Viewing real estate as an investment creates volatility in housing markets

Mar 15th, 2011  
by IrvineRenter  in Library News

Astute Observations

Astute Observation by Planet Reality
2011-03-15 08:19 AM

Thank god for all of the squatters supporting prices in Irvine.

If only the multitude of squatters in Las Vegas could be as powerful.  It’s really a shame that the plethora of Las Vegas squatters can’t flex their might to bring up prices.

I am now enlightened as to why Irvine is different.

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Astute Observation by tenmagnet
2011-03-15 09:48 AM

Irvine has FCBs that are starving for the opportunity to buy in.

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Astute Observation by IrvineRenter
2011-03-15 10:42 AM

Do the two of you have a checklist of tasks each day that includes making bullish comments on the IHB and echoing each other?  You both do it every day.

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Astute Observation by Planet Reality
2011-03-15 10:56 AM

My comment wasn’t bullish, it was pointing out the absurdity of yours.  My comments are never bullish, Irvine prices are here and now 6 years into the “crash”

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Astute Observation by Sue in Irvine
2011-03-15 11:29 AM

PR, sorry but I consider our 3/2 Woodbridge condo sale to be a crash. We sold in January for $408,000. In 2005 we could have sold for $535,000 or maybe higher.

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Astute Observation by bigmoneysalsa
2011-03-15 11:47 AM

Apparently price declines of 15% to 40% across the board (depending on neighborhood and property type) doesn’t qualify as a “crash” on the planet Reality.

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Astute Observation by Planet Surreality
2011-03-15 12:01 PM

You don’t understand, apparently. Yes, it’s true that the miniscule, near non-existent group of poseurs that barely snuck in the back door of the pristine Irvine Real Estate Market were eventually outed as wannabes who could barely hang onto a tacky 3/2 condo. Please. Unlike my genius Ph.D. engineer friends, you folks should consider areas more suitable to their kind, like Santa Ana or Riverside. I understand that the downturn in the economy was not kind to you, but if you play your cards right then the violin virtuoso children of our incoming FCB’s—the rightful ascendants to the golden throne of Irvine—will hire you in their thriving, recession-proof companies.

Of course, I certainly understand if you’re not able to aspire that high (it’s a rarefied air to even work in Irvine), you still may be able to find jobs in the service industry at the IRVINE SPECTRUM, where every day is like Xmas and Arbor Day combined, and the swelling crowds of Irvinites flush with cash make one breathless with pride and wonder.

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Astute Observation by bigmoneysalsa
2011-03-15 12:16 PM

LOL. Have you ever heard someone do an impression of a celebrity, and the impression was so good that it seemed more genuine than actually hearing the celebrity himself? That’s what that was like.

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Astute Observation by wheresthebeef
2011-03-15 02:16 PM

AZDave, I sensed some of your sarcasm there.  That was too funny!

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Astute Observation by AZDavidPhx
2011-03-15 06:16 PM

Nope, it’s not me.  Wish I could take credit for it - it is hilarious.  I actually thought that it was PR until about midway through it and looked up and saw it was Planet “S”, not Planet “R”.  I admit, I at first just read “Planet” and assumed it was PR and didn’t figure it out til midway through.

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Astute Observation by Perspective
2011-03-15 10:59 AM

Blogs like IHB have become very powerful - powerful in the sense that they’re outside the mainstream media, growing in readership, and much more detailed, fair, and objective.

Most Irvine-area renters and homeowners I know visit this site regularly.  If I were a realtard, I would be on this blog every single day spouting about how great Irvine pricing is today.

Thankfully, I am not a realtard…

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Astute Observation by Swiller
2011-03-16 06:36 AM

Too funny. IR, you mean like the majority of parrots on this board that just repeat and support whatever you say?

I’ve seen that checklist for so long there was money to be made from it! Buy LV now!!!!

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Astute Observation by so_scared
2011-03-15 09:18 AM

“Markets trading at cashflow values don’t crash. What price levels would they crash down to?”

What exactly is cashflow value? How does one determine cash flow value?

You are basically stating that present value of the future cash flows of a property is what it is worth, correct?

Well if that is the case, the the discount rate you use and the presumed future cash flows will dramatically affect your cash flow values. They can and have sung dramatically..causing crashes as well as price increases.

Prices would crash to what present value of cash flows derived from using the appropriate discount rate and cash flow assumptions.

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Astute Observation by IrvineRenter
2011-03-15 10:45 AM

Discounted cashflow is not a reliable method of valuing residential properties because the financial projections are extremely sensitive to the discount rate and assumptions of growth in rents and prices in the future.

I prefer to look at a stabilized year-one cashflow statement and look at the rate of return. A healthy rate of return should be about 30% higher than the cost of debt. Therefore, in a 5% interest rate environment, properties that cashflow in the first year at 6.5% or better are at cashflow levels. Most of the beaten down bubble markets are trading at these levels now.

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Astute Observation by irvine_home_owner
2011-03-15 09:58 AM

It does look to me like the Irvine market is softening… at least for the new homes.

TIC is being more aggressive with their priority lists than last year because I don’t think they have the numbers (and pent-up demand) like last year.

Resale still seems a bit tough for some areas/products. Like Shevy commented before, the “good stuff” is few and far between so it gets multiple bids and moved quickly. And before someone points to the upper right corner to say the inventory is rising… compared to the total number of homes in Irvine (with 1200 more added just last year), that is a small percentage… and actually a small number based on the demand.

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Astute Observation by tenmagnet
2011-03-15 10:54 AM

We’ll see how strong demand is with the launch of San Marino this coming weekend.
TIC priced San Marino higher than their Carmel counterpart with less square footage.
After the multitude of buyers tours the models, they’ll be escorted to the design center where they can select from the vast array of upgrades.

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Astute Observation by irvine_home_owner
2011-03-15 11:47 AM

Demand is not as strong as the 2010 New Home Collection.

Last year, the 1st phase would have been sold out before the opening weekend.

I went to the Sales Gallery pre-opening and there were few people and many of the lots for Phase 1 were available.

Although, this may also have more to do with the price point—$1mil+ for Phase 1 where most of the 2010 SFR early phases were sub $1mil.

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Astute Observation by tenmagnet
2011-03-15 12:09 PM

The fact that TIC priced SM higher $360/ft. sans any upgrades or landscaping means their pushing the envelope with buyers to see how much they can take.
Like gas going to $6
Let’s see what happens

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Astute Observation by bigmoneysalsa
2011-03-15 11:42 AM

TIC can sell as many homes as they want, whenever they want, because they own the land outright and can afford to set their prices at whatever the market will bear. Whether a particular offering from TIC flies off the shelves or sits there with no takers says a lot more about how good a job TIC is doing at judging the market than it does about the market itself.
I for one congratulate TIC for pulling their heads out of their asses and realizing that it’s not in their own interests to sit on the land and wait for 2006 prices to come back.

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Astute Observation by irvine_home_owner
2011-03-15 12:00 PM

I wouldn’t say TIC does that good a job at judging the market.

Last year, they thought 700 homes would take 2 or more years to sell, they were wrong… they sold 1200 homes in about 13 months.

This year, they think they can do better than last year and I think they may be wrong again. I can’t see them selling more than 1100 homes in 2011, especially since we are already 3 months into the year.

But you never know with those FCBs.

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Astute Observation by IrvineRenter
2011-03-15 12:22 PM

Your comment shows what an excellent job they do of managing expectations. Even 1200 homes last year is less than 100 a month which is poor by historic standards. TIC has made everyone think this sounds great.

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Astute Observation by irvine_home_owner
2011-03-15 12:38 PM

Poor by historic standards?

Please enlighten me… are we talking bubble history, a single city or what?

I’ve been in Irvine much longer than you and I don’t recall new home tracts selling at that pace during non-bubble periods of time.

I may be wrong, but during the last trough in the mid-90s, what year saw a 100 new home per month sales pace in Westpark II?

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Astute Observation by irvine_home_owner
2011-03-15 04:27 PM

Bueller?

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Astute Observation by HydroCabron
2011-03-15 02:09 PM

Some people think that renting will enjoy a renaissance as a result of the crisis

No renaissance is in the offing, if current attitudes are any indication. Block parties and family gatherings are still an occasion for shock that my wife and I choose to rent, even with an income 3x local median - but they probably think we’re struggling because we drive old, paid-for cars and have no mortgage.

I can’t say “I’m renting because I feel no obligation to bail any boomer out of his failed investment,” as, well, I’m always among boomer homeowners when these conversations occur. So I act dumb and claim I haven’t gotten around to buying yet. I say nothing about the rising foreclosure rates and low sales volume in my neighborhood.

An uncle recently said “You’ll still be renting at 50 if you don’t get busy.” Aww: Wudda shame!

I’m getting better at playing dumb. My family members roll their eyes at my silly refusal to jump back in to the housing market: “He’s a little, uh, different - he will always be with us.”

BTW, if you can encourage someone’s initial impression that you are a doofus, and play to their high opinion of themselves - casino pit bosses come to mind here - you have opportunities.

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Astute Observation by headHigh
2011-03-15 07:37 PM

Yes, I agree.  At first I used to think people in Irvine were just stupid for paying high prices.  I mean Texas had their housing bubble in the 80s, and they seemed to learn.  Why did Californians not learn from their own late 80s bubble?  But then I realized that Irvinites are just more charitable.  Everyone here really wants to do their part to support the FIRE complex by paying as many and as high fees as possible.  And they just can’t stand by and watch the underwater homeowners suffer; they are eager to make a donation by paying top dollar for housing.  Having come to this realization, I now feel proud to live amongst such benevolent folk here in Irvine!

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Astute Observation by Anon
2011-03-16 11:22 AM

What do you think will happen when all the Japanese fleeing Japan come to California (probably Irvine) to start over?  Safe to assume they have cash to buy when they get here?

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Astute Observation by SanJoseRenter
2011-03-16 09:01 PM

Anybody can buy a house in the USA, but to live in it most FCBs will need a visa of some kind.

Trivia: The buyer of a US house from a foreign national is responsible for withholding the tax on the profits of the proceeds, or becomes liable. Wow.

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