Irvine Housing Blog

20% will be here to stay. Subprime was originally about loaning to people with strong earnings and good collateral who had low FICO scores. In other words, if they had 2 of the 3 C’s—capacity and collateral—subprime would overlook the low FICO score. Subprime went terribly wrong is when it started sacrificing all of the 3 C’s. I believe subprime will return because there will be a lot of people who were foreclosed on during the bubble who have, or will have, capacity and collateral.

As there a FEW sellers in Chicago who recognize reality and are pricing their offerings at something approaching rent-saver prices, I’ve been idly looking around and talking to lenders around town.

You can get financing for 5% down, but the guidelines are way tighter. The building must be 70% owner occupied, the loan amount no more than 3X the borrower’s income, FICO at least 670, and the appraised value must be in parity with rents and incomes.

This is all the more argument for just letting the inevitable failures happen. Many lenders and many buyers are waiting to step to the plate, but only if the prices are right, which they are not quite. When prudent lenders see the ratios they want to see and are pretty sure that valuations are in line with fundamentals, they will lend, but not before.

But they won’t be doing Subprime or Alt-A or Stated Income or NINJA or Option ARM or pay option or IO.

We will be back to reasonable prudence as that was defined in the 50s, 60s, and 70s, when you COULD even go no-down but couldn’t borrow an insane multiple of your income, or lie on your app.

Now, all that has to happen for the housing market to revert to normalcy is for sellers to get real with their prices. That’s mostly not happening yet. I still see too many wishing prices, and there’s still way too much inventory.

People just need to remember that “normalcy” will not mean a return to the insanity of 1998-2007.

I have predicted a 40% decline from the top because I thought it would take 5-7 years and inflation would increase rents a bit during that time. If we look at today’s market with today’s rents, a good rule-of-thumb is to cut the peak price in half. Your calculation goes about it in a slightly different way, but it comes to nearly the same answer: $273,000.

I will read the full article later, but I do have some observations based on your comment.

1. The average in a bubble market is nearly meaningless because you average in all the periods of overvaluation. A much more meaningful number would be to see what values it bottomed at.

2. 2000 was not pre-bubble. Prices were 10%-20% inflated then, and many people thought prices were too high. When prices did not revert back to affordable standards after 2000, a massive bubble was inflated.

3. We will have a long wait, although the large number of foreclosures is shortening the waiting time. We will see more properties at rental parity next year, and we will start to see desirable properties at rental parity in 2010.

I agree that rental parity would get a renter out of his apartment, and into a house. The income tax savings would have to be considered then. But I disagree that any investor would buy a house to rent out to make a profit, because most investors buy multi-family units, not single family homes. There are many reasons why this is so, mainly that having vacant house at any time is too much of a drain, compared to a single unit in a fourplex.

So, this might influence first-time buyers, a certain percentage of the market, but not investors and speculators. But first time buyers might also affect the move up buyers.

I wonder about that article.  It is pretty decent, but the one data point I’m familiar with is totally, utterly wrong.  I live in Raleigh, NC and it claims the price-to-rent ratio is 27.2, almost as high as OC.  No way in hell.  I rent for a two-bedroom condo about $1000, and some in my complex are for sale for approx $200k.  That would be a ratio of 16.  And my experience isn’t unusual at all.  There are some stupid expensive downtown condos, but for the most part housing prices are stable or falling slightly but they really don’t have much to fall.  My co-worker bought a house six months ago and saved money on rent.  So this makes the article suspect in my opinion.

Rental parity won’t be the savior of this sinking market, either.  Rents will drop as the recession deepens, but even if they don’t, why buy a house for a price equivalent to the rent, when buying sticks you with the possibility of losing $100K or more as the market continues to free fall? 

Rents tend to go up slowly over time, but you don’t face the risk of negative equity that mortgage holders do.

Actually… yes, you can find 3 bedrooms under 1300 sq ft. Cortile (Plan 3) at Woodbury is 3 beds, 2.5 baths in 1,275 sq ft.

oops, spoke too soon…

Found one, 3bdrm 2 bath sandwiched into 1200 sq ft.

[link]http://www.redfin.com/CA/Irvine/35-GREENBOUGH-92614/home/17124106[/link]

3 BR under 1300 square feet:

http://www.redfin.com/CA/Irvine/35-GREENBOUGH-92614/home/17124106

http://www.redfin.com/CA/Irvine/4-Summerfield-92614/home/17038470

“hobbits” ha ha ha ha ha!

We have lots of hobbits in our Brio tract.

Most of the bigger units have about 1250 sq. ft., 2 bd, 2 ba.

I have some neighbors that have their 2 teenage daughters living with them and my other neighbor had his in-laws from China over for 6 months so that was 6 people in his place not counting his mom that came over multiple times during the week.  I asked him how he kept his sanity…he drinks lots of tequila.

My house is a 4br/2bth and was originally 1,325 sqft.  It was built in 1985 before the trend to supersize.  We have added on a family room, master closets and a large laundryroom and it is now 1,875 sqft. 

One advantage is that you always know what your kids are up to.

It really bugs me to hear comments like yours. I grew up in a lower middle class area of Torrance. My parents did not make a lot of money. The 4 of us lived in a 2 bedroom 1 bath 900 SF home for 13 years.

I would have loved to live in that house as a kid, but i guess we cant all be from families of entitlement.

You might find this hard to believe, but before the 1980s, most houses in this country used to be quite small. 

My grandfather’s house in Alabama was 3/2, 1250 sq ft…on 2 acres of land.  My neighbor across the street from me here in San Diego is a 3/2 in 1152 sq. ft. 

My place is 875 square feet, but it’s just me.  Do consider, however, that I lived in it as a teenager, with my little brother and my mom back in the day.  It can be done - people don’t require nearly as much space as they think they might.

I live in a 3 bedroom 1 bath house that is 1071 sq. ft. 

just get a heavy machine gun and start shooting.  let them die. they deserve it.

growler…lol…thanks for the morning laugh..

those pics are pretty terrible, you think they would turn on a few lights…

Right next to the 405..where do i sign???

A wood toilet seat is better than those puffy, squishy ones though.  You know, the ones that make a farty sound when you sit down?