Discussion in the previous several posts by my esteemed co-blogger zovall and our comment-providers asked the question just who are these GFs still buying real estate in Irvine at these stupid prices? A quick perusal of today’s Wall Street Journal was a disheartening read for me. There were several articles suggesting that the stock market is doing just peachy, that most American consumers aren’t really concerned about a housing bubble, that most homeowners are in upper wealth brackets and can afford a “slight downturn” without changing their spending habits, etc., and that flipping is an intelligent way to build a retirement nest egg.
So again, even though it is ridiculously clear to us bubble-heads how significant this crash is that we are accelerating into, apparently we are STILL on the periphery. Amazing.
A healthcare professional bought my house in July. I hear her extended family lives there now and the once ample parking is harder to find.
The bubble is popping later in Irvine than the rest of OC. From my old neighborhood, sales are still setting record comps, but there aren’t as many sales as the past. Before I listed before Memorial Day, my agent said that in other OC regions, everybody got offers $50K below list. I did get lowball offers, but since I priced aggressively, I got my list price and sold in less than a month.
As many people on Ben’s blog stated, this is a car wreck in slow motion. Most people are only hearing about the bubble now, but don’t know what to believe. The only ones that really know how difficult the market is becoming are the sellers and the people on the housing blogs.
The market is actually getting worse than I expected. I thought prices would show a small increase in 2006 and a take a 10% hit in 2007. Now it looks like OC will turn negative before the end of the year and next year could turn out to be really bad.
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I read speculation that within the next year we’ll see the capital gains tax go back up to some “normal” level. If this happens, I’d expect to see a tsunami of inventory appear just ahead of it.
The 1997 tax law that made the first $500K of capital gains on the sale of a home with other caveats (lived in 2 of the 5 previous years, married etc.) is not scheduled to change.
If you don’t qualify for free gains under the provisions of the 1997 law, then you fall under the standard capital gains rules, which are scheduled to change in 2008. Now if you have a long term gain (more than one year), and you are in the middle to upper income tax brackets (probably if you live in Irvine), you pay 15% in capital gains tax. In 2008, this reverts to 20%. Short term gains tax law is unchanged.
A conservative flipper would want to live in a house for two years. The aggressive ones with multiple homes would want to hold for one at least one year to shave their tax bill.
Of course, in a down market you’re screwed if you are a flipper. You can’t write off the loss on personal home, but can offset $3000 of ordinary income for an investment capital loss every year.
a friend today brings me a dataquick report and tells me that his zipcode 92603 appreciated 14.1% from last year. 92620 is supposed to have appreciated 23.7% and 92612 has appreciated 20.8%…all in Irvine of course.
So, some neighborhoods are still appreciating pretty strongly…so as they say “it ain’t over until the fat lady sings”.
Right now there are mixed signals about this downturn, we still have a few months to go before things become much uglier.
You should attend a presentation by Gary Watts to get the scoop on the real estate market in Orange County
and where we are headed. The Bubble hype was started
by the media and it just isn’t happening! Nor is it going to happen here in Orange County. The give you
bits of information and it keeps people buying their
newspapers and tuning in. Unfortunately people listened
to the media and waited and now cannot afford to buy
anything! I’ve been in real estate for over 22 years,
I know what I’m seeing and talking about. Investors
have hurt the market, especially in the new develop-
ments. They will have to rent these places out or
move into them. There’s a lot of inventory in new
developments because of this. The rest of the market
is fine.