Irvine Housing Blog

Did the ratio of apartments to homes change over the last 14 years?

I don’t have the numbers, but anecdotally, yes.

It is far too simplistic to take one statistic and draw the conclusions you are drawing.

I have every belief that a broader correction is coming to Irvine, but a premium will remain that will not completely align with your theory.

For one, I believe that higher income owners are displacing the lower income owners as the latter sells to the former. Since 1997, a ton more employment has found its way to Irvine (hell, Broadcom was hardly a glimmer in Samueli’s eye back then).

And secondly, those that are waiting or otherwise can’t afford it are lining IAC’s pockets handsomely.

That creates a larger-than-normal gap between one class of Irvine dweller and the other, eerily similar to the westside.

The standard deviation should tell this story.

Again, a correction is (over)due but it needs context.

For one, I believe that higher income owners are displacing the lower income owners as the latter sells to the former.

OK.

But where are the hard stats to backup such an argument?

check out:

http://www.melissadata.com/lookups/TaxZip.asp?Zip=92604&Submit=Submit

Average Adjusted Gross incomes for zip 92604.

Income Tax Data for ZIP Code 92604
IRVINE, California

Tax Year ->  2004   2005   2006   2007
      $66,366   $69,472   $74,502   $72,230

BTW.

I have lived in Irvine for 32 years at same
location in Woodbridge.  Real Estate turnover is extremely low.

Its these “lower income” folks that you refer to that are staying put.  Why move?  To where?  To spend more money on overpriced real estate?

So who, when and where in Irvine are all these mythical rich people buying homes?

The “hard stats” would show up in the standard deviation of the income stats many on this board quote with religious fervor.

Lower income folks staying put in their homes neither proves nor disproves my theory. We don’t know the true price until we have a transaction.

Fifteen, 20, 30 years ago, a middle class working family could afford a SFD house in Irvine.  That is less the case today (sort of depends on what kind of income you think makes one “middle class”).  I’m sure you agree that most of your neighbors could not afford their homes if they had to buy them at today’s prices.  So, they may not sell often, but when they do sell, it is almost certain that the buyer will have a higher income than the seller. 

That, I think, is what the comment you highlighted means.  I for one think it has merit. The income numbers you cited (a) show a generally increasing trend (with a decline corresponding to the recession), (b) only show four years, and (c) include renters.  I’m not sure what you were trying to prove.

@iahotm
What <i>would<i> provide very compelling evidence in favor of your theory would be stats that demonstrate rents for Irvine homes, and in particular high-end Irvine homes, have increased at a much higher rate than the rest of OC/SoCal over the last decade. Without such evidence, it seems more reasonable to me that lingering effects of the housing bubble are a bigger factor.

Here again, there is a drag on rental rates due to IAC.

For example, compare Irvine with Burbank.

The median household income in Irvine is $85k vs $67k in Burbank.

Now compare what $3,000 a month gets you in terms of rentals. From experience, you can get a nice ~2000 sf 4br place in Woodbury in Irvine at that price.

Yet $3,000 a month in Burbank gets you a 1400sf, 3br place with a tiny yard, no HOA amenities, etc.

Why? There’s simply a very tight supply of rentals. And the apartments in Burbank are downright nasty. Landlords charge a premium, and there are enough folks who want to shorten their commute.

Fact is, IAC puts out a damn good, consistent product for a reasonable price. The unique benefits of having a fungible contract to other properties is also a draw. I believe there is a very strong substitution effect in Irvine rentals (mainly due to the behemoth that is IAC) that impacts all the way to the high end.

Again, I believe there is a correction in play, but being ignorant of the nuances of the Irvine housing market sortof belies the point of having a hyper-local blog.

I think you can find data of that sort here, but it doesn’t seem to have any historical data:
http://www.incometaxlist.com/irvine-income-irvine-ca-92604.htm

The income distribution for 92604 is not very different from the income distribution for 93003 where prices have corrected by 40%
http://www.incometaxlist.com/ventura-income-ventura-ca-93003.htm

The site doesn’t exactly smack of legitimacy.

But assuming the data is accurate,

What is the source?
Which year is represented?

Ahh, it all makes sense now—click on “About IncomeTaxList”

*smirk*

I got the link from here:
http://taxprof.typepad.com/taxprof_blog/2009/02/income-tax-data-by-zip-code.html
I don’t see any big issues with credibility, and presumably comparable data is for the same year. I know, sometimes, our biases get us into infinite loops of preconceived notions.

So what year is it from?

I the blog is dated 2009, then is it tax year 2008?

No bias, just legit questions. Data absent context is meaningless.

My guess would be 2007, since I am not aware of IRS having released zip code data beyond that year.

It’s hard to draw conclusions without the trend, much less the year !

Personally, I think the differences could be less due to income and more due to differences in savings. A trend history of the demographic composition could perhaps explain the mystery that I fail to understand - why OC tracked California’s up and down cycles previously but not beyond a certain point this time around. i.e., multiyear data for that presented here
http://www.movoto.com/neighborhood/ca/irvine/92604.htm
and here
http://www.movoto.com/neighborhood/ca/ventura/93003.htm

Again, what is the year and source of the data?

Secondly, if there is a disproportionate ratio of rental units + condo properties : SFR properties, would that not skew the median household income for a given area?

And why the comparisons to that zip code? Not sure of the relevance ?

From your same source; note the mix of households that earn over $150k in 92620, which has more newer homes than ye olde 92604:

http://www.movoto.com/neighborhood/ca/irvine/92620.htm

Households earning 150K+ number 24%.

And 92602 is near 30% for the highest bracket ($150k+):
http://www.movoto.com/neighborhood/ca/irvine/92602.htm

Again, there is no context for the year this data was collected, but when compared with the 5.5% share for the same income group in your 93003 baseline, the disparity is massive.

This isn’t about savings; it’s about a massive stratification of earning power in Irvine.

One group rents from IAC (or bought their home well over a decade ago); the other group bought in the past 10 years. At least, that’s my Grand Unified Theory of Irvine Home Prices (GUTIHP).

When there is an oversupply of rental units, it is very easy to misinterpret median income data and equivalent rental units as a basis for determination of value.

Final thought:
TIC was once an agriculture company. It transitioned to a developer when the master plan was drafted in the middle of last century. Bren became obsessed some years ago with the mission to make TIC exist “in perpetuity.” Only in the last decade did it truly begin the transition to becoming an operating company. That transition is still underway as the final tracts are built and sold off the Ranch. In the interim, TIC has aggressively grown its operating business - residential and commercial - to achieve the “perpetuity” goal.

Thus the 50+ complexes in Irvine alone, many of which didn’t exist just 10 years ago.

For me, the fact that the CAR affordability curve for OC lines up with that for CA over a 30-year period until 2008.04 and is not shifted downward (towards lower affordability) relative to CA even at the peak in 2006/2007 as in the previous cycles suggests “holding strength”, not “buying strength”.

Great point PR,
It’s basic Supply/Demand.
For Vegas it’s oversupply + lack of demand = dirt cheap prices.
In Irvine is the exact opposite, tight supply + strong demand = $$$ prices.

“It’s basic Supply/Demand.”

While technically true, this statement isn’t very useful. Price is always a function of price and demand. That’s not an interesting observation. What’s much more useful is looking at how supply and demand are likely to shift in the future.

In 2006 demand for Irvine homes was much higher than it is now. Those who identified the housing bubble were able to successfully predict that demand would significantly decline over the next few years. Now that was useful.

Demand was strong prior to 2006 and 5 years after continues to persist at a high level.
The fear of falling home values or foreclosures have not put a damper on the demand.
All the new supply that’s been rolled out at a premium gets absorbed. 
The fact remains that while other areas like Vegas got crushed, Irvine and it’s premium areas in particular continue to outperform.
How’s that for “useful”, hope you approve

Tent, I feel like we’re still asking the wrong questions…

Let’s imagine someone from early 2006 who isn’t sure whether its a good time to buy in Irvine or not. They work through your checklist.

“Was demand strong for the last several years? Yes.”
Check!

“Have fear of falling values put a damper on demand. No.”
Check!

“Has newly built supply been absorbed at rising prices. Yes.”
Check!

“Are prices still rising, even though they’ve begun to fall elsewhere? Yes.”
Check!

There are countless examples of people who bought in Irvine around that time and have since lost hundreds of thousands in equity. Your reasoning would have done nothing to clue them in on the fact they were about to make a mistake.

“Countless examples”

Right. We sold out of Tustin Ranch in late 2007. The home prices in that nabe aren’t all that different than they were back then. And the projections from this forum (including me) were an imminent correction.

We sold in the low 8’s and from my perch, it looks like the place is prolly worth somewhere in the high 7’s, ‘smuch as I’d like to believe it’s worth much less, the few sales I’ve seen in the past couple months tell a different story. We’re talking 50, maybe 60k of lost equity over 3.5 years. That’s about breakeven with the tax benefit over the same period, and about 13% of the buyer’s downpayment.

You can’t tell me you thought the correction was going to be this gradual, can you?

“You can’t tell me you thought the correction was going to be this gradual, can you?”

I will certainly admit I didn’t think it would be this gradual, but evidence of a gradual decline is not evidence that a further decline is not going to occur.

Agree.

Yet your rationale for the extent of the correction remains the same (median incomes and equivalent rentals).

It’s time to explore some alternate means of determining the fundamental value of the stucco boxes that is sensitive to the nuances of the Irvine market.

Those nuances being IAC and all that it entails, and the demographics of who is drawn to Irvine - i.e. what gives it appeal to higher income earners.

To me, that story *should* be told based on the standard deviation/spread of household incomes—perhaps tabulated across varying housing types (rental vs. ownership; SFR vs. multi-family), trended over time.

Dunno if that data is readily available, but it would prove/disprove my Grand Unified Theory of Irvine Housing Prices.

“We sold out of Tustin Ranch in late 2007. The home prices in that nabe aren’t all that different than they were back then. And the projections from this forum (including me) were an imminent correction.”

Yep, most here like to ignore reality and pretend things happened differently.  Congratulations on being one of the few to accept reality.  I hope you ultimately get the price decline that makes it all worth while.

“We’re talking 50, maybe 60k of lost equity over 3.5 years.”

Your anecdote is not at all representative of how much prices have declined since the peak. The average Irvine home has lost a lot more than 6-7% of it’s value since 2006. I mean come on… the condo profiled here yesterday lost 40%, but you don’t hear anyone claiming that that is representative. Can we all please agree to not use cherry-picked examples to talk past each other?

Meanwhile the buyer that picked up the home in 2009 at a discount from the 2006 buyer deserves no credit because further precipitous declines are around the corner.

Ten, that pricing decline, check that - crash - is imminent now more than ever… At a whopping 4 months inventory.

They are soooooo screwed, shoulda bought in Vegas back in ‘09.

Cherry picked? Well, it was my own experience - not culled from a PSF sort in Redfin, but OK.

Unfortunately, for desirable SFRs, it is representative.

For all the short sales & REOs out there, that’s the unfortunate truth.

We earn a pretty decent living, more than 2x the “median household income” in Irvine, yet the family that bought our place brought a pile of cash to the table with earning power that trumped ours at least 2x.

I suspect this sort of displacement is happening on the margins, but simultaneously, IAC is standing up more and more rental units. So for every nouveau riche that rolls into town, there’s another IAC sucka willing to line Bren’s pocket with $2150 per month.

You can’t look at data culled from the latter and solve for the housing price of the former.

It would be highly constructive to abandon the “median household income” nonsense as a means to determining the value of Irvine dirt & stucco boxes.

Margin, you may good points and reflect the reality of the irvine market.

There are certain urban markets in the US where you can not accurately use median income to reflect price.  This true in NYC, Chi, SF, etc

Irvine is such suburban blah.  It’s not as prime as the aforementioned areas but it does share in part some of the attributes including a high density of condos/apartments.  And rents for those simple apartments are high, not as high as the more premium US cities.  There is no question that the continual build out by TIC and the fact that 70% of irvine housing is condos and apartments impacts the median income relationships.  It’s sad that Irvine is suburban blah but still has the very high condo/apartment attribute which disconnects housing prices.  It is nice to live in an area with very high demand and a prosperous future.

an 800k loan is above the 729k expanded conforming limit so you will not be getting the best rate….  Even at 5.25% rate, your HER is going to be around 30 which is a lenders do not want to exceed for non conforming loans in this day and age.

Someone at 240k income per year could get approved (but be mortgage poor and therefore stupid). There is no way a 200k household income would get approved in this situation….

As far as the “quick buck” scenario is concerned, I agree that quick appreciation expectations fueled the bubble.  Anyone who buys a home today who thinks they will make money selling the home in less than 5 years (after closing costs) is delusional

So based on all that… what should the place sell for given a sub-30% DTI for a $240k household?

If your question is, what do I think of the Highest priced home currently offered is worth,  then my answer 725k-750k, because it will easily cost 50-75k to add upgrades, outfit it, and landscape the homes.  Plus having the backyard fence 10 ft from the house is crap. for that price point

If I was a realtor, I would show a client the nearly $1M home in Stonegate, drive 8-10 minutes to Foothill Ranch, and show some very nice 750k homes, with nice views, lower Mello Roos and see if the buyer thinks the Irvine home is worth the extra 1800 - 2000 per month.  Hence the substitution comment earlier….

I won’t completely disagree with the value assessment, though the ‘upgrades’ part is pretty much moot. Your rationale is circa 2005 - you don’t give a seller extra money for upgrades and a fancy yard, so you can’t exactly discount for not having them. See the problem?

Regarding the substitution effect, Irvine (and others, like Brea) have enjoyed a premium over adjacent areas for decades. It’s already priced in because that factor has always been there, at every cycle and every point in the cycle.

And since the last few cycles, Irvine industry has grown; people pay for shorter commutes. Gas sucks, and so does opportunity cost. Factor in the schools and other intangibles, and you got’cher premium. It’s stuccobox bullshit.

Irvine will follow the path of Naperville, IL

For those not aware, Naperville is Chicago’s version of Irvine.  It has always enjoyed a premium over neighboring suburbs for the same quality of home.  Has great schools, large corporate presence, well planned community (sound familiar).  However, in the past year, homes in Naperville have taken a much larger drop compared to other towns in DuPage County. 

Key Reason - too much supply and people are flocking to those neighboring towns because they can get the same home for 75k - 100k less while giving up very little….

It depends on your priorities. When looking at homes to buy we looked at Aliso Viejo, MV, and other south county cities and ended up buying in Turtle Rock in Irvine. Our budget was 800K which would have meant a SFR in a south county city but we decided a smaller fixer townhome in TR for the same price fit our priorities better. It was the intangibles- quality of life priorities. We can bike to work if we wanted to and TR is beautiful.