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Latest REOs
- $199,900 :: 3125 Watermarke Pl, Irvine CA, 92612
- $349,900 :: 10 Greenleaf 16, Irvine CA, 92604
- $439,900 :: 61 Olivehurst, Irvine CA, 92602
- $889,900 :: 14 Upland, Irvine CA, 92602
- $429,900 :: 56 Great Lawn, Irvine CA, 92620
- $465,000 :: 212 Garden Gate Ln, Irvine CA, 92620
- $329,000 :: 1006 Terra Bella, Irvine CA, 92602
- $579,900 :: 8 Star Thistle, Irvine CA, 92604
- $750,000 :: 69 Lakeview 6, Irvine CA, 92604
- $499,900 :: 84 Deermont 51, Irvine CA, 92602
It appears as if your “pre-bubble projected values” still say the same thing as all the kool-aid drinking realtors.
“Real estate only goes up. It may go up slower than the during the bubble but rest assured, it ONLY goes UP! No, Really. Can’t you see? The long term projection is up Up UP!!! Trust Me!”
Yes, I wonder about that too. There are any number of lines that can reasonably be drawn through that data, and a much flatter one makes as good a fit or better than the one drawn. There seems to be an at least inflation+ bias built in.
I’ve been pointing out the generational problem to anyone who will listen in the past year or so. It’s mostly fallen on deaf ears, but good to know I’m not the only one who has come to this conclusion.
We’re almost to the point that the only way the housing market in some areas will see pricing corrections to historical levels are once baby boomers start flooding the markets with. First the banks foreclose, when the sooner one decides to do so, the better off their individual balance sheet will be. The longer they wait, the lower prices from short sales will be. Same goes for boomers looking to retire somewhere cheaper. It’s just going to be another race to the bottom.
What happens if we have QE2.5, QE3, QE4, etc.
I have come to the conclusion that there is too much debt out there and not the will to pay it back. So the fed will print enough money over the next 5 - 10 years to make the debt go bye bye.
This time around there may not be a race to the bottom. Yes prices declines will happen to some degree, but when they do, look for the fed to “stimulate the economy to create American jobs” - AKA print money and screw savers.
At some point nominal prices will increase, but real prices, inflation adjusted, will continue to decline. Why is this important as long as it looks like people are increasing equity in their home? Because they will have less of their income to spend on housing as necessities become more expensive than homes. The equity in homes, although increasing in dollar terms, will be worth less in comparison.
I agree. But I still don’t see a “It’s just going to be another race to the bottom.”
I see the gov doing the best it can to burn off the debt and prop housing with extra dollars, even if savers get screwed and as you say “necessities become more expensive than homes”.
There is no doubt in my mind that the gov and the Fed will do everything in their power to, and will be successful “burning off the debt” with electronically printed money. But, cancellation of debt through the printing of money only transfers the burden onto someone else. At it’s most basic level, money represents productivity and no amount of magic, debt creation, credit creation, or fractional reserve can change that. The piper must and will be paid, in this case through devaluation of the currency. The losses of the banks will be transferred to the citizenry.
I can not speak to any “race to the bottom.” I am not sure what that even means.
My “race to the bottom.” comment was in response to the original post. I think they are thinking that RE values in OC are going to drop 30% - 50%. I have given up on that.
“The losses of the banks will be transferred to the citizenry.”
Perhaps. Those with long term bonds won’t do so well if the fed devalues the $. For me, I am moving my cash into hard assets and borrowing as much 30yr sub 5% fixed rate money as I can. I have 3 mortgages, looking to get more on rentals that cover my cash payments. If the fed devalues, I pay off the loans with cheap dollars, if they don’t, I sit and wait for the loans to pay down.
Just trying my best not to be the sucker paying for the idiotic behavior of the banks.
Exactly. IR’s title is backwards because the main method to boost housing prices is money printing. More dollars make a dollar with less which licks the pockets of the retired & about to retire by devaluing their bonds, and chipping away at social security tied to a too lowly stated inflation rate.
Meanwhile, the value of real goods (like an hour of a younger productive workers time) will increase. So it’s a transfer of wealth from the old to the young (and debtors).
Another 30% to 40% sounds about right, but it will not be in nominal dollars.
“flooding the market with homes”
Hey, government price controls are the norm in the USA - we really are a pseudocommunist state…
Food: price supports for dairy, corn, grains… we pay people not to produce
Medical: Medicare (US gov sets prices, doctors, hospitals are not permitted to set their own charges, in many cases, fees set by your government are at or below cost)
Why should housing be any different, quit complaining or do something about it!!!!!
IR is a blog writer, not someone that has cornered you in the employee break room and is complaining, drowning on and on.
If you don’t like his expressed views, why are you reading his blog?
Sorry for this late reply… Didn’t know that my comment would upset you so much…
IR (don’t get me wrong) is a blog writer, but the wording of the title “unaffordable” implys the writer is against this policy, otherwise the writer (IR) would have used neutral phrasing (e.g. maintaining high price support level)instead of unaffordable.
I am mearly pointing out the the Feds interfere with supply and demand all over the economy. I didn’t even get into unemployment benefits. I know people who would like to go back to work but can’t becasuse they make more on unemployment and got free health insurance courtesy of the Feds stimulus program..
Actions of the Feds must be viewed as a whole when retorical existential questions are posed..
“Why should housing be any different, quit complaining or do something about it!!!!!”
I am not upset. Your comment sounded as though you expect IR to change the gov or stop blogging.
IR’s blogging is his version of “do something about it!!!!!”
Agree with you about unemployment benefits. I know small business owners that have entry level openings but applicants respond with a “that is only a dollar or two more an hour then I get on UE and spending my days at the beach and gym, no thanks”
The unemployment rate would be lower without the gov paying people not to work.
Not new news (OK that’s redundant), but worth restating:
Foreclosures are 45% of sales in California (and Arizona, and 53% in Nevada). And there is a 3-year supply of foreclosures for sale nationally.
Source: RealtyTrac, CNNMoney
As for the featured home today, I could see some young buyer scooping it up at $187K and thinking they got a deal. They won’t make any money off of it unless they stay in the thing more than 10 years (5 years being the usual break-even), but it’s arguably better than the 1br, 2ba, 2 car garage 900sqft job featured last time. The price on a unit like this will probably bottom in the $160-175K range. Just a guess.
The current buyer won’t stay because they can’t stand living in 819sqft of stucco any longer, with no kids anymore to justify the costly Irvine lifestyle. They want to move, and they want to move now… and before prices drop any further.
IR,
looking at your graphs, I wonder why you chose the doubling time for nominal prices at 14 years in “nicer” markets, but 18 years in “lesser” markets?
The calculation would be based on income growth. In markets where income grows faster, prices would double sooner, assuming differential income growth can be sustained indefinitely.
The line I drew was somewhat arbitrary based on my eye, but I maintained the same general slope to reflect the same dynamics are at work in each market.
Looking at NAR’s affordability index was quite relevatory for me. Up until 2008.04, OC affordability tracked that of California. But since then, OC has flattened out at around 33% while California represents a genuine opportunity with affordability at unprecedented levels of 50+ %. It is remarkable how little OC has corrected this time in terms of affordability compared to the last cycle. My 2006 estimates worked out on average, but just not in Irvine. In such an environment of unprecedented affordability levels for CA and nationally, I find it hard to see big drops for Irvine, much to my disappointment. I think we will just see more of the same - slow deflation and perhaps lagging inflation when things turn around.
The thread question is “Should unaffordable housing be a government policy?”.
The obvious answer is “no”, but if any level of government has a significant portion of its revenues linked to housing prices then like it or not they are going to do whatever they can to keep those prices high. Regardless of political orientation, and regardless of stated policy.
I live in Australia, where median prices today are much higher than the California peak and still rising. We continuously get politicians crying crocodile tears over unaffordability for first-home buyers, but in 30 years I have NEVER seen a single proposal (let alone action) that would significantly change matters.
FCB’s (the type I have experience with - Canadians) to provide a floor to Vegas pricing?
Low prices, low taxes strong lures for Canadians buying in Las Vegas
Can a distant landlord make money in LV? How’s the upkeep cost for rental property. I found that rents in the midwest can cover typical regular cost, but it’s the high use of the HVAC, hard weather and high insurance cost that eats way at the profit. The lawn care cost is more costly and of lower quality than in CA.
“banks may have averted the need for nationalization” The banks have gotten the best of both worlds—nationalize the loss and privatize the profits.
“they are happy to join forces with other owners and lobby for policies that promote higher prices and greater indebtedness being passed on to the next generation.” Not only this but stack the youngin with staggering student debt/loans and send them off to wars to preserve the above against even a worse system that the US support to destabilize the USSR, the “evil empire” to hot war agaist whole scale evil system.
“I am a left-leaning libertarian”
WTF is that? So you are pro-abortion, gay marriage, and drug use, but you want to take others’ tax dollars to pay for it? Libertarians are low tax, pro-gun, drive, eat, and drink what you want, pro-school choice, anti-regulation, and anti-Fed and anti GSE.
How anyone can look closely at this credit and real estate bubble-and-burst, and not see it was largely the result of *too much* government interference, as opposed to not enough, is astounding. The Fed keeping rates low and Fannie and Freddie buying up every FICO mortgage over 600 they could find (biggest lie ever: Fannie and Freddie didn’t buy subprimes - WTF do you call a 620 FICO with no down?) were public enemies #1. This would have just been a minor-to-moderate subprime crisis had they stayed out of the way. Instead, it has been the worst catastrophe since 1929.
Thanks, government.
Having lived in other countries, this whole USA “Ownership Society” concept that requires govt. susbsidization is bizarre.
Other countries, like Canada, actually have a higher percentage of home ownership than the USA,
(68.4% in Canada in 2006 vs. 67.4% in USA in 2009 and falling) yet no mortgage interest rate deduction.
Should unaffordable housing be a government policy? In a word, no.
It just distorts prices.
http://www.statcan.gc.ca/daily-quotidien/080604/dq080604a-eng.htm
http://en.wikipedia.org/wiki/Homeownership_in_the_United_States
“I believe personal responsibility to one’s family outweighs one’s responsibility to a lender.”
The responsibility comes before making the biggest purchase in your life, not when you make a bad bet and want a mulligan. The only thing you’re doing for your children at that point is teaching them to be deadbeats.