Irvine Housing Blog

rkp, I believe he is basing his data on the most relevant data point: people are living longer, all of his other conclusions follow after that

Here are some links…

http://factfinder.census.gov/servlet/MYPTable?_bm=y&-qr_name=ACS_2009_1YR_G00_CP2_1&-_lang=en

http://www.usatoday.com/news/nation/2005-07-18-cohabit-divorce_x.htm

http://pewhispanic.org/states/?stateid=CA

http://www.npr.org/blogs/thetwo-way/2010/09/29/130218357/for-most-americans-marriage-is-an-economic-decision-sociologist-says

Gemina13, that’s so funny and so true.

It’s going to be the end of the world for me.  When that happens this year, however will I survive?  I guess I’ll go flip houses in Vegas with my own money.  It’s going to be devastating, it’s guaranteed to happen any day now.

Dude WTF are you smoking these days?

Sensitive much?

Maybe you should be the one smoking something to calm your nerves.

Let’s get into just how devastating this is going to be for these tragic early 2009 purchasers.

Going by the Irvine median down payment it’s likely they put down $198,000 to $243,000.  For arguments sake let’s assume they only put down 20%, $132,000.

Ok, for arguments sake let’s say they don’t get their asking price, they only get $680K which is $20,000 more than their 2009 purchase price. Since 2009 they have paid off roughly $12,000 of the loan.

They’ll probably get back around $120-$125K cash.  Maybe more, maybe less.

Whatever money they lose isn’t devastating.  What may be devastating is the divorce, death, health problem, or job loss that may or may not have occurred.  The toll here, if there is any, is the life circumstance that occurred, the money is nothing.  It’s not normal to sell a house 2 years after you buy it.

But maybe these folks are lucky, and a corporate move is picking up the small loss?

Since they bought in March of 2009, the S&P has nearly DOUBLED.  Think of what that $120,000 in cash could have done, rather than taking a “small” loss…..

Ouch.

Ok ok I give up, it’s going to be devastating.  They will be ignoring the life circumstance and focusing on all that money they could have made perfectly timing the S&P500;.  Thank god you doubled your money.

They probably should not have bought if they had to move in a year in any type of normal market. It is probably an unforeseen move and like most things that happen when you don’t plan on it, it will cost them something. Homes are relatively illiquid.

However, even if they might lose in this transaction but show me any data point that says that home prices haven’t appreciated nominally in any 10 year period, 20 year period, 30 year period. If only at the rate of inflation, the returns are great precisely because it is a levered purchase with a fixed rate (hopefully).

The problem of upgrading and wanting more house and better neighborhoods constantly is a differently issue but that is a different issue than a function of the benefits of home ownership. That problem will exist whether they rent bigger or better equally as well.

You were the one who was trying to minimize the “small” loss they suffered by buying with a significant down payment in early 2009. In reality, there is about a $140,000 swing if they put 20% down when their money could have been working for them in other ways.

Maybe a $140,000 loss for some is “small.”  It’s not for me.

Why leave it at only a $140,000 imaginary loss, they could have started a company that is now worth billions.  It’s more like a billion dollar loss here, not a few thousand dollars and they won’t be getting back anything close to $150,000 cash in this transaction, no sir.

You can try to deflect with some IMAGINARY scenario or you can deal in actual “reality.”  “Reality” that includes what the S&P or any other index has done since March of 2009.  “Reality” shows that they will be down $140,000 or so on this transaction (if they put 20% down).  Maybe IR or someone with the property records can tell us what they actually put down on this house and we can come up with a quantifiable loss.

Yes, we should get the actual down payment numbers and calculate the actual loss.  Could it hav been 100% cash, $700K loss right here? Oh man I hope so

I have to say you have enlighented me.  I’ve lost tens of thousands of dollars this morning not having all of my
money in the S&P500;, it’s amazing how much money you can lose in a few hours, my balance is still showing a considerable gain but I know better now.  Thanks

@Corner Office:

The reality is hindsight is 20/20. Did this buyer have any guarantees any index would go up from March 2009?

They probably did not foresee having to sell after two years either.

While I agree that investing money is probably wiser than putting it down on a home right now, there are risks involved in that too. I’m not sure your stance is as strong as you would like it to be.

It’s ok to admit that these people made a bad decision to buy with a significant down payment in March of 2009, PR.  I get that you don’t want to recognize that.

The bigger point, that IHO seems to grasp below, is that there are significant costs associated with making large downpayments (lost opportunity costs that IR puts in his calculator).

Would I go all in right now in the market, no (there’s a reason people diversify).  But, I wouldn’t go all-in on a downpayment on a home either.

Maybe this owner has significant funds, and the “small” loss doesn’t affect the owner?  Maybe the owner is kicking himself for missing out on a big jump in the market, I don’t know.  What I do know, is that if the owner did make a sizeable downpayment that the owner paid for it with the lost opportunity that money had in other areas.

I recognize that it’s not normal to sell a house after 2 years.  Something likely happened to this family, I wish them well.

Are you willing to recognize that the current market price may end up higher than the early 2009 market price?  Come on, I double dog dare you.

I’m totally willing to say that this property might sell for more than it did in early 2009.  In fact, I would be surprised if it sold for less (before transaction costs).

Ok, progress, now we are getting somewhere.  If they viewed this as an investment it certainly was a bad decision.  More importantly if there was a negative life event that caused this I hope they recover quickly.

My stance has never been that buying in early 2009 is necessarily a good investment.  I’ve simply observed that in more premium areas current prices are higher than early 2009.

Exactly. If they were 100% in the market since 2009, they were 100% in the market in 2007 and 2008. In spite of recent gains, they are still way down from the peak. Or of course they have perfectly and repeatedly timed the market, in which case they have enough cash to buy far more than some $700k house, and wouldn’t notice writing the whole thing off completely.

As they should be (especially from a downpayment perspective).  If S&P and other investment markets have seen significant (nearly double) gains since 2009, why wouldn’t premium areas see a push higher.  I think those with significant funds available for downpayment have seen their purchasing power grow significantly over the last 2 years and are happy to grab properties at/near what the same property sold for or would have sold for in early 2009. 

To that end, it might be surprising that premium areas haven’t seen bigger gains over what they were selling for in early 2009.  I think that this speaks to the overall market and that there are other less premium areas that are pulling premium areas down (I know I have seen IR discuss the substitution effect).

PR,

You’re close, the owners refinanced 11/10 for 515K, they had originally put 20% down.

These sellers are going to lose 6% to transactions costs.  It’s the cost of taking the gamble.  They’re smart to get out now before they lose the whole thing.

Westparker, thanks for the confirmation.

Assuming they were to get asking they’ll leave the transaction with $143,000 cash.

Maybe they’ll only exit with $100,00 or $120,000 cash.  The greater point here is that we should all hope they did not experience a tragic life event such as a death or health problem.

If if’s and but’s were cans of nuts, it would be a merry merry christmas for all!

How about if we had taken that $120,000 and invested in the Wall St. casino when the market was at 14,000?

Gotta luv them returns. Kind of how they said if I started putting $3,000 a year away at age 25, by age 65 I would be a millionaire. Yup, I did my side of the “investment” but is there a million there? LMFAO!!

It will get worse before it gets better. Makes you wonder what the 46th world’s richest man knows developing thousands of units on his land in the worst housing sales since it’s been tracked. Perhaps The Donald knows his land holdings will degrade even further so he is cranking out the homes while he can get decent money?

Housing is screwed as investment, that’s why I think all this development is going on, for Donald to get the F out of dodge.

Corner Office - I posted about large downpayments last week.  My wife and I have a sizeable downpayment and this is outside of what we have invested in stock market, 401k, outside of rainy day savings, etc.  This money was saved for a house and while I can put it into stock, I havent had the fortune of great returns over the years.  Even since 2009, I havent made massive gains.  There is no gaurantee for a better stock picker to make money either.  For me, putting the money into the house saves me the interest and in a sense, I am paying myself that interest and getting a better rate than my CDs.

You make it sound like no one should put large amounts into a house.  Both my parents and inlaws pride themselves on paying off their houses in 10 years vs 30.  Could they have made more money refinancing into low rate loans and investing that money?  maybe but there is a sense of being down with house payments that for many is very valuable.

Don’t confuse my assessment/analysis of this current situation as being anti-down payment or anti-paying off a home loan.  My analysis was more of a rebuttal for PR’s statement that these buyers suffered a “small” loss on this transaction.

I think that the specific scenario that is being discussed above shows that:

1) the current owner took a big hit by making a large downpayment in 2009 when the S&P was basically half of what it is now and now selling their home at a loss (after transaction costs),

and as a further discussion point:

2) other potential buyers who did not purchase in early 2009 and had greater exposure to other investment markets have seen their purchasing power grow since March of 2009. 

I think that IR’s calculator is very good in that it takes into account the lost opportunity costs associated with downpayments.  Certainly, you would agree that these “costs” should be evaluated when determining what type of downpayment to make?

1) i dont think they planned to sell so quickly so guessing some other decision is causing the sale now.  furthermore, how can you say that the decision to put that money in 2009 was wrong when very few people could predict that the stock market would go up so quickly

2) i disagree that people who had large DPs in 2009 have seen their purchasing power grow.  my DP money is separate from my stock market money and i imagine many have the same situation.  i am patiently letting it grow at an amazing 1% interest rate and basically hasnt really changed since 2009

while its generally a rewarding feeling to poke at PR, you are way off base here.  furthermore, it is not a large loss in the first place.

C’mon you know the “average” investor is completely clueless.
The Dow is off a couple of hundred points, they panic sell thinking the end is near.

All I can do is look back at what actually transpired.

1) the S&P has doubled, while the house this owner purchased has minimally appreciated. I consider a $140,000 loss to be a “large” loss.  Lost opportunity costs are real and need to be accounted for when purchasing a property.  This owner was, unfortunately, unlucky with his timing and it cost him big.

2) As for your situation, note that I said those who had investment market exposure from March of 2009 to now have seen their ability to make a downpayment grow.  The fact that you didn’t participate in that rapid growth (by having your money in investments not exposed to various fiancial markets) doesn’t mean that others didn’t capture that appreciation that can now be used for a bigger downpayment.

i really have no clue what your point is.  you are basing your points on what could have transpired and all one can do is make the best decision at the current time frame

go back to 2009 and you are in these people’s shoes without a crystal ball on the stock market.  what would you do?  i am guessing they werent planning on selling in 2 years so lets assume they were buying for a longer stay.  if you can tell us what a better decision would have been, than you have something of value to add to this discussion.

The point I was/am making is that this owner lost more than the minimal amount that PR tried to initially claim they lost.

Next time, please follow the discussion before jumping in and then saying you can’t figure out what the point is or trying to tell me how I can contribute to the discussion that PR and I were engaged in.

All this talk, we could have already moved on to the next 100% return in 2 years.  How much money was lost here?  We could have launched a company greater than apple and Facebook combined.  I’d say we lost hundreds of millions here.  All this lost over a few thousand dollar mistake on an Irvine house purchase… what a shame.

i don’t know your situation but i see people’s ability to save and many people just dont know how to truly save. 

my friends, coworkers, etc have similar incomes and i have seen very very wide differences in savings and how they deal with bonuses, unexpected expenses, tax returns, etc.  obviously this is a very limited sample and not scientific but i think we can agree that ability to save varies widely from person to person.

i have shared how my wife and i have saved in the past and its not rocket science.  yes making more money helps but saving can start at any income level.  i personally believe that its really easy for a young couple both working to set aside at least $250K for a house if they are smart and frugal until their first purchase…ie, dont buy right after you graduate from college, save hard, and buy in your early 30s.  i can go through the math and data to back.

$500K-$1M for a house is harder obviously but point is savings is possible.  AZDave thinks everyone in irvine with large downpayments is bringing that money from previous house sales but i think that with many being indian and chinese and having a savings culture, they are like me and just saved hard and ready to buy in their 30s with all that cash

i personally believe that its really easy for a young couple both working to set aside at least $250K

What are the circumstances of your young couple?  Are their circumstances better than most in their cohort?

its not rocket science

Is it more like Voodoo?

i can go through the math and data to back.

Go for it.

Let’s assume rkp is not smoking crack and blowing the smoke all over the forum.

Assuming that the Wikipedia figure is still correct, let’s say Irvine’s median household income is $98,923.  This means half of the Irvine workersheep households are making less.  Since rkp is fantasizing about young people in his example, I think it is a fair bet that they are on the lower end of that median income number as they are not at their peak earning potential right out of college.  Nevertheless, let’s assume that all these folks are making $98,923 - the median of the entire city (impossible).

Paycheck calculator says the monthly net pay after taxes is: $5,876.97.

Back of the envelope, common sense expenses assume:

1700.00$ monthly rent
200.00$ monthly electric bill
100.00$ monthly cable and internet bill
60.00$ cell phone bill
250.00$ car payment
100.00$ month car insurance
100.00$ gas
400.00$ month groceries and entertainment

I think these are conservative.  Obviously some of the households will be dual earners so some of these expenses will double.

Expenses total about $2910.00

That leaves these households about 2967.00$ per month disposable income.

How long will it take these successful households to casually set aside that 250K? Little over 84 months or about 7 years.

That is assuming that every single one of these younger households are earning at least the Irvine median income the day the set foot out of college which is impossible by definition of median income which we know tells us half the earners make less and I think it is pretty safe to say that the lower end of the median contains more young workers than older workers.

So a total pie in the sky impossible scenario says 7 years for the average Irvine workersheep to save up 250K.  What happens when you plug in more likely income numbers?  Let’s assume that the entry level college workersheep makes 2/3 median income his first year out of college and averages a 3% raise each year thereafter (not everyone is going to land that big promotion):

Year | Salary   | Net Monthly Pay | Disposable
———————————————————————
  1   65948.66     4,101.29       1191.29
  2   67927.11     4,208.72       1298.72
  3   69964.92     4,319.34       1409.34
  4   72063.87     4,433.30       1523.3
  5   74225.78     4,550.67       1640.67
  6   76452.55     4,671.58       1761.58
  7   78746.12     4,796.10       1886.1

Assume that all the disposable income for each month went into a savings account:

1191.29 x 12 = 14295.48
1298.72 x 12 = 15584.64
1409.34 x 12 = 16912.08
1523.3 x 12 = 18279.60
1640.67 x 12 = 19688.04
1761.58 x 12 = 21138.96
1886.1 x 12 = 22633.20

Total saved: $128,532.00

Let’s assume they put it into a savings account and averaged 2000.00$ a year in dividends making $14,000 for the 7 years.

Total saved: $142,532.00

Happy birthday, you just turned 30.  You still have a ways to go before that 250K is casually set aside.

But don’t worry, Irvine HO knows a couple of folks in their 20’s who saved up 300K without batting an eye.

yes making more money helps

It certainly does if you want to make it to 250K by age 30.

And please don’t tell me that you know Joe Blow who makes 100K at age 25 writing software unless you are prepared to prove that every 25 year old worker in Irvine writes software and earns 100K doing so.

We are talking about people “on average”.  Not your little straw dog example that assumes the best case scenario applied to all workers across the board.

And AZDavidPhx didn’t even include student loan payments.  If you’re the typical young Irvine couple earning well-into six-figures combined, then that usually comes with hefty student loans.

e.g. I met my wife in grad school and in the last 10 years we’ve paid in principal + interest nearly $180k to student loans (and we’re only half-way through the principal).

@DaveAzPhx:

“But don’t worry, Irvine HO knows a couple of folks in their 20’s who saved up 300K without batting an eye.”

You sure like to exaggerate when you can’t back up your “beliefs”.

What I did say is it’s close to impossible for 20s to have a down payment sourced from an equity sale when they never owned a home prior (which you keep contending).

The source of their large payments can be a combination of savings, investments and the oh-so-popular relative donation.

So let’s play… based on your breakdown, where are these people getting their large down payments from? The houses they bought when they were 15? Or even 20? Yeah… cornered yourself again.

David you won’t want to hear, especially not from me, but here goes:

In Irvine it’s very common for a young couple to make $120-150K combined.  They won’t even be in mid level jobs.  the wife will be an admin making $60k and the husband a chump low level tech worker making $80k.

i personally believe that its really easy for a young couple

Not to mention that I was pretty generous with my income assumption when you look at facts like these.

Median Income by Age
Age < 25   $43,707
Age 25 - 34   $73,537
Age 35 - 44   $100,736
Age 45 - 54   $114,008
Age 55 - 64   $114,256
Age 65 - 74   $83,265

At least it confirms my assumption that young people right out of college are not making as the older side of the median age.

But don’t go letting stuff like burst your fantasy.  I am just a forum troll who throws stones and does not back anything up.

Tell us how easy it is, rkp.  What should these people do to easily hit that 250K?

where are these people getting their large down payments from? The houses they bought when they were 15?

Nice strawman argument, Irvine HO.

No, like I said, I don’t believe that many people in their 20’s are buying in Irvine (as I have said dozens of times now).  Just as you would recommend your children not buy their first house in Irvine, but move up later.

Well since you are bringing your straw animals up:

Median income for Age < 25 does note equal 22-24 median income (unless that site is breaking that stat down).

And if you can save up $125k in AZ by what I assume is your mid 20s… why can’t a couple in Irvine who probably makes more than double you do save up $250k in the same time frame?

why can’t a couple…save up $250k in the same time frame

I never said that it could not be done.  Try arguing against what was actually said rather than rewording what I say and ripping into it which is the very definition of a Straw man argument.

I argued that it is highly unlikely that the median Irvine workersheep falls within the circumstances to make it very easy to save up 250K.

You then reworded it as though I said that it is impossible for anyone to save up 250K and then went into an example “prove” your point.

Do you see the strawman?  It’s right there - sitting on the couch waving at you.

Yay, fantasy math guys is back..this time armed with some math for a change.

First, household income vs. family income.

Household income is not to be confused with family or personal income. Household income is often the combination of two income earners pooling the resources and should therefore not be confused with an individual’s earnings. Even though the term family income may sometimes be used as a synonym for household income, the U.S. Census Bureau defines the two differently. While household income takes all households into account, family income only takes households with two or more persons related through blood, marriage or adoption into account.

Hence since RKP spoke about a COUPLE, that is by definition family income.

Next, using your very own statistic accurate 2/3 number of a family income and your own wage increases and your estimated expenses, after 7 years of earning annualized return of 3% a year but compounded monthly since they are saving monthly, their total would be 209k. Not quite 250k, but hell of a lot closer than your bullshit numbers.

And since you are on do a math bent, why don’t you help us out dave.

60% higher nominal incomes. 52% lower interest rates.

What would relative values of homes be all else being equal?

Do the math for us Dave.

@DaveAzPhx:

I never said that it could not be done.  Try arguing against what was actually said rather than rewording what I say and ripping into it which is the very definition of a Straw man argument.

Oh please… your first volley at me in this thread was the straw man, saying I said I knew 20 yos who could save 300k… I said no such thing.

Do you see the strawman?  It’s right there - sitting on the couch waving at you.

I don’t even think you really know what a straw man is because you keep accusing everyone else of doing it without realizing that’s your soup du jour.

Your hypocrisy is worse than your math.

soscared,

You do realize that family income is a subset of household income?

Please get your facts straight before you go popping off.  Did you read the part about household income often including 2 incomes pooling resources?

Even if we assumed your moronic statement were true, how many of these young people are married and living together the day that they enter the workforce?  Not many.

Nice try.

Haha. Now, who is popping off. Rkp specifically said he believes a couple could do this together. Btw, your calculator must have broke after all the heavy lifting you did on previous posts because you still won’t do the value math for us huh?

Come on. Do the math for us. Or if you calc is broken at least some nice comments about my parents undead offspring or something.

You are a moron.  The reason that family income is higher than median income is because married people tend to be older and therefore closer to peak earning potential. 

So your trying to apply family income to young “couples” just because they are a couple is like saying companies pay you more money if you have a spouse or significant other; some kind of an award for not being single.  Pretty idiotic don’t you think?

A young couple who lives together unmarried will not be counted in family income.  A young couple who do not live together will not be counted in family income.

How many 23 year olds setting foot out of college and joining the workforce are married and ready to sign up for rkp’s easy money plan?

lol. You are so good at calling me names! You must have majored in it or it must be your defense mechanism for always being a little off when you were in high school.

First, precisely because your stated “married couples” tend to be old metric, we used 2/3 of income right? So you are saying two “young” people straight out of college cannot make 37k each? WOW that is a HUGE FUCKING stretch since my first job out of college in Irvine in 1995 was 36k. But oh ya, nominal wages haven’t gone up at all according to you.

RKP assumptions may seem a bit aggressive in terms of that they are a couple when they first leave college.

So lets just use your wonderful example again. So what happens in your totally realistic example and this supposed 30 year old now meets another 30 year old and the “couple” purchase a home together. Is that unrealistic as well? That by 30, they might have found someone similar to themselves in age and income and decide to pool their INDVIDUAL resources to purchase. Super stretch.

What now David? Since each should have been able set aside your supposed 142k.

Let’s 142k+ 142k= totally off from RKP purportedly impossible task for a COUPLE saving 250K.

What now math wiz?