Irvine Housing Blog

Great post!  Unfortunately, there is a lack of this fundamental understanding in Washington DC.  Folks on the right shouting on the one hand that Obama needs to FIX IT, and on the other that he hasn’t done anything.  Any real thing he could instigate, would be shot down by the GOP in the House immediately.  The Dems, have seen the difficulty in getting Frank-Dodd passed, and the subsequent attacks on it since then.  As Bill Cosby said, “How long can you tread water?”

Old normal (South FL), 2500sqft 3br2ba, $500k, 6.5% mortgage, monthly outlay $3500, cost to own $2600. New normal, same home, $250k, 4.5%, $1500 outlay, $1000 TCO.  Combine the lower prices with lower rates and the cost of ownership is 60% lower.  At $1500/month, 25% DTI, you’re at $72k, a reasonable level for that home.  @ $3500/mo you need income of $168k to keep a 25% DTI.  Median incomes have not fallen 60% even with unemployment where it is.  Households that were at two incomes of $72k/yr would have been more stretched in 2006 than a household with one at the same level.

The unemployment situation is terrible, but from a housing cost point of view, for those entering the work force today are in better shape than those 5 years ago.  But few worried about the new normal then.  The new normal then was celebrated from the paper gains & heloc riches everyone was getting.  We should really consider if keeping those people who bought 5 years ago in their homes is worth the expense, or if we should hit the reset (foreclose) button?

As an outside observer(of the California market), the first thing I always notice are those high HOA fees(for a glorified apartment in this case.) Then add on PMI, property tax and homeowners insurance, and I can see why nobody wants to sign on the dotted line. It’s more than just availability of credit. Without appreciation, it makes no sense.

Irvine Renter - when you say, “The final line of support will be cashflow investors” you are absolutely right.  That’s the only way my mother was able to sell her condo.  She has moved into an an assisted and independent living facility, but continued to pay the payments and HOA dues on her condo for about nine months while my brother and various realtors tried to sell the place.  It’s an undesirable property in an undesirable location.  They finally found a buyer who is a cash flow investor.  I didn’t do the math on what his cash flow will be - but it will be a good deal for him. Meanwhile, Irvine Co. is planning to build a huge number of apartments on the old Raging Waters site.  I never thought that apartments in Irvine could get overbuilt.  Now I am starting to wonder!

What is the future of these condo conversion apartments?  Particularly the really small ones?

Will anyone other than investors pay the “Irvine premium” to own them?

Which owner occupiers wants to make a 7 year commitment to 600sf with no garage?

At some point in time, (say six months) realtors should be required to eliminate “Hurry! Won’t Last!” from their ad. Pretty much anyone with the IQ of slime mold can see how long this has been sitting. What will motivate people in this business to use facts, not false fears?

SB

Huge Surge in Bank of America Foreclosures
http://www.cnbc.com/id/44503938

I wonder if there’s any way to know how many delinquent loans BofA has in Irvine or Orange County.  What will be the impact of BofA’s action locally?

No, this economist doesn’t get it.  What makes people buy anything is either want or greed, that’s it (various sub-names, but that’s it).  People with no net cash aren’t going to buy; wild speculators who bought a lot of homes left the marketplace since the bubble is over; real estate agents who all bought three speculative houses can’t any more (claiming to live in each); and other classes of buyers are gone. 

Simple, though, in New Normal without these other potential buyers with ready cash or credit competing for new/used homes/second homes, only good jobs at good wages for the middle-upper 60%will make for stable families and thus children and thus home purchasers.  THAT’s what Wall Street doesn’t get, and their captive government reflects that attitude.  Check out the corelogic report today on California and the US negative equity; California probably has 40%-50% of indebted properties with no net equity in those under 45 years old (after broker, fix up, selling expense).  Or worse.  (look at the age based reports)

Employed economists don’t seem to get it; those economists who are out of work for a long time, sometimes start to get it.  Quicker if they are on food stamps, I speculate.

What’s replacing Wild Rivers?
http://lansner.ocregister.com/2011/09/13/whats-replacing-wild-rivers/122540/

See this article about an ordinary foreclosure for ordinary reasons:

http://www.dailymail.co.uk/news/article-2036979/Texana-Hollis-101-tears-evicted-home-son-fails-pay-property-taxes-time.html#comments

But can you believe all the commenters’ reactions?  Everyone is feeling sorry for this old lady, as though it weren’t a direct result of her or her son’s actions.  What exactly did her local authorities do that was so wrong, unfair or unjust?

All of this bottom talk jabber… are we conveniently ignoring 0% fed funds rate and the effects on a consumer debt driven economy / housing affordability?

I forgot that the majority on this blog tout the benefits of centrally planned interest rates.  “Borrowing demand is low so rates have to stay low to entice borrowers and increase liquidity” - put a guarantee on this and you have a box of guaranteed bullshit.  30 years of interest rate cuts morph a nation from creditors to borrowers and lower rates are the solution? what logic.  We spent all the savings, and now spend others’ savings.  Will Mars be lending us money at -4% next?  When exactly do rates go up?

Mr Roberts no longer speaks of where interest rates should be.  I hope he reiterates the powerful effect interest rates have on affordability and thus prices.

How does the simple math work?  1% rise in rates would need prices to fall 10% to maintain the same level of affordability.  Prices fall across the board, vegas, Newport Beach, Florida, Hamptons, and yes even Irvine.

Do we think they can inflate wages as they inflate away our debts?  I dont know, but the 10% unemployed will work for less.  There are economic consequences to taking the easy money path of inflation - future pain.

Mr Roberts seems to be ignoring some very pertinent issues.  Does he feel 0% rates are of benefit to an economy of tapped borrowers?  Perhaps political stance has swayed him to be more optimistic than he should be, given the circumstances.  Maybe i just prefer Larry the Bear and his gloom and doom posts prompting bull outrage.

Not to pick on Vegas, but what are the downside risks to Vegas rental property when the market demands higher interest rates?  Further contraction of economy? Price depreciation?  Rent depreciation? Increasing vacancy rates?

The returns are attractive, I agree, but no way in hell are we out of the woods.  We are creating greater pain in the future with our current “bandaid” fix.  There is no “get out of jail free card”.