what were Irvine’s DTI’s in 06/07, and how has their employment situation changed.  Universities have done better than some industries.  BRCM had two money losing quarters this recession and is now on pace to earn $1B this year.

If you want to talk banditry, look at mortgage fraud numbers.  I saw a nytimes article that showed the highest concentrations of fraud in SE and SW Fla, and those areas have gotten decimated in terms of foreclosures and price decreases.  I cannot imagine Irvine is worse off than either of those places.

Some data:
http://www.fbi.gov/stats-services/publications/mortgage-fraud-2009

Check out the 30 day property flip numbers…

It’s more the top 30% who continue to see considerable wage inflation though it has been concentrated at the top.

I’m not cheerleading the destruction of the middle class, I’m just calling it like I see it.  Premium neighborhoods of premium areas have been impacted accordingly.

If the things that make Irvine desirable have not changed in the last 10 years, schools, planed community, weather and proximity to jobs that would make Irvine a premium community for the last 10 years.

If the Irvine area is a premium area and premium areas are filled with people with this great wage inflation, how come we see so many foreclosures and Heloc abuse in Irvine on people that have bought in the last ten years? 

Is it that the new 30% with great wage inflation replacing the old working class people that have had stagnant wages, that used to live in Irvine?

@christian:

If the Irvine area is a premium area and premium areas are filled with people with this great wage inflation, how come we see so many foreclosures and Heloc abuse in Irvine on people that have bought in the last ten years?

What data are you basing this assumption on? Just because IR profiles a distressed property daily does not mean a majority (or “so many”) Irvine properties are a foreclosure or HELOC-ATM. Comparatively, Irvine is probably better off than many surrounding OC cities.

There are many equity owners in Irvine, much more than shorts or foreclosures.

I do not think that the decision to buy or not to buy a home in Irvine has anything to do with being part of “the rat race.” Although for some, it may secure their fate as part of the rat race.

  I think escaping from the rat race is more a function of lifestyle, priorities, savings, and ones ability to achieve financial freedom than whether some decides to buy or rent and where they decide to do it. There are plenty of renters that are a lot more a part of the rat race than many ownwer of homes in Irvine.

What I mean by rat race in Irvine is that the median person can strive to afford this median home.  There is nothing wrong with this.  Its not North Dakota and many here would say thank god to that.  The dual income trap is another key part of the rat race of Irvine.  For some mothers this may be desirable, but for many not having the choice to stay at home can lead to an unhappy life.

Thanks for the explination, however, I believe that this is true of every place. Society has become extremely materialistic and this is not only an Irvine problem, although it may be worse here than in other places.

  Regardless, if one chooses a life that values material items over family, time, and the freedom that can be more easily achieved by not being materially focused it does not matter if one is in North Dakota or Irvine. There are plenty of people in North Dakota that are just as much in the rat race as those living in California, they are just a lot colder. Granted, there are more people in Irvine living in $500,000 homes on two incomes of circa 100k than there are in North Dakota, however, I disagree with the broad statement that purchasing in Irvine is a choice to enter the rat race.

 
  I would even argue that that Irvine has a higher than average percentage of people that are not in the rat race, ie. do not need dual incomes to support their families. I may be wrong, however, I would be interest to see the statistics that prove otherwise.

You should disagree, it was a generalization.  For every Irvinite stretching in to a $600K home on 36% DTI and dual income, there is a single income family easily buying a $600K home at 25% DTI.  Again a generalization but hopefully you understand.

The dual income trap pervades the entire U.S., thanks to stagnation of real wages.  Families that can afford to have one spouse stay home with kids (or go to work if the main breadwinner loses her job) are wealthier than most, and but have a cushion that EVERYONE used to have in the 1960s and 1970s.  See Elizabeth Warren’s “Two-Income Trap.”

Yes, that Elizabeth Warren.

PR- Thanks for the clarification, I understand that you were generalizing. Naturally, you chose to generalize using Irvine since this is the Irvine Housing Blog?
  Nevertheless, I think that Irvine could be replaced with pretty much any other city in the US and the same generalization would apply.

  I understand your point, however, my point is that one’s choice to purchase or rent their shelter and where they choose to do this has very little to do with their ability or inability to escape the rat race. Of course, other factors regarding how much of ones income is spent on shelter, how much taxes are taken from ones income, how one chooses to invest, ones overall lifestyle all have a much greater impact.

I agree, and I aslo agree that most areas of the country have more people living pay check to check compared to Irvine.  We are a very fortunate city, despite that fact that some poor HELOC abuser in financial ruin is exposed here once or twice a week.

Such pessimism. Do you know what 10% unemployment means?

Yes.  It means 30% underemployment.

Would you play roulette where you get 9 of the 10 numbers?

Sure, if it were realistic to expect to get 9 out of the 10 numbers every month for 30 years.

If you have a good career, a promising future and make good money where do you buy?

I’m not saying where you should or should not buy.  I still say Irvine is in a bubble.  That may not matter to someone who is buying using vapor money that was bubbled out of a circa 90’s house purchase turned windfall enabled by a 2010 sucker FHA buyer.

I don’t believe that many of these Irvine buyers will pay off the house in this life.  The down payments are impressive, but I am unable to suspend disbelief that the money originates from anything than bubble wealth sloshing around in most cases.  Without the perpetual inflation of prices, they will not pay the house off.  I do believe that the Government has us on track for an inflationary event though so it may not matter in the long run.

Irvine’s prices would probably be much less. It’s not just geography… it’s demography.

This is wishful thinking.  I would be more comfortable accepting this if interest rates were at normal levels and government were not issuing 90% of mortgages.  Irvine buyers may not be frequent FHA customers but if most buyers are moving up from a previous house then they are most certainly depending on the government to finance their buyer so they can move up.

@AZDave:

Hehe… I find it funny that you finally accepted that Irvine buyers put down more than 20% on their homes but now your new spin is it’s bubble money.

Since most of those 700+ *new* homes sold this year, were 20%+. You can’t really believe ALL of that is bubble money? Unless 700+ buyers sold during the bubble and were just renting until The Irvine Company put them on the market.

And BTW, the resales in Irvine this year… sorry to tell you… most are conventional 20%+ down or all-cash… similar to previous years.

I know it’s hard to accept… but Irvine isn’t as much a burden on the taxpayer/government as you want it to be. Maybe try Vegas or Riverside.

I’m not so sure.  The Government may get their wish and turn us all into billionaires at some point in the near future.  Maybe Irvine will hold out until that happens and then it won’t matter anymore.

It’s obvious to anyone who can understand simple arithmetic.

Do our leaders just all hold hands now and codify a law that makes 0% interest rates the law of the land for the rest of eternity?  Why has our country been playing charades with these higher interest rates in the past when we could have just done 0% for “extended” periods of time since the Federal Reserve Act became law?

The lower end has come down significantly.  Above that, people are just shuffling the paper wealth around with real estate middlemen getting a share at each step effectively exhausting a limited resource.  Once the boomers are done shuffling their real estate profits around and the money dries up, who is going to make up the difference?  Certainly not the next generation who comes out of college with enough debt to fill a mortgage on a house.

Just watch what happens in PR’s “premium” areas like Irvine when FHA financing dries up and folks suddenly cannot “move up” and the buyers have to come to the Irvine closing table with monies earned the hard way rather than proceeds from a circa 90’s house purchase that turned into a windfall thanks to bad financial policy by the nation’s banks.

One metric I use is called the “Rich Uncle Test”.

If you had a rich Uncle and he *gave* you
free and clear a higher end >>1mm$ property
in Irvine, could you afford it?

In other words, if you had just to pay for
property tax, Insurance, HOA, maintenance
and reserves, could you afford the property.?

In Irvine, I believe that carry costs exclusive
of any mortgage are about 3-4% of purchase
price/year.

Thus, a $1mm home requires 30-40K per year
of cash flow just to keep the doors open.

How many families in Irvine could actually
afford such an arrangement?

IMO, based on U.S census income data for Irvine
zip codes a surpisingly small number,
probably under 30%.

Conclusion: real prices have a long, long way
to fall to “affordable” levels.

Who knew the fate of Irvine is in the hands of the health of rich uncles and FHA loans.  This place is certainly good for comic relief now and again.

PR believes that “in the future” Irvine buyers are just going to save up 300K rather than sell real estate at 300K over what they paid.  This is where future Irvine down payments on 600K tract houses will come from.  Talk about comic relief.

Sorry, AZ, but I don’t think the Fed has that kind of power.  All they control is money supply and the rate at which banks borrow funds from each other overnight.

Sorry, AZ, but I don’t think the Fed has that kind of power.

The point was that they have shot their load.  Do we all just expect 0% interest rates now for the rest of eternity?  The government has a HUGE debt and people need low payments to keep buying overpriced real estate.

Hello All - It seems to me that Irvine is the center of the CA self-fulfilling process.  People buy anyway they can because they BELIEVE that IS different.  This will last until the surrounding communities and cities get far enough ahead in price declines that people buy there instead of Irvine.  This will likely take years.  Irvine is different and, probably deserves a premium. 

That said, a premium means maybe 7-10% not 20 or 30%.  You can pay for decades of private school with $100 or 200K in ‘premium’ on a $/sq ft. basis. 

I don’t see a scenario where prices will be higher for housing in Irvine or most anywhere in OC for the next decade.  Short of Irvinites building a perpetual motion and energy machine prices will grind lower.  The best that can happen is flat prices over the next ten years as rates slowly rise back to normal.  The worst case scenario is rapidly rising rates that cause a step down in pricing and then slow depreciation as rates rise rapidly and overshoot historical averages. 

We are seeing some “dead cat bounces” now as suckers jump in thinking we are ready for a ‘turn around’ and can hardly wait to ride the train higher..or so they imagine. 

Who are these large groups of Irvinites that make $250K a year??  Median per cap income in Irvine is about $40K and household is about $110K.  How does these people buy $450K+ houses?? 

....just some thoughts. 

BD