A New Dawn

Here comes the sun, here comes the sun,

and I say it’s all right

Little darling, it’s been a long cold lonely winter

Little darling, it feels like years since it’s been here

Here comes the sun, here comes the sun

and I say it’s all right

Here Comes the Sun — The Beatles

Link to Music Video

I love that song. When I hear it it brings me back to the feelings of peace and tranquility I would feel on a spring morning overlooking a Northwoods lake…


The bear market is over! Rapid house price appreciation has returned! The winter is over, a new day is dawning, and everything is all right.


Kool Aid Man

Well, you would think all was well by the asking prices of today’s WTF trio. The mentality of the herd was evident during the house price rally. No price was too high because someone would always pay more. Making a million dollars on the sale of your home was not a dream, it was an entitlement.

The market is thinning the herd a bit, but there are still pockets of bullishness that display such a callous disregard for reality that one has to ask, “WTF?” Today’s grouping of three neighboring houses is one such display.

Rosegate Estates is a sub-neighborhood in Northwood Pointe which of course is a sub-neighborhood in the Village of Northwood. (When you are as elite as these people, you need to separate yourself from the riff-raff.) These homes are beautiful, and this neighborhood is very desirable. Is it $2,000,000 desirable? You decide…

1 New Dawn Front 1 New Dawn Kitchen

Asking Price: $1,999,800IrvineRenter

Purchase Price: $1,075,000

Purchase Date: 4/25/2002

Address: 1 New Dawn, Irvine, CA 92620

Beds: 5

Baths: 4.5

Sq. Ft.: 4,200

$/Sq. Ft.: $476

Lot Size: 9,500 sq. ft.

Year Built: 1998WTF

Stories: 2

Type: Single Family Residence

Neighborhood: Northwood

MLS#: S491641

Status: Active

On Redfin: 73 days

From Redfin, “Stunning Rosegate Estate featuring 5BD/4.5BA, 3-Car Garage, Home Offic e, Butler’s Pantry, Custom Library & Pebbletech Pool & Spa Plus Built-in BBQ! Beautifully appointed with Dramatic Cathedral Ceilings, Custom Tile Floors, Designer Carpet, Custom Blt-Ins, Integrated Speaker System & Home Security System! Gourmet Kitchen w/ Solid GRANITE COUNTERTOPS & Center Island * Blt-In Refrigerator * Viking 6 Burner Cooktop * Blt-In Desk & Walk-In Pantry!



They knocked $200 off of $2,000,000. Quite a marketing expense. I suppose they could have asked $1,999,999.99.

So this property has doubled in value since early 2002? I guess all the rollbacks we have been seeing didn’t impact the high end, right?

23 New Dawn Front 23 New Dawn Kitchen

Asking Price: $1,999,900IrvineRenter

Purchase Price: $642,000

Purchase Date: 1/13/1998

Address: 23 New Dawn, Irvine, CA 92620

Beds: 5

Baths: 5.5

Sq. Ft.: 5,045

$/Sq. Ft.: $396

Lot Size: 8,000 sq. ft.

Year Built: 1998

Stories: 2WTF

Type: Single Family Residence

Neighborhood: Northwood

MLS#: S489401

Status: Active

On Redfin: 92 days

Unsold in 90+ days

From Redfin, “Rosegate in Prestigious Northwood Pointe. Desirable plan w/ dramatic curb appeal. Living room w/ vaulted ceilings, separate dining, one bedroom down + office. Gourmet kitchen open to family room. Master suite w/ retreat, master bath highly upgraded. Three secondary bedrooms upstairs + oversized bonus with bath perfect for private suite. Four car garages, tasteful upgrades, private yard and much more. Steps to schools, parks, pool, and minutes from shopping and freeways. Opportunity knocks!”

Opportunity knocks? For what, to be a greater fool or a bagholder? I will pass. Oh, wait, It has a gourmet kitchen. Where could I find another one of those in Irvine?

I wonder if the neighbor at 1 New Dawn used this property as a comparable for pricing. Notice the price is $100 lower? I guess neither one wants to give it away…



This owner only wants to triple their money for 9 years of ownership. That makes sense. Houses should triple in value every nine years, after all wages did — oops, maybe not. Perhaps I will buy it and sell it for $6,000,000 in 2016. A $4,000,000 profit could fund my retirement.

As always, I have saved the best for last…

46 New Dawn Front 46 New Dawn Kitchen

Asking Price: $2,400,000IrvineRenter

Purchase Price: $1,150,000

Purchase Date: 1/10/2003

Address: 46 New Dawn, Irvine, CA 92620

Beds: 5

Baths: 4.5

Sq. Ft.: 4,600

$/Sq. Ft.: $522

Lot Size: 10,000 sq. ft.

Year Built: 1998

Stories: 2WTF

Type: Single Family Residence

View: Trees/Woods

Neighborhood: Northwood

MLS#: P587715

Status: Active

On Redfin: 47 days

From Redfin, “Magnificent home in elegant Rosegate Estate with beautiful architectur e featuring 5beds+home office & custom library, 4 car garage, and more! Soaring ceiling, wrought iron staircase, lime stone flooring & custom built-ins throughout the house give it a dramatic personality. gourmet kitchen with granite counter tops & center island over looks beautifully land scaped back & side court yard. Come and Show this stunning beauty of this home!”

Found another gourmet kitchen…

Do you think that justifies the $400,000 higher price?



So this house has more than doubled in price since 2003?

So are these WTF prices? Can you create a reasonable set of circumstances which justifies these prices? I can’t. I am completely dumfounded. The only conclusion I can reach is that all of these owners are participating in a massive greed off:

How high can we set our prices without embarrassing ourselves? Wait, we have no shame, how high can we set these prices — period. Maybe if all three of us set our prices this high somehow it won’t be as ridiculous?

I am still wondering if 23 New Dawn is angry with 1 New Dawn for undercutting their asking price by $100? After all, this is a race to the top, not a race to the bottom…

142 thoughts on “A New Dawn

  1. lee in irvine

    All this is just more folly from sellers that have apparently mistaken 2007 for 2005.

  2. Skye Sakamoto

    For 2.4 mil I want my own pool. In my own back yard. Not one that I have to drive to and share with noisy, bratty neighbor kids.


  3. mino2126

    Does anyone think these houses might have been staged? They don’t look like anyone really lives in them. Look at the kitchens and the family rooms. The couches look really cheap, their is nothing on the counter-tops, and very little wall hangings. Maybe it’s just me but I wonder if these are flips gone / going bad / worse.

  4. NanoWest

    These are tract homes with a value of about $850,000. It will be a few years before we see them selling below a million but they will. With nobody purchasing at the bottom there are no move up buyers for these types of mcmansions. They will sit on the market for 4 years. Then one of the early purchasers that has to get out and paid $700,000 will let it go for $850,000 and that will be the new price. It is only a matter of time.

    Dillusional home sellers will wait, and wait and wait for a buyer.

  5. Skye Sakamoto

    1 New Dawn definitely looks staged except for the blue bedroom which has a bunch of shoes under the bed!! That is very weird. (A professional stager would never leave something like that, because it gives the impression that there is nowhere to store your clothing.)

    #23 might be staged, too, but someone left an expensive grand piano and big screen tv there. Maybe the owners still live there or maybe they just haven’t figured out what to do with the piano, now that they have been forced into an apartment. 🙂

    (Professional stagers, by the way, usually strongly suggest losing the big tv’s, unless they are flat screens attached to the wall. Those big projection sets are ugly!)

    #46 looks staged too, except for the fact that the built-in book shelves are filled with books, computer printers, etc. A stager would get rid of that junk and just add a few books and things here and there on the shelves “for effect”. So I would guess that either someone is still living there or they left in a hurry, without packing up all their belongings.


  6. Funky toe

    OK. You think homes like these will go for less than $180 per square foot? Have fun waiting for that. Yeah, the current sellers might be delusional with their asking price, but waiting for homes like these to hit $180 sq/ft is also delusional.

  7. rkp

    NW – your calling of the bottom is bad as the WTF prices the sellers are asking.

    The first house was purchased in 2002 for close to 1.1M. 2002 pricing was higher than the 90’s but not by a lot. I think most people would consider 2002 pricing fair and affordable and would jump at it. Remember, it was before the crazy run ups and after years of flat or even decling pricing. Based on charts of the previous cycles, it looked like prices dipped below the flat line for a while so I can see these houses dipping closer to 1M and then settling at 2002 pricing. But I simply can’t see it falling to 850K.

  8. Chuck Ponzi


    For 2 ExtraLarge, you don’t even get an undermount sink?

    Glad to see that the “other half” don’t have it as good as they show on TV.

  9. halfnote19

    Looking at the price tags really makes you go WTF!! Although if you look at the price per sqft (#23) and its less than $400. If you just do a sq ft comparison to the rest of Irvine that looks reasonable (as reasonable as it can get in Irvine)

    Do price per sq ft not work the same for the top of the housing market? I think it would since you are buying a bigger house.

  10. lendingmaestro

    Call me crazy, but it is possible I think that we will see prices hit 90’s prices. I think that it will get mind-blowingly ugly, and people may over sell the market. We may get to a point that no one is willing to buy a new home. It has become the ugly duckling with which people have become so disenfranchised, they won’t touch real estate.

    There simply is no rule that states homes must sell for a certain price per sq ft. There are of course market fundamentals we look at such as buying vs renting calculators and price vs income. Regardless of the state of the market and how overly-priced or undervalued homes are, you still have the psychological component.

    I do not think it is a far-stretch to say ALL the gains made from 2000-2001 till now will be erased. 2003 was the year to refi. All these 5/1 ARMS @ 4.5%-5.75% are going to adjust in 2008. These borrowers are going to be in bad shape. In order for them to afford the house at the higher rates, they need a value BELOW what they bought it for.

  11. caliguy2699

    I had to laugh when I read your comment about the big screen TV sitting out. I went to an open house a bit ago where there was not only a big-screen TV out, but half the time it felt like the house was semi-vacant or the sellers were on the way to moving out, and other times it felt like there were actually people living there who were just very into minimalism (VERY little furniture in the house and not really much decoration on the walls if anything…a computer desk in sort of the middle of the floor was the only furniture in one of the spare bedrooms…downstairs living room/kitchen virtually empty except the TV and a couch, little furniture in the master bedroom other than the bed…yet closets full of clothes).

    Felt a little unnerving…

  12. Mr Vincent

    25K per year just in prop taxes – EVERY year. Good luck with that!

    Prop #1: 5bd/5ba @ 4200sq ft does not leave alot of sq ft for the common area rooms. At least it has a nice pool and yard. I like the place very much and it should be around 1 mill or less in a normal market.

    One thing I am seeing in my area, which is heavely Asian – they have multi-generation families buying the 1+ mill homes. They all contribute to the costs. I could never live this way, but I can see that this strategy allows people to buy a more expensive house.

  13. NanoWest

    Funky Toe,

    Yes, $180.00 per square foot. Why don’t you think this can happen? Who do you think is going to purchase these homes for north of 1.5 million dollars ? The buyers are gone for all the reasons discussed a thousand times on these blogs…….and the prices will drop……………The stupid real estate poni scheme is over.

    Personally, I’ve owned two large homes. One was 3500 sq ft, and the other was 3000 sq ft.(large to me) I gotta tell you, its a pain in the arse. You have to pay a gardener, a handyman, a home cleaner, a pool person(if pool) to keep the place going. I prefer smaller places now………..around 1200 – 1400 sq ft.

  14. NanoWest

    Do the math and then tell me who can afford these homes……….

    Taxes: 1,900,000 X 1.8%(with mello roos)= 34,000 per year
    Suppose a 400K down- 1,500,000(7%) = 117,000 per year

    With out the extra expenses like repairs, hoa, etc that comes to 12,583 per month. At this level the AMT will take away much of the tax gain.

    So if housing is about 35% of your income(remember we use the old rules now) that is an income of about 450,000 per year.

    Guess what, there are not a lot of people that make that much, and if they do they want to live in Newprot beach or some where nice……not some trashy mcmansion in the flatlands of irvine.

  15. Iblis

    Interesting point. I am new to this blog, so I don’t know whether there has been a post before about how expats affect the Irvine housing market. But it has to be a real phenomenon. If you are on an expense account and coming from a place like Tokyo, then (i) Irvine seems cheap, (ii) you don’t have to worry about a loan, and (iii) you don’t care how much it costs anyway. And there are lots of expats in Irvine.

    Anyone willing to touch this topic?

  16. NanoWest

    This kept the housing market going in San Marino for a while in the 1990’s. Five families would buy a house and let the kids live there so that they could go to the good schools.

  17. buster

    Oh, did we forget the “McMansion Carbon penalty” currently proposed? That eliminates the tax deduction for mortgate interest on homes over 3,000 square feet. And the property taxes aren’t deductible for Alternative Minimum Tax (which, you’re making enough to qualify for this home, you are certainly in AMT). So….no deduction for interest, no deduction for property taxes, Mello Roos isn’t deductible nor is the HOA. And Jumbo rates are streaking towards 8.00%. Yeah, these factors might impact the economics of purchasing these things. Is $180 psf likely – No. Is it reasonably possible – absolutely.

  18. Incredulous

    There’s a house across the street from me (San Diego) which was purchased in July 2005 for $700K. It got put on the market last week for $869K.

    Why the price jump? Have they added an addition? No. Have they added a bathroom? No, it still has just one bathroom. Have they read the papers to see the market is heading south instead of north? No!

    The only thing that could have happened was – their ARM just reset – two years to the month after purchase. I have this home and a few others on my own personal WTF list. How these people think they deserve an extra $85K a year for home ownership is beyond me.

  19. Mr Vincent

    Funny you should bring up San Marino because this is one of the areas near me that I was referring to.

  20. Janet

    Why the thories about these people being desperate?

    We don’t have liens information, but it would seem they all have skin in the game.

    I think they’re fishing.

    Who can blame them?

    Do you think this hurts anyone? If anything, it makes the competition look better.

  21. NanoWest

    The value of a property is only as much as someone is willing and able to pay. These homes rose in price becasue of the “easy money” that is discussed so often on these blogs. Take away the money and take away the prices……its very simple.

    I believe that we will see at least 10 years of very stringent lending standards…much stricter than was in place back in 2000 when the housing run up got started. The stricter standards will be mandatory for the financial markets to take the mortagage industry seriously.

  22. No_Such_Reality

    As I recall, 3500 sf is pretty much the break even where you have to hire help to clean and maintain grounds and house. If you are working, the regular weekly maintenance and cleaning of a house and grounds at 3500 exceeds your available free time.

    The general rule of housing is as square feet go up, price/square foot goes down. For these tract home megaliths, 180 may be possible. They are big, but their functional space is really quite poor.

  23. No_Such_Reality

    Mello Roos aren’t percent based, they are flat fee. A $2700 Mello Roos remains $2700 whether the house is $1,000,000 or $500,000.

  24. NanoWest

    OK…….so they only need an income of 400,000 to purchase the place….

    Thanks for the info on Mello Roos.

  25. No_Such_Reality

    You note on the tax record, that both 1 New Dawn and 23 New Dawn pay the same User Fee/ Special Assessment taxes on the treasury site.

  26. No_Such_Reality

    NP, that confused me at first too particularly since it seems most RE agents have it wrong too. They’ll say the tax rate is 1.25% or something.

  27. NanoWest

    Desperation will set in in about 12 months…….when a greater percentage of the listings will be from people that have to sell becasue of:

    a) Relocations
    b) Death
    c) Forcolsure
    d) Divorce

    It is my opinion that the market will be driven by people that purchased before 2000 and have substantial equity and need to sell. Suppose they purchased a home for 300K in 1995 and it had a comp of 1 million in 2005. In 2008 they want to sell, they will take 600K and be happy.

  28. Rocker

    I heard from a loan officer in 2004 that people from South Korea were buying houses with big down payments, Samsung has offices in Irvine.

  29. cruiser

    Why do you think that in 12 months we will see more relocations, death, foreclosure and divorce? And why do you think that the people that purchased before 2000 will be any greater factor than people that purchased after 2000? If anything, the people that purchased over the last few years that should never have purchased to begin with are going to drive prices down, not those that purchased 10 years ago and can afford to stay put.

  30. Major Schadenfreude

    I’m thinking that people who are just “fishing” their home won’t put much effort into marketing it. In other words, they are not going to want to clean it every Friday evening and then vacate it every weekend for open house. A real hassle to do all that!

    If these properties have open houses, then I would say they want to sell. If not, then maybe they are fishing.

  31. ice weasel

    I’m no expert but what NanoWest posted above seems to ring true. The issue of value has little to with recent historical pricing since that pricing was supported, to one extent or another, by a mortgage market that was operating on totally unrealistic principles (or a complete lack of principle if your prefer).

    I don’t where the bottom is. I don’t know what time period “the bottom” might be related to but I think it’s reasonable to assume that mortgages are not going to be what they have been for the last five years or so for a very long time. So unless we see an enormous rise in employment and wages, who will be buying these homes?

    I think the common mistake to make is part of the industry, the comp. But the comp ceases to be relevant when the conditions under which all those comps were purchased disappear or change significantly.

    Someone tell me where I am wrong here.

  32. carl

    My house in Turtle Rock was purchased by Chinese (Taiwan) immigrants recently (late 2006). They made a big down payment but also got a loan. The fact is, historically, foreign money tends to buy at the top of American asset bubbles. This one will be no different. A lot of these Asian nationals that don’t understand the American (now global) credit bubble will become bag holders. The Japanese were over-represented as bag holders in the last downturn in the early 90s. I suspect the Chinese (including Taiwan, Hong Kong, and now Mainland China) and the Persians will lose a lot of money here.

    The fact of the matter is there truly is a lot of foreign money around. A lot of the recent knife catchers in Irvine are Persian or Chinese. They will slow down the decent but I think they will be like speedbumps. The credit overhang in SoCal is just too great for a relatively small amount of overseas money to stop. It is quite possible the magnitude of the decline will be somewhat muted, but there will still be a very significant decline in Irvine over the next several years.

  33. OscarDeLaJolla

    I cashed out of the OC in early 2006. My current house (2004 build, near Columbus, OH) is larger than these featured homes, on a larger lot, similar amenities, similar interior finishes, best schools in the state. I paid less than 500k.

    Whoever above said that these homes are coming down to 700k is right. I believe that the nicer parts of OC will always maintain a SLIGHT premium over flyover country. But 4x? 5x? Ridiculous. These sellers should immediately drop to $1M and feel extremely fortunate if they can sell for that.

  34. NanoWest

    Of course there are these factors in play now….but it will take time for the inventory of the truely desperate to build up to the point where there is substantial downward pressure on the market. If you look at Zip realty now, I bleieve what you will see is a bunch of homes on the market by people that are still looking to cash out with a few hundred grand of profit………..still looking for the all but extinct greater fool.

    When people want to(need to) sell an asset, they reduce the price, its that simple. We are not seeing substantial reduction yet.

    As for the people that purchased from 2001 to 2007 they will have to stay put or take huge losses or go bankrupt………….3 choices…..staying put is the best alternative. The other two are not much fun.

  35. Janet

    Ugh, Columbus, OH.

    Near the bottom of my list.

    Just exactly how many posters are submitting from different time zones?

    I have a home.

    I won’t be “desperate” no matter what unfolds.

    It’s monopoly money.

    It goes up. It goes down. …

  36. lendingmaestro

    Future title article of the La Times and OC register:

    “The Great Switch. The day homeowners became renters, and renters became homeowners.”

    When will this happen? 2008…2009…???

  37. Diana K

    “The fact is, historically, foreign money tends to buy at the top of American asset bubbles.”

    This is true for a reason.

    Asset bubbles are tied to low interest rates.

    Interest rates have an adverse effect on the dollar vs foreign currency. Interest rates go down, Dollar gets devalued.

    Asset values keep going up.

    So our assets then become really cheap to them comparatively.

  38. lendingmaestro

    Probably not. But I work for a large bank, and my position is with the retail portion of that bank. To further break it down, I am actually located out of 2 branches here in OC. My job CANNOT be outsourced. If the market goes to holy hell and all wholesale operations are shut down, retail call centers shut, down etc..we’ll still have the branches open, and we’ll still need to have someone like me.

    I fully expect to see massive slow downs in certain areas of my business. Jumbo business is dead. period. I am doing note modifications, Helocs, and conforming products. As other people go out of business it is better for me in the long run. In the end, nobody’s job is truly safe if they are involved in real estate.

  39. OscarDeLaJolla

    I have to laugh at the built-in superiority complex that most (not ALL) native Californians seem to have. I grew up in the midwest, took a great job opportunity in the OC for a few years, then moved back to raise my family here.

    I have had a few native Californian friends fly out to visit, and upon seeing the large houses, large cared-for lawns, friendly neighbors, upscale shopping, low cost of living, etc. have said…”this place really isn’t THAT BAD.” Not good, not great, certainly not better than California. But not THAT BAD.

    It’s not their fault, and I just laugh about it.

    I love California. I wish it didn’t have a grave financial reckoning in its immediate future. But it does, and the built-in superiority complex may very well be one of many things that swirl down the drain.

  40. Janet

    I wasn’t speaking of California.

    How about the entire west coast and the entire east coast?

    From Washington State to Florida, all are widely considered more valuable places to live.

    That is not a new paradigm.

    Don’t YOU be so judgemental.

  41. CapitalismWorks

    You’re both insane. Period. No place in Ohio is comparable to any place Irvine. You wanna dig your car out of the snow 4 months a year? You wanna swat your way through swarms of mosquitos? You wanna enjoy a summer of overcast skies, thunderstorms, and terrible humidity?

    If so, Ohio, and the rest of flyover country is for you. As for me, and the vast majority of rational people around the globe the “Mediterranean Climate” is the way to go.

    Don’t kid yourself (or anyone else) that you will every see sub-$200/sq.ft. prices anywhere in Orange County at any point in the future. Obviously some poor bastard wasting away in Ohio (sorry dude), who previously bathed in the glow of Southern California, is going assuage is cognitive dissonance and rationalize his downgrade to the wastelands of the midwest. Thanks those of us who actually enjoy fresh air twelve months a year, California, particularly 10 miles from the ocean in Southern California, has always and will always command a substantial premium to far less desireable locations.

    Final Point: They aren’t making anymore land in Southern California. More importantly, they aren’t making anymore land within the temperature controlled coastal zones (unless the Feds open up Pendelton). Scarcity, desirability, climate, business centers, etc. etc.

  42. OscarDeLaJolla

    Get over yourself. Go enjoy your “valuable” coastal home, while it can still be called that.

    If you’re not speaking of California…why are you here? To see if someone on a California-focused housing blog will happen to mention Boston, Miami, Seattle, or some other “valuable” locale?

  43. tonye

    Hey… what if you put Solar Panels on the roof?

    With a 4000 sq foot home’s roof, you might be able to generate 15Kw/Hr and power half the neighborhood.

  44. lendingmaestro

    I lived in Ohio and Minnesota most of my non-cali life and I can tell you that while the weather is not great. I’m going to play devils advocate and say, sometimes I miss the change in seasons. There’s nothing like autum in the midwest/ northeast part of our country. It gets kind of monotonous out here.

    That being said, I could not imagine being a kid growing up in these stucco boxes, packed in next to each other here in CA. Sometimes I miss not being able to see or hear my neighbors.

    It’s definitely harder to raise a family out here with the cost of living. I feel for all the hard-working 30-40 somethings out there with families. What are they going to retire on? Certainly not their homes.

  45. OscarDeLaJolla

    Thanks for the laugh, and for proving my point about Californian arrogance.

    Q.E.D. – I’m done here

  46. tyler


    I don’t think its the native Californians that have this attitude problem. I know tons of natives that are itching to leave, but their wifes or something of that nature is keeping them here.
    Its usually the transplants that are arrogant.

    Regardless, everyone talks about the whether. But at least to me the only season in Ohio that is unpleasant is the summer due to the humidity (But its really not that bad). But there is a big difference between the local economies of California and Ohio. I decided to move back to CA largely because the economy here, but whenever I tell people that I just moved from PA all they mention is the damn weather. With that said a lot of companies are starting to move out of California and aren’t lowering their wages when they do it.

  47. Joe

    FamilyGuy–how’s it feel to be a bagholder?

    CapWorks–that played out “no more land” argument. Lol. Does it matter whether there’s no more land when 10-15% of the homes are vacant? If I didn’t know any better, I’d think you were Ken from the OC Register blog, thinking OC is a supercity.

  48. tonye

    Oh jeez.. not again.

    Time for the posters to get off those high horses… my place is better than yours and you Californians are so stuck up and what not…. Jeez, Louise. Get over it.

    I think it’s time for the Eagles. I can’t just believe a better song to address this. After all, most Californians came for Ohio and Michigan and Florida and Taiwan and etc….

    “She came from Providence,
    the one in Rhode Island – or Okinawa? 😉
    Where the old world shadows hang
    heavy in the air
    She packed her hopes and dreams
    like a refugee
    Just as her father came across the sea

    She heard about a place people were smiling
    They spoke about the red man’s way,
    and how they loved the land
    And they came from everywhere
    to the Great Divide
    Seeking a place to stand
    or a place to hide.

    Down in the crowded bars,
    out for a good time,
    Can’t wait to tell you all,
    what it’s like up there
    And they called it paradise
    I don’t know why
    Somebody laid the mountains low
    while the town got high.

    Then the chilly winds blew down
    Across the desert
    through the canyons of the coast, to
    the Malibu
    Where the pretty people play,
    hungry for power
    to light their neon way
    and give them things to do.

    Some rich men came and raped the land,
    Nobody caught ’em
    Put up a bunch of ugly boxes, and Jesus,
    people bought ’em
    And they called it paradise
    The place to be
    They watched the hazy sun, sinking in the sea.

    You can leave it all behind
    and sail to Lahaina
    just like the missionaries did, so many years ago
    They even brought a neon sign:”Jesus is coming”
    Brought the white man’s burden down
    Brought the white man’s reign.

    Who will provide the grand design?
    What is yours and what is mine?
    ‘Cause there is no more new frontier
    We have got to make it here
    We satifsy our endless needs and
    justify our bloody deeds,
    in the name of destiny and the name
    of God
    And you can see them there,
    On Sunday morning
    They call it paradise
    I don’t know why
    You call someplace paradise,
    kiss it goodbye”

    You know, sometimes I’ll get on the 405, light up a cigar and just play songs like that. At that point, I do love being in California. Traffic and all.

    Drive up from San Diego on a winter afternoon and enjoy the sunset on the Pacific on Camp Pendleton.

    Ever driven on PCH in a sunny evening? Gone up to Goleta? Stopped for dinner in SLO? Drunk wine in Santa Ynez Valley or Napa?

    Sorry, you guys can keep your Ohios and Private Idahoes. Great, good for you. But the less of you that come into this state the better for those of us who live here.

    Just enjoy your life and enjoy your place in the sun.

    Meanwhile I’m saving my pennies so I can move to Hilo.

  49. Anonymous

    CapitalismWorks, LOL! You’re joking right? These are the same things that were being said to justify the 2005 prices. Sorry if you got ripped off, but it’s time to come down to Earth.

  50. tonye

    What I don’t get is why Jumbos should be dead. I would figure this would be a function of the LTV ratios. If someone with a good paying job and a 740 were to come in with a $700K down payment and needed a $500K loan would they be denied?

    I would suppose such a lender would be a better risk than someone asking for a conforming loan, 20% downpayment.

    The market is in a knee jerk mode.

  51. cruiser

    I think it’s funny how the “no more land” argument is always laughed at by extreme bears, but they don’t provide any good arguments against it. The response is always “no more land, I’ve heard that before, yet prices in California are going down.”

    The “no more land” argument doesn’t mean that prices can’t be inflated above and beyond what people are capable of paying. It does mean that land next to the ocean will always be much more expensive than land just a few miles inland. What is refutable about that?

  52. awgee

    There is no need to argue against it, because it is irrelelvant. It doesn’t matter if “they” aren’t making any more land, because there is enough land to house folks. There are oodles of empty, graded lots growing weeds right now, because no one wants to buy the land that they aren’t making any more of. There is tons of undeveloped land.

  53. awgee

    If jumbos are such a great deal for the lender, why don’t you make the loans. And not having the money to make the loan is a stupid excuse, because the entities which do make the loans don’t have the money either. They borrow it.

  54. NanoWest


    Here is why the no more land arguement is stupid for orange county………..

    Take a look at places where there really is no more land….hong kong, new youk, london. You will notice that these places have tall buildings……30, 40, 50…..stories high. Do you see these types of building in orange county. When land does actually get scarce you will see high rises…….real high rises…..not just the stupid little buildings on Jamboree in Irvine.

  55. lendingmaestro

    whaaattt? I’m not on any high horse and neither did I say that Ohio was better than California. If it were, I’d still be living there instead of busting my ass for 50 hours a week to pay 1785 a month for a 2 bedroom apt.

  56. lendingmaestro

    You’ll have to ask the investment firms why theyll still buy a No-doc 70% LTV loan below 417k for the same cost as a 500K loan with higher credit score, 50% LTV, and full-doc

  57. lendingmaestro

    I can answer my own question…silly I didn’t think it through before I posted it. Anything that is 417k or less and full-doc or stated can be bought by fannie mae or freddie mac. Anything non-conforming is bought by other entities, and right now, whether jumbo or not, they aren’t buying them. Unless you can sell the borrower a very high rate.

  58. Genius

    Wow, be a little more transparent Janet. LOL. Enjoy squatting on that depreciating asset. Make more bad financial decisions, we’re all laughing at you.

    I bet you I come out unscathed regardless of a recession or even depression, even though you weren’t asking about me. My industry and investments will thrive in such times.

    – California does come at a premium, btw, but not at 2x-3x the price of other places.

    – They aren’t making any more land in Tokyo either, and they’ve taken a beating.

    – Why am I arguing on the internet? We’ll both see what happens soon enough.

  59. buster

    CapWorks – Yeah, they’re not making any more land. Looks like they’re not making any more flakey loans or foolish buyers, either. Sorry for your pain, bud (really, I’m not being a wanker).

  60. lendingmaestro

    That’s fine, I never see the majority of my customers in person. My lead source is not soley from foot traffic in the branch.

  61. CapitalismWorks

    No more prime coastal land. Sorry everybody, for full disclosure purposes I bought in 2003, and thought the prices were crazy then. More than comfortably afford my modest mortgage. I am not a housing Bull, and fully expect a 10-15% decline within Orange County over the next 12-24 months. I expect more than that is the Inland Empire. I expect this is not nearly as bearish as most of the people on this board.

    My point was that comparing Irvine to Ohio was like comparing Filet Mignon to Ground Chuck. Hey you can dress both of them up with spices and sauce and a great chef can work magic but in the end I’ll go for the Filet every time. Translation to housing: the meat is the location and spices are the structure. Read: there is a very low correlation between the housing prices in Ohio and housing prices in Irvine.

    If you don’t believe the California (especially Orange County) is an extremely desireable place to you are a fool.

    Now as for the ludicrous predictions on price erosion, I simply can’t understand how a real asset (last time I checked real estate was the primary real asset), would not continue to grow at least at the real rate of inflation. Take that last time you believe housing prices were “fairly valued” or trading at intrinsic value etc. Than compound that price at the prevailing inflation rate since that time until now. I assume most everybody here is familiar with compound interest growth.

    You can use headline CPI. You can use Core PCE Deflator. You can use any inflation measure you would like. The fact is the number will be higher now than any point in the past at which the unit traded a intrinsic value because inflation is nearly always running forward (unless you are Japanese).

    To clarify, for those of you who believe that prices are going to decline to 1990s levels you have to believe that housing prices at some point during that decade that their current instrinsic value is below that starting price plus inflation on the asset.

    Now back to location. There is no more land on the Newport Beach Peninsula. There is no more land in Manhattan Beach. There is essentially no more land with ocean views anywhere between the southern end of OC to thew Northern end of LA. Please don’t tell me about weeded lots, they simply don’t exist. I am sure most of you agree.

    Moving inland from the coast land becomes less valuable, clearly. It is still preferable to be 10 minutes from the coast instead of 30, or 60 or more. The weather is more temperate. It’s nice to go to the beach. That’s where the urban and commerce centers are located. So yes, they are indeed running of land in California, or did ya’all think this was Texas.

  62. tonye

    The problem with land in Tokyo is that every time they reclaim some land from Tokyo Bay, a damn fire breathing Godzilla comes up from the depths of the nicely graded, mixed high density mode zoned land.

    Obviously this is not good for RE values because the darn fire breathing mosnter will trample half of the condos facing the shoreline, smoke the nearby golf courses and then destroy the local rail yards, electric power lines and a couple of thousand Toyotas.

    That’s why they’re NOT making any more land in Tokyo and why Real Estate in Tokyo ain’t going nowhere.

    Besides, Mothra always fights Godzilla in Southern Japan… that’s why land in Osaka does better. “Gojira” never gets a chance to destroy it.


  63. tonye

    You talkin’ to me?

    I think I heard Gojira coming down the 405. I guess he must have been brought up as a baby on a JAL 747 and was nurtured ini Mile Square Park….

    Dang new comers… there goes the existing stock of unsold houses. This should be good for the local RE market, huh? A few thousand houses burnt to a crisp and plenty of room on the sides of the 405, 55 and Santa Ana to build more lanes.

    Oh, no, there goes Costa Mesa-oh… go, go, Godzilla.

  64. CapitalismWorks

    Tokyo too a beating relative to bubble price, yes. We also have a bubble in U.S. Housing currently. The difference is that the Japanese economy slipped in a deflationary spiral which they have not yet fully recovered. I would hope that Bernanke’s Fed, as focused he is on deflation, would stave off Japan type scenario.

  65. FamilyGuy

    Very well said, couldn’t have done it better myself.

    And Joe, with the personal attacks? Please find a way to control yourself there skippy.

    The two major problems I have with the majority of posts on this board are as follows:

    1. Many here seem to “delight” in the financial misfortunes of others. Everyone is cast as an evil flipper when, in fact, there are inumerable circumstances under which someone could find themselves in a bad financial position right now. And I for one do not take pleasure in this pain and anguish. IR – I truly enjoy your analysis, but you are even more culpable for creating this atmosphere.

    2. I consider myself a pragmatist, and much like CapitalismWorks, fully expect declines in OC RE. More along the magnitudes of 10-20%, IN THE AGGREGATE, over the next X number of years. I say X, because I, unlike some on this board, cannot predict the future. (But I consider myself a quick learner, in case anyone is offering.) So accordingly, I would classify many posters on this board to be classic Chicken Littles.

    And regarding the smug OC attitude about there being no beaches in Ohio, please see CapitalismWorks postings. It’s simply a fact and will always play a part in relative prices. I beg of you to deny that.

  66. CapitalismWorks

    I would like to request that IR start including rental rates on similar housing units for comparison purposes. It would certainly go a long way to help identifying intrinsic value.

  67. Genius

    LMAO at tonye 😀

    Maybe on 1-18-08 we’ll see a price rise in NY after it gets destroyed by a big monster.

    Inflation, deflation, stagflation… It all looks pretty bad, but I doubt we’ll end up in Japan’s position. Ben seems reasonable so far, but it’s still way early in the game. What I don’t like is the fact that my foreign investments seem intertwined with the US market. I may as well have just thrown all of my money at the S&P rather than diversifying. Lame.

  68. IrvineRenter

    “Take that last time you believe housing prices were “fairly valued” or trading at intrinsic value etc. Than compound that price at the prevailing inflation rate since that time until now.”

    Take the 1998 price of 23 new dawn of $642,000 and compound that at 3% (which is above the average rate of inflation over the last 9 years,) and you get…

    1998 $642,000
    1999 $661,260
    2000 $681,098
    2001 $701,531
    2002 $722,577
    2003 $744,254
    2004 $766,582
    2005 $789,579
    2006 $813,266
    2007 $837,664

  69. IrvineRenter

    “You will come out unscathed?

    Even with a recession?

    A depression?”


    You are bargaining. Some people here will take pleasure in what is to come, some will not. Some people will be hurt, and some will not. Whether we feel pleasure or pain it will not impact the market.

    The storm is coming. Negotiating with the weather is a fruitless endeavor. Although, it does put you one step closer to full acceptance…

  70. IrvineRenter

    Easier said than done. Even when I post comparables, people disagree and say it isn’t a fair comparison.

    I would note that at the peak the rent to own ratio based on properties being offered both for sale and for rent was at about 300. Lately it has dropped to about 250. It will get down to 160 or less before we bottom.

  71. IrvineRenter

    I think most people outside the industry do not fully comprehend what you are saying. I suspect when the sales volume completely craters over the next 6 months, the impact will be undeniable.

  72. No_Such_Reality


    See. There’s even disagreement on that. 🙂

    Rent stats, are probably one of the few stats that are less reliable than RE Sales stats.

  73. No_Such_Reality

    At present it’s real simple.

    The value of the homes in OC are worth $417,000 + whatever down payment the buyer is willing to put up or less.

  74. awgee

    Exactly, and anytime someone starts whining about the market being wrong or knee jerk, why don’t they put their money where their mouth is? Non-perception of value when value actually exists is an opportunity for profit. I think what folks don’t understand is that it doesn’t matter how valuable a paper looked yesterday, if the market perceives a lack of value tomorrow, that paper is dead. If you came to me with a perfect credit history, ample income to make expected payments, and a 80% LTV for a $500,000 home, and an interest rate of 8% for a loan, I would turn you down. The risk, (of the home being worth less than $400,000 soon), does not compensate for the reward.

  75. Janet

    There you go again IR.

    I rarely take you on, because it’s your blog and I know you will simply cut me off. Real nice, by the way.

    You are, without a doubt, the most all-knowing person I have ever encountered in the blogosphere (or in life in general).

    I have never onced heard you make any allowance for any unkowns.

    How is it you are so certain of any, and everything?

    And why is it that you don’t know how to treat even mildly-opposing views wih anything but disdain and ridicule?

    For the 20th time, I have had big (real) losses on another property recently. And I expect a paper loss on my present home here. For awhile.

    I have zero need to “bargain” with any posters here.

    Last time I checked, they do not pay my mortgage.

  76. ventouxbob


    I like the way you broke down the cost of one of these beasts.
    I watched the cost run up in san diego where i live for the last 10 years once it got really crazy. I did not understand. I kept thinking who can afford This? who makes that much money?
    I did not really know about.
    ARM, neg am & intrest only loans. these are carzy concepts to me. or they were. Im old fashoned I buy stuff and pay it off. then keep it for a while. Im talking about cars. but my intention is to pay off a home also.
    when i buy. if i hav to i will buy less but I will pay it off. rent free mortgage free That would be cool. thats my dream and my Goal.

  77. Genius

    You just became the first Jealous Bitter Owner. Congratulations.

    I’m sorry you lost on your property(s), I really am, but your posts here are mildly retarded at best. If you have no need to “bargain” with the posters here then what is it that brings you here?

    After multiple years of 20+% appreciation, massive forclusures already in the works before even hitting the peak reset month, a tighter fed and the rest of the nation finally pulling the blinders off of their eyes, among other things, I think I can say with CERTAINTY that prices are about to tumble.

  78. SmartMoney

    That’s exactly right, IrvineRenter. There are lots of pros of OC (weather, beaches, great paying work, beautiful shopping centers, the Angels, Disneyland, etc.) and there are just as many serious cons to living here (pollution, terrible congestion/traffic, over crowded tract neighborhoods, irresponsible spending and debt, poorly managed government and home owner associations, superficial and hedonistic people everywhere, etc.). But the point is well taken that you can get a great estimate of proper valuation of property here by tracking back to a healthy market (when there WASN’T over a year’s worth of inventory languishing on the market and unable to sell) and compound inflation back in.

    I would buy one of those houses above for $837,664 right now (though I do think the market may overcorrect a little and dip lower).

  79. tonye

    Based upon what Wall Street did today, this is the same problem in many other places in the country besides OC.

  80. CapitalismWorks

    Now we are getting somewhere. Now let’s continue this line, because I like it.

    1) How does one measure inflation? Do you think CPI is good, core or headline. How about we strip out the dedonic adjustments. For example I don’t think the benefit from my Personal Computer is doubled when my processor speed doubles. Perhaps we could use a more realistic measure of the Cost of living, perhaps the growth in the DJAIG commodity index, which of course captures the prices of a diversified basket of commodities. It certainly seems that everything that I pay for regularly (e.g. gas, milk, coffee, etc) has gotten expensive faster than 3%. In fact it is widely accepted that the real rate of inflation is far higher than reported 3%. I would expect HPA to more closely track the real Cost of living as opposed to ephemeral statistics.

    2) Second what was the rent on a comparable unit in 1998, and how has then rent changed over time.

    3) How does this rental cost compare with the real cost of ownership over the same period? Is there a divergence?

    4) Keep in mind that all things being equal, renters are selling a call option on housing prices to owners, and receiving the premium in the form of lower payments. (read: the owner should expect to pay more than the renter for the same unit).

    5) How much do interest rates have an impact? Obviously low rates help the borrower and do little for the renter. How much of what we are currently encountering in housing can be solved by a significany fall in Fed Funds? (awgee and lendingmaestro, please spare me the discussion of the disconnect between mortgage rates and Fed funds, the effect is lagged but the correlation is extremely high).

    Ever heard of the gamblers fallacy? Think about the electronic board as the roulette table that shows the last 25 numbers that hit. The casinos put this board up so people will look at the numbers and see a pattern (any pattern). Of course, its independent selection but that doesn’t matter. So long as the gambler has the illusion of insight he will gamble more… “of course it going to be double-zero, that number is due!” This fallacy often contributes to an over-reliance (and misunderstanding) of regression to the mean. IR, I think I remember you once posted a chart of long term HPA vs. recent HPA as an example of intrinsic value, however this is simply the gambler’s fallacy.

    More important is the evaluation of the 1) cash flow generated by property, 2) the call option premium earned by the renter (sold to the owner), 3) the value of the owner’s put option on the mortgage which allows him to put back any loan at the lowest possible rate over time 4) the additional values that arise out of home ownership (e.g. control, privacy, pride, etc.)

  81. CapitalismWorks

    Actually I do. Do you have more than $5MM liquid? And can you stand a long lockup period?

  82. CapitalismWorks

    Forgive me, I am not familiar with form of your answer. Are you saying $250/sq.ft monthly rent?!?

  83. CapitalismWorks

    Of course, no on is coming to you, because in fact you don’t have the money or the resources. They are in fact going to lenders all over the country who continue to write Jumbo loans and today’s rate is a mere 7.18%. Sorry awgee, your ask is a little to high for the going bid. In fact this disconnect between bearish sentiment and market clearing prices seems to be rampant on this board.

  84. CapitalismWorks

    Please read the gamblers fallacy comments related to the regression to the mean in HPA. I am sick of hearing this moronic argument. Please.

  85. IrvineRenter

    I have done a whole series of analysis posts discussing all the points you raised above:


    Inflation is probably not the best measure. Growth in rents wages is much better because people make payments out of their wages. The amount they are willing to put toward rent is a direct proxy for ownership. I covered this in detail here:



    Those two posts will cover your points from 1-5.

    You are correct that the cashflow of the property is the key to evaluating its value. Right now, you can’t rent a property and cover even 2/3 of your cost of ownership. IMO, that is a horrible investment.

  86. CapitalismWorks

    Yes, yes, so if price dropped by a third than you would be able to match the rental price of a home correct (or at least roughly correct)?

  87. IrvineRenter

    Yes, I would say 33% off of today’s pricing would put us near rental breakeven. It was about 50% off the peak, but we have declined since then.

  88. MMG

    wow, I go on vacation for 2 weeks, come back and the sentiment is certainly changed, when I used to say 200 per sf, people called me crazy, now we are talking 180 sf?. while I personally think prices will make sense around 200 sf, watching the credit crunch unfold, plus psychological factors and overcorrection–> 180 sf can be had if you find a bargain esp on the gigantic houses. as nanowest said these houses will not go easily at 1.5 mil, thats a whopping 500k annual income. at 500k my criteria is alot different than these macboxes.

  89. CapitalismWorks

    1) Again, how will a drop in rates affect that ratio. At what prevailing mortgage rate equate current prices to equivalent rents?

    2) What is the value of the call option sold by the renter?

    3) What is the value of the put option purchased by the owner?

    Help me out here.

  90. No_Such_Reality

    He means gross rent multiplier. On a monthly basis. Actually that would be 120-160 for me. I tend towards annual: 10-13 gross annual. Which is 120-156.

    Typically, rents run $1-$1.5/sf. for SFRs per month.

    So, at 2500 sf, at 300X it’s $750,000. At 200 it’s $500,000. At 160, $400,000.

  91. IrvineRenter

    1. In the posts I linked to above, I created detailed tables showing the impact of different interest rates. Lower rates make for higher prices, and higher rates make for lower prices. IMO, rates are going up because the risk premium is going to increase during a credit crunch.

    I don’t understand 2 and 3. The only options I see involved are the call options — if you want to look at it that way — purchased by flippers using 100% financing. They got all the upside and passed the ownership risk back on to the banks.

  92. CapitalismWorks

    33% of today’s price would put those units at the top of page at

    1) $1,999,800 goes to 1540000
    2) $1,999,900 goes to 1540000
    3) $2,400,000 goes to 1848000

    Now I guess these are WTF prices, but we can quickly look up the most recent sales comps, and I have…

    I will say they are from late Q1 07, and the prices are lower close to 1.7, 1.65, but even 33% off those levels give us a fair value price closer to $1.3MM

    This i a very very far cry from the ~$850K figure using the bogus CPI growth rate (a bit disingenuous on that one by the way, but is does still help anchor our discussion).

  93. No_Such_Reality

    Well, $1.7 Million is still nearly 3X the late 1990s prices from 1998 and 1999.

    Now I don’t know about you, but in general, houses don’t double in less than ten years, let alone triple.

    I amazed that people can accept 20%+ price growth in a year but such a decline is tin-foil hat worthy.

  94. IrvineRenter

    Tomorrow I have a post coming out with a comparable priced at $1.3M. If is a bit smaller, so some with argue it isn’t a true comp.

    The $837K number is too low, but it was arrived at using the methodology you outlined. I put it in to illustrate how far current pricing is detached from reality.

    Realistically, in a post-credit bubble world, these will be $1,000,000 properties perhaps a bit less if rates move much higher.

  95. No_Such_Reality

    Would that be Treeridge? A measely 3600 sf.

    Last sold for $478,500 in 1997.

    For sale at a minor $1,580,000.

    Yep, Irvine, California, the place to make a 200% return by holding a tract home for a decade.

    Hey, that’s a mere 11.6% return. The same as the stock marke.

  96. CapitalismWorks

    Yes, but why not rerun the number with a more realistic 6% inflation.

    As for the call option the renter sells, it is the call option on HPA. Assuming an owner uses a hedged mortgage (e.g. 30-Year fixed), there cost of housing does not change. The renter on the other hand subject to constant repricing on housing costs ever upward with the inexorable climb of inflation. That is the call option the renter sells, and the owner buys.

    As for housing prices doubling in 10 years. Actually they do just that if they are growing around 7%. I could argue that population centers with solid business districts in prime locations would enjoy just such growth rates. In fact I bet we can find a number of metro areas with just such HPA rates all over the country.

    Let’s take a little history lesson. If you were a buyer in Southern Calfornia in let’s say the early 70s you could purchase a respectable starter home for ~$25K. Less than 10 year later, that same home would have cost you more than 6 times that price at about $150, and in some cases more than $200K. People back then said the same thing as the bears on this board. Unsustainable, it has to go back, houses don’t go up that fast, yotta yotta yotta. In fact they have gone up that fast and stayed there. In fact those buyers in those houses earned a CAGR of 10.7% over the past 29 years. (I am using real numbers by the way).

    Is 10.7% too high? Maybe over the next 29 years it will be closer to 3%. Maybe?

    Keep in mind that for the majority of those 29 years we were living a falling inflation environment. Given that real assets prices are positively correlated to changes and rates of inflation one who naturally expect far more modest growth in HPA over that same period. Additionally, given that inflation is currently at a near all-time low having been vanquished by a combination of credible central bank policy and low wage exports from the third world (both of which are now abating), I could make that case that HPA in a reflationary environment should be greater than in a disinflationary environment.

  97. CapitalismWorks

    Correction on the previous figures. I just realized I multiplied by .77 rather than .66. The adjusted figures should be lower (though still greater than the very low 3%CPI figure).

    Rather than dredging up another example, why don’t we focus tomorrow’s blog on answering the following:

    1) What is the call option the renter sells worth?
    2) What is the correlation of HPA and inflation over different eras?
    3) Are we likely to see higher or lower inflation over the next 10 years (hell what about 20 with the unfunded medicare and social security, and $1.3 Trillion in Chinese reserves alone).
    4) What is the liklihood of a Fed rate cut, and at what point can they effectively bail out the marginal homeborrower facing foreclosure?
    5) Will the legislature act in defence of home owners independent of a Fed rate cut similar to an S&L crisis bail-out?

    IMO the highlighting of examples of “overpriced” sales is tired. Let’s get the meat of the matter, and start figuring out what could prevent a complete disaster in housing. I can guarantee thats what they are doing at the Fed.

  98. Orangeman

    For those who were not here in the early 90’s, I was. I have lived here all my life. All houses dropped in value. I laugh when I hear people say the high end will hold up. The high end always drops last and HARDEST. The more expensive the house the greater percentage the house dropped in value. Also condo’s are toast – they have no land. I would not be surprised if those high rise condo’s dropped 90% in value. Houses peaked in 89-90 and bottomed in 93-94. It took 9 years (98-99) for houses to return to th 89-90 peak.

  99. Sue

    Please, continue to bring the opposing views. I don’t know enough predict the future, but the more viewpoints I can get, the better chance I have to guessing it right.

    Just as a few years ago when all the news was bullish and the bears were ridiculed into silence, that was not good. People couldn’t hear both sides and make up their own minds.

    Similarly, if all the news becomes bearish for a few years and then the bulls are ridiculed into silence, that would not be good either – I need to hear both sides before I can make an informed decision.

  100. ph

    The no more land argument… If everywhere else in the world is growing land than this argument might bring some actual debatable value into the conversation. In regions like Hong Kong, Taipei, Shanghi, Peijing, land is a commodity. Not because they are not growing anymore, but you have an influx of massive amounts of money that was brought into the region and has created much wealth for many individuals. If not, there would be no high rises with prices that the average US millionaire can not even afford. Do I think Irvine is having an massive influx of money? Is Irvine sucking a good amount of the money the world has to offer? I don’t think so. And with the effects of the layoffs from the financial industry and the disappearing mortgage liquidity there will only be less qualified people to sustain the bloated prices many are hoping for.

    As for the well tempered climate in Irvine, unfortunately, Irvine is not the only location in Southern Cal to make that claim. And not every qualified buyer is willing to put all their financial freedom in Irvine just because the weather is nice.

  101. oog

    While we are looking at the rent to own ratio, I like to share my own case with everyone…

    My lease was up in Turtle Rock: 3600 sq ft for $6000 a month. My landlord would not accept a month to month extension but would like me to stay for another one year lease (no rent increase). This started my search for other opportunities in Irvine area.

    My new lease will be 4000 sq ft for $5500 in Northwood gated community. Since we are talking about rent to own ratio, this same house has been on the market for $180,000 for 50 days.

    I gave my landlord the senario before signing the new lease. I probably would have stayed at the same house for the same rent and save the trouble of moving if the Turtle Rock house could be a month to month term. My landlord thought I was looking for a discount and told me he could not lower the rent. He is now looking at giving up 6% commission hoping for a nice tenent like me 🙁

    I am believe I will be ready to look for a deal in December, 2008. The reason for wanting a month to month term because I thought I may be able to pick up a forclosure deal in Shady Canyon or Turtle Ridge later this year! What are your thoughts?

    Thanks for this wonderful blog.

    PS- there are almost no rent increases from ytd…

  102. Sue

    Steep Home-Price Drop Stirs Fears

    Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.

    Consumer-Confidence Index Fell in August
    The consumer confidence index fell to 105.0 in August from a revised 111.9 in July, which was a cyclical high, the private economic research group said. This is the lowest level of confidence since August 2006 and the biggest drop since the aftermath of Hurricane Katrina in September 2005.


    Gimme shelter
    Presidential candidates and the economy

  103. Sad Brad

    It’s funny CapWorks brought up Japan, but failed to make the connection between Japan and how housing prices can decrease (16 years and counting) when there is no more available land. I also have to disagree with CapWorks when it comes to the desire of all the US to move out to the OC, if only they could button up their overalls and get the tires back on the Studebaker (between thunder/snowstorms). Actually, the last 10 years have shown a decrease in US citizens moving to the OC. But, I’m not really shocked about your comments concerning places like Ohio. Most Americans have pride in their town, city, whatever, but show it in less obnoxious ways, more humble ways. But all of those time consuming things like helping elderly neighbors and volunteering and cutting one’s own lawn are impossible for a fellow like you, trapped on the 405 with a sad little hidden feeling in your stomach.

    oh-shoveling for four straight months? Canadian Rockies, maybe. Summer thunderstorms? How dreadful, you know, nature and everything. Four Seasons? pass!

  104. graphrix


    There is no need to be condescending and trite. I have to say that your comment does sound a little bitter. But for the record let’s see how IR has done. Sales volumes tanking: Check. Sales prices dropping: Check. Foreclosures increasing: Check. Credit bubble bursting (you should know better than most since it killed your business): Check. So far that is a pretty good record.

    Now let’s compare that to yours. Well you have been in denial the whole time and that would mean you are and were wrong. Like I ask all the commenters who want to say that IR and the people at IHB are wrong back it up with some facts. Unknowns? Give us some, any or even one.

    Let me help you it isn’t job growth because it has sucked even when you exclude the RE related jobs.

  105. Sue

    Big Fall Reported in 2Q Home Prices
    S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987


    Mortgage Crisis Spreads to High-Cost Real Estate


    Local family looses oldest son in Iraq, fear life insurance money is gone too


    Ex-American Home Mortgage manager going to Prison

  106. wow

    $72,000 a year on rent! Talk about wasteful. Just think of how many houses in Columbus you can buy with that!

  107. graphrix


    Are you going to stick with that name or change it next week? This is your last warning and I know who you are in the forums too. If you like posting here you do it under one name and one name only.

  108. oog

    Sorry about the typo above, this house has been on the market for $1,800,000 for 50 days (not $180,000).
    The rent to own ratio would be near 1:300…

    I was told about a deal in Costa Mesa: Builder asking for $900,000. Someone gave a lowball offer at $600,000. The builder actually gave a counter offer at $650,000. The rental value for this property would be about $2500/month. We decided to pass on the deal for now…

    Any thoughts?

  109. Genius

    WOW CapitalismWorks. ****************. You just compared regression betting to “regression” to validation. ************** Please don’t ever talk to me again. I’m scared your stupidity is contageous.

    (Edited by blog administrator)

    Personal attacks are not welcome. Please stop.

  110. Genius

    I would be happy to hear what you have to say after you take back your analogy. I’m still lmao about that.

    I have about $100k liquid, and I’m sure that’s enough to get me started.

  111. IrvineRenter


    I would just sit tight. The deals will get nothing but better over the next several years.

    Sounds like your previous landlord was a fool and it now paying the price for his foolishness. Looks as if he is asking too much for rent and too much for sale. That is a recipe for owning an empty house.

  112. Trooper

    awgee is right. House values here in California will be dropping by triple digit figures. If I was a lender, I would assume that many would walk away from such a loss and leave me holding the bag. So why would I take that risk ?

  113. CapitalismWorks

    The filet and ground chuck analogy! C’mon I loved that one.

    100K isn’t enough, sorry. As they say, the rich get richer.

  114. CapitalismWorks

    Sorry i didn’t see you comments regarding regression. I was referring to regression to the mean (no multiple regression). Perhaps I should reverting to the mean.

    As for actual regression, I was referring to regressing long term housing growth rates to inflation.

  115. k.o.

    I think that the heat is getting to a lot of people with the number of personal attacks, bitter comments, and defensiveness in the comments. Talk about touching a nerve!

    But at the same time, it keeps me reading, and definitely entertained.

    Thanks for all the links you post here, if I’m ever taking a break at the office, there’s a multitude of things I can read thanks to you.

  116. Larry

    LOL! I have to laugh at some of you Sheeple! Prices at 1990’s levels? Prices per square foot at $180? You folks are the reason why there are booms and busts! Sheeple follow the herd in a “Boom” as well as a “bust”! Overly optimistic in a boom and overly pessimistic in a bust. They are the ones saying things like “This is a new paradigm” during a boom and “This market will crash and BURN” during a bust.

    This real estate rally started here in Orange County in 1996…that is when my wife and I bought our Portola Hills house for $255k….by 2002 when we refinanced it appraised for $550k…that my friends is a 100% increase. Most would call that a “boom”! This is when long term interest rates first dropped back to the 6% range (followed by 2003-2005 when they were in the 5’s). This was also before the great wave of “exotic” mortgages began to be rolled out and Sub-Prime mortgages were still in the 10% range. It was starting in 2003-04 that the great herd of “Sheeple” jumped on the real estate merry-go-round which happened to coincide with the now woefull decision to loosen lending standards allowing for 100% financing on subprime mortgages (New Century and Encore) and “No-Doc” loans (or, “Fog-a-mirror-get-$750k-mortgage” loans). This was followed by the brief starburst of activity in 2005-06 for the “No money down” crowd of sheeple who are now by and large the folks defaulting on their “underwater” properties! They were sheeple. What happens to sheep? They get SHEARED! They jump in after everyone else has made money and they DON’T!!! If this is YOU, then you are one of the “Sheeple”! Currently, we are in a (Say it with me) “M.A.R.K.E.T. C.O.R.R.E.C.T.I.O.N.” and the people getting corrected are everyone selling/losing a house in the next few years. If you don’t need to move….DON’T! If you can make your mortgage payments….MAKE THEM! It’s pretty simple really! Prices will NEVER go back to 1990’s levels….NEVER!

    Quick story: My sister bought a home in OC in 1992 with her husband. By 1995 prices had dropped 20% (which for her was from $210k to about $160k) and her husband had lost his job (as nearly 1 million did in S. Cal during the 90’s home price depreciation era). She made enough to pay the mortgage but their BRILLIANT decision was to walk away…foreclosure came next, along with Ch. 7 bankruptcy, and it was 8 years before they bought another home. Had she waited and continued paying the mortgage which she could afford, her husband got another job within 6 months, prices came back to 1992 levels in her neighborhood by 1999, and her credit wouldn’t have been ruined for several years….BRILLIANT MOVE SIS!!!

    The moral? Sheeple are sheeple because of fear…fear of being left behind by everyone else and fear of the future. Fear prevents good judgement and prevents almost all sheeple from ever acheiving TRUE success. Just as “Hope is not a plan”, “Fear is not analysis”! Don’t be part of the “Sheeple” herd! Think about this market and realize that prices will definitely go down, it is because of interest rate and market concerns along with credit tightening (back to 2002 standardds by my view) and affordibility issues relating to that…nothing else. Until you and your neighbors lose their jobs en masse and can’t afford ANY payment, worry but don’t be so ridiculous about it!

  117. Orangeman

    Never say Never.

    Depends on what type of Correction are we having.
    The Stock market corrected earlier this decade – I guess if you bought the DOW or S&P and held you would be saying everthing is great. On the other hand you would still be hating life it you bought Nasdaq at the top – still over 2000 points below its top.
    So what type of housing correction are we having. If you think prices will hold at last support (2003) then I suspect you also think we are not headed toward a recession.
    Next level of support is the previous wave high (98-99) prices.
    Next support after that would be a trend line touching all previous housing lows. At this point would be about 1.8-2.0 times 93-95 lows.
    For your sisters house that would be about $290-320k. Of course if we have a depression then even this trend line won’t hold.

    IMHO – I don’t think we will have a depression, but I think there is some danger of one – I’m somewhat suspicious of having a fed chairman who’s life passion is understanding why the great depression occured, and how it could have been avoided. Bernarke has written extensively on what the Fed did wrong. If you read his comments you will realize that the Fed cutting the discount window had nothing to do with saving the stock market and everthing to do with saving a Bank.

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