Christmas In Killarney

The holly green, the ivy green
The prettiest picture you’ve ever seen
Is Christmas in Killarney
With all of the folks at home

It’s nice, you know, to kiss your beau
While cuddling under the mistletoe
And Santa Claus you know, of course
Is one of the boys from home

The door is always open
The neighbors pay a call
And Father John before he’s gone
Will bless the house and all

How grand it feels to click your heels
And join in the fun of the jigs and reels
I’m handing you no blarney
The likes you’ve never known
Is Christmas in Killarney
With all of the folks at home

Christmas In Killarney — Bing Crosby



Looking for something interesting to read over the holiday weekend? Try this:

Historic Turning Points in Real Estate

As you might imagine, I am a fan of Robert Shiller. The PDF link above is to his latest paper.


Exerpts The real estate market changed its direction markedly around 1990, from a booming market to a market in the doldrums for the better part of a decade, and then the market started accelerating upwards at increasing rates. The national home price boom since the late 1990s appears unprecedented in US history, although the “baby boom” in housing of the late 1940s and early 1950s comes close, and there have been some very large local booms. The rate of US housing appreciation slowed after 2005, and, to some eyes at least, it would appear just sometime after mid 2006, we are entering a new regime of downward price changes.

It would seem that demand for housing services should be relatively inelastic in the short run, especially with regard to the number of units (rather than their size). Most families want just one house. The decision to own two or more houses, or the decision to break up the family to spread out over more houses, is not made very often—most commonly only at important life turning points or job changes. It is difficult for builders to transform two small housing units into one larger unit, or one large unit into two small housing units, without great costs. Hence, even small changes in the number of housing units might be expected to cause major short-run changes in home prices. However, home prices do seem to show enormous momentum, and sudden changes in the market seem rare. In a speculative market, a sudden change in some component of supply or demand may produce little price change if people think that the change is temporary, and so another component, a speculative component, offsets the sudden change. But the speculative component is inherently psychological, potentially unstable, and subject to contagion and herd behavior. People may change their mind about whether a change in price is only temporary or is the beginning of a new trend. They are especially likely to change their mind because we have professional marketers whose job is to get some kind of social response moving, and, when they do find some advertising pitch that resonates with investors, they will run it for all it is worth.

Analysis of past booms seems to indicate that investors in both the stock market and the housing market seem often not to understand the supply response to price increases. These are normal intelligent people, why would they repeatedly make the same mistake again and again? There seems to be what I will call a uniqueness bias, a tendency for investors to overestimate how unique an investment they favor is, failing to take account of the inevitable supply response to high prices. The uniqueness bias is reflected in quite a number of anomalies of human judgment that psychologists have documented, including the “representativeness heuristic,” “overconfidence,” “wishful-thinking bias,” “spotlight effect” and “self-esteem bias.” The uniqueness bias is related to failure to imagine how many possible competitors there are, a tendency to think highly of oneself and one’s associates and an association of investments with one’s sense of personal identity with an identified business model.

The uniqueness bias has its effect in the housing market when people imagine that the city they live in is unusually attractive, and increasingly so. They fail to understand that new such cities can be constructed in what are today cornfields or forests. In their 1990 paper, “The Baby Boom, The Baby Bust and the Housing Market,” N. Gregory Mankiw and David Weil argued that the housing market would soon crash as the baby boomers retired, neglecting to consider how supply would adjust to any such change in demand. In their 2004 paper “Superstar Cities,” Joseph Gyourko, Christopher Mayer and Todd Sinai argue for extrapolating some long-standing trends in major US cities, arguing that these superstars will only grow in status, assuming implicitly that there can be no new supply of the services those cities provide.

These narrative accounts do not prove anything, and we do not know that the change in thinking that appears to accompany ends of booms was in any sense the cause of the end of the boom. The change in thinking cannot be measured accurately, as we have only media accounts that suggest at it, that represent some journalists’ impressions that may not be replicable. Some economists would therefore be inclined to exclude any such effects from the economic model of the boom, and to try to explain the change in terms of some more well-measured economic effects.

But, if one considers that the prices paid for houses, as for any other speculative investments, surely reflects people’s willingness to pay, then the change in attitudes must have had an impact on prices. Just because we cannot precisely quantify and prove such an effect does not mean we should revert back to a null hypothesis that the changing psychology has no effect on home prices.

The best guess is that ends of housing booms have multiple causes, and cannot generally be interpreted as just an unraveling of boom psychology. Still a rising sense of enthusiasm and excitement for the investments, followed by a sense of betrayal and embarrassment at having fallen for the boom and underestimating the supply response to the boom, played a significant, if unquantifiable, role in the booms and their subsequent break.

56 thoughts on “Christmas In Killarney

  1. former_irvine_resident

    What I thought was interesting is this comment regarding the latest bubble…

    The phase of sense of betrayal and embarrassment for participating in the boom does not appear to have set in, at least yet.

    To Shiller at least, people as a whole have not yet come to their senses about this bubble. So in essence ‘we’ are still in a state of denial. I wonder how much longer it will take until the embarrassment set in? People sure can be prideful…

  2. AZDavidPhx

    Very well written and interesting article.

    It definitely explains a lot of the “just because” logic that people have been relying on to justify your house prices.

    It removes some of the clothes from the ‘Sacred Ground’ argument as well.

    I was thinking of some of yesterday’s posts where Irvine residents were coming on here to pontificate the sacred land by posting how beautiful the mountain outside looked with its snow on top and how warm and cuddly it made them feel; a clear example of this author’s “self-esteem bias” and “representative heuristic”.

    We definitely tend to over-estimate when our self-esteem is on the line. Very well said.

    Thanks for posting that.

  3. Mr Vincent

    I think the “sense of embarrassment” usually shows up around the same time that the supplemental property tax bill shows up.

    Many previous renters who paid these bloated prices to own did not take into account the “other” costs of owning a home. In fact, I see many fine folks on the message boards who have only been renters that still don’t understand how much it truly costs to own a home.

    I don’t blame them for not understanding that. One needs to own their own home before they become believers.

  4. Mr Vincent

    “The uniqueness bias has its effect in the housing market when people imagine that the city they live in is unusually attractive, and increasingly so.”

    LOL! So true!

    We all become fanboys of where we live or anything the we paid good money for.

  5. mark

    Agreed. People feel good when they see others wanting what they have. The envy of others increases your pride. And if you property value is declining, you’re forced to face the fact that the reverse is occurring.

  6. mark

    I know tone is difficult to convey in writing, but my post yesterday was done tongue-in-cheek. Too many commenters speak in platitudes, so I thought it would be fun to share what a beautiful day it was in Irvine. I failed to mention that the reason it was so extraordinary is because for 200+ days of the year you can’t see most of the close mountain ranges due to smog… Not pretty…

  7. former_irvine_resident

    People also naturally develop ‘affections’ for where they live since they need to justify their living there in the first place. How many people do you know who says that the place they live is horrible?

  8. former_irvine_resident

    Good point about the supplemental tax bill. The ARM reset is another OMG moment for people who have gotten in way over their heads.

  9. mark

    There’s a big push right now in a couple Congressional bills to require impounding (escrow accounts) of taxes and insurance for less qualified borrowers.

    Maybe lenders should be required in the GFE (Good Faith Estimate) to illustrate not just the cost of the loan, but the cost of the home.

    I also like Suze Orman’s advice that you “play house” for a few months before you decide to purchase. i.e. Pay rent and save the additional ownership cost so that you can feel the pinch of ownership. If we get back to 20% downpayment requirements as IR suggests, then people are forced to “play house” for years.

  10. mark

    I actually know a few people who really dislike where they live, but that’s because they’re living in areas “below their means” while they save cash to purchase in their desired area in a year or two.

  11. SacRenter

    Amen to the “other” costs statement! Even on this wonderful board those costs are rarely acknowledged and they are NEVER mentioned by the mobs trying to get me to buy a house.

    After two years of owning a house back east I can say that by FAR the greatest benefit I find of renting is that if something breaks I simply call the property management company.

    New roofs aren’t cheap, neither are new furnaces, hot water heaters, and air conditioners. No matter how diligent we were in putting a little aside to cover unforeseen circumstances we never seemed to have enough. Now that we rent my budget is fixed. The money we set aside takes us on adventures now. I’m not convinced I’ll ever want to go swimming in the pool of home ownership again.

    Thanks for bringing that up, Mr Vincent!

  12. mark

    Agreed again. But if I may, what frustrates me about renting, is getting that annual lease offer from The Irvine Co. attempting to increase my rent 7%+. Spending time negotiating my increase down to 3-5% was particularly annoying seeing all the vacant units, thinking the whole time that my rent should be decreasing.

  13. gec518

    How did I know that AZDavid would jump all over the uniqueness bias. Sure, that explains why Irvine is more expensive. The uniqueness bias exists everywhere and it is just as prevalent in the Midwest where I grew up. You could put the exact same condo from yesterday’s post in Naperville IL and fetch over $300,000. And people from Naperville would argue to justify that, good schools, low crime (for Chicago area), highly educated, blah, blah, blah. At least in Irvine there is some tangible reason to pay a little more, beach, mountains, weather, etc. etc. etc.

  14. AZDavidPhx

    “At least in Irvine there is some tangible reason to pay a little more”

    Sip sip sip. Mmmmmm. Good.

  15. irvinesinglemom

    Mark – I just renewed my IAC lease and they auomatically reduced my rent by 2% since this will be my 3rd year renting here. Next year, they’ll automatically reduce my rent another 3%. This agreement was a standard written part of my lease agreement when I first leased this apt. It’s not specific to my apartment community, apparently, although I’m not sure why yours doesn’t have the same thing.

  16. ElricSeven

    All that being said, I’ve lived a lot of places, and S. Calif. is pretty awesome. Really, you can’t find this mix of weather, coastline, natural beauty and range of entertainment/sporting activities anywhere else in the U.S. Sure there are some drawbacks, mostly a testament to how nice it is as a result of overcrowding. I do believe there is a premium paid to live here because it’s so nice. Just that premium has gotten out of control lately.

  17. mark

    I read a recent study about how humans can adapt to most anything. In particular, how humans can survive in intolerably cruel climates. Apparently our bodies react to extremely hot temps and physically change to cope.

    This blog really boils down to values. How much any individual values a piece of property v. how much an entire population does. For me, I think you’d have to double my salary to consider a move to AZ. And then it’d just be “temporary” while I piled-up cash. Of course, like all people, I’d probably grow to enjoy living there; it will be just nearly impossible to get me there.

  18. caliguy2699

    The “everyone wants to live here” argument has gotten on my nerves. Yes, I’m from here but I’ve also lived in other parts of the country. *Gasp* it’s not that bad!

    Of course, there are some excellent reasons to live here. But, I’m a believer that anyone can be happy virtually anywhere – it’s the person and their family that creates happiness – not just the location of where you live.

  19. NanoWest

    Over the years I’ve learned that the cost of maintenance for a typical home, 3bed/3ba, is about $700.00 per month. That is what it costs to keep up the landscaping, paint, replace appliances etc. This is an average cost and some years it is a little more and some a little less.

    This cost is never communicated by those advocating the purchase of a home. When you add this cost to the equation at this time, purchasing a home is just plane foolish from a financial point of view. Of course, purchasing to establish a home no matter what the financial cost is good justification for purchasing.

  20. gec518

    This blog has been a great find for me. I moved here 2004 as the market was skyrocketing. I made a conscious choice to move here after many stops due to my career. I’ve lived in the Midwest, Northeast, Southeast and travelled extensively to nearly every other part of the US. I haven’t experienced anywhere like Irvine along the way. Other areas of SoCal have the weather and terrain, but the overall impact of The Irvine Company permeates everything. Their masterplan has been very effective at attracting all the right elements to make up an ideal community. Plus, the amount upkeep they perform on all the infrastructure, shopping centers, etc., is simply amazing. I doubt I would understand it fully without living here. But now that I do it would be nearly impossible to get me to leave. If that is drinking the kool aid then so be it. You can say all you want about Irvine being overvalued but isn’t everywhere? Last I heard the bubble happened everywhere, not just Irvine. This blog does a great job of tracking the local trends. I’m looking forward to seeing some more declines so I can become a happy kool aid drinking biased Irvine property owner.

  21. tealeaf

    We all become fanboys of where we live or anything the we paid good money for.

    Perfect example of this is seeing all the uber-positive reviews on Edmunds or msn autos of the new cars folks just bought. Most every new car is an avg 9/10.

    Of course you LOVE that Ford Taurus! You obviously picked it amongst the hundreds of other options out there and committed to 5+ years of payments!

  22. Mike

    Apartment living sucks! I lived in Villa de Coronado or whatever the cheesy name of that place was, for a year and it sucked. I felt like a bee in a hive. I don’t think living in a apartment complex is normal. I think it goes against what our founding fathers came to this country for. You just don’t have that sense of freedom owning some land and a house. Owning your own home is the way to go. It’s not that much more money every month. My apartment was $1725.00. My mortgage was $2,000.

  23. AZDavidPhx

    The summers are annoying for sure. It’s the one thing I do not like about living here.

    However, I am accustomed to it.

    For me, it’s the opposite!

    Even if you doubled my salary, you could not get me to move to CA just because of the high cost of living, hoards of people, etc.

    I guess we all just get comfy wherever we are.

  24. movingaround

    I grew up in So. Ca and I have also lived in the absolute worst weather climate this country has to offer. Fact is that the people living in the worst weather ALSO thought that everyone wanted to come there – and they had some excellentn reasons for thinking that – quiet, no traffic at all, great schools, skiiing all winter long only a few miles from your house – and on and on. There is uniqueness to every single place and there are reasons to love and hate every place. There are tons of people in this country that could never tolerate the amount of traffic I just endured to drive 5 miles – yet, I do agree with all the good things said about Irvine too – balance is the key.

  25. George8


    So have you been renting in Irvine since 2004? What kind of property, price, and time frame that you may become an owner instead of renter?

    Congratulations on finding your final destination (perhaps?) – Irvine.

  26. Fish Head

    Having lived and/or worked in most parts of this country (I’m in the service), I can say that there are remarkable differences between the different regions. Culture, environment, economy, geography and history really do shape each part. During my time in each region, I’ve tried very hard to enjoy the best that it offers. Saltwater fishing in Florida, Crawfish boils on th Gulf Coast, catching a great band in Manhattan, hiking a mountain in Alaska, riding a mountain bike in San Diego – they’re all good.

    I’m just glad that there are different types of people with different tastes so that not everyone wants to live next to me. You want to pay $ 1 M for a 1500 sqft house in Irvine – great. Wanna pay $ 150 K for a condo in AZ – fine. Being able to make those choices is what makes this country and society truly great. From my experiences, I believe that the local market and economy are what drive local house prices (within the realm of the national economy and drivers). SoCal is way too expensive but that’s obviously changing. How much it will change is a great topic of discussion but I believe that the local forces will be the ones that determine it.

    As for me, I’m currently stationed in the Pacific NW. My next duty station is in SoCal (not a coincidence, I was stationed there in 2000-2002 and get back regularly). My wife is actually in South OC picking out a rental SFR today. Its sunny and warm there. Here, its 40 and raining outside. Though we’ve enjoyed the NW, you can probably guess how many times a day I’m bugging our detailer to get the move set-up.

    I plan to buy a SFR in SoCal in the next 1-4 years, depending on who on this blog is correct. I’m big into getting value for my money so I thank you all for your input and information. You’re all invited to the house warming party …


  27. tealeaf

    Considering how much time you spend on this blog, it’s as though you’re being “paid” to be here — at least in opportunity cost.

  28. sunsetbeachguy

    If owning gives you freedom, just try to take a job in NYC and sell or rent (neg cashflow) here.

    Owning is a ball and chain, sometimes useful sometimes not.


    Yikes, $84,000 over 10 years! I don’t think I have spent that much over a 50 year lifetime of owning houses. Maybe because I do all the maint myself? Not the new roofs but certainly the new bedroom additions with a new roof. That includes digging the foundation, buliding forms, pouring the concrete, framing, siding, sheetrock, electical, plumbing, hanging doors and windows and paint and texture. Roofs are the hardest due to the heat even on a cool day. Yuck!
    If you can’t do the work yourself then maybe $700 per month is a good number. I never had the cash to do that so I had to learn how to do it myself.
    Friends of mine who made a ton of money in rentals did all the work themselves and at peak they had 82 units.
    One does have to understand the costs of owning but there are actions that can be taken to minimize those costs. I think it is sometimes called sweat equity.

  30. lawyerliz

    I liked my Tauri; went 204,000 and 237000 miles respectively, with lots of neglect. But I am almost totally indifferent to cars, and could care less to discuss them.

  31. lawyerliz

    AZ is doubtless here for the same reason I am–no equivalent blogs in our parts of the country. SoCal may not be unique, but IHB is.

    There are people from Seattle, people from Minnesota, people from Chicago. IR needs to clone himself and more clones elsewhere!

  32. NanoWest

    Yea, I know it sounds like a lot of money……just my experience, maybe it is because my kids used to flush money down the toilet…….

  33. awgee

    Maybe it is you have a sense of feedom owing. Why can not one rent a home with a yard or land or whatever?

  34. tealeaf

    LawyerLiz: there is a level of ignorance in the AZ posts that has frustrated folks from outside this area.

    I personally appreciate the analogies of outside posters’ own towns, but not the feigned authority of an area that is completely foreign.

  35. buster

    This is EXACTLY what causes so many novice real estate investors (or novice investors of any type) to get slaughtered.

    A good investor does so without pride or passion. They make stark, analytical decisions. They buy low, sell high and dump the dogs even if it means taking a loss. A real investor knows that he won’t win all the time and taking a loss is part of the price of investing.

    Novice investors fall in love with their investment (stock, real estate, whatever) and refuse to sell at a loss. Thus, they ride a depreciating asset to the basement or, just as bad, hold onto a non-performing asset until the price recovers. That can be years of capital tied up in a non-performing asset; capital that could be employed making the investor money.

    So, all these newbies will get slaughtered. Even if they hold for the ten years it takes for inflation to recover their purchase price, they still got slaughtered because they got killed by holding costs and inflation. If they were smart, they would sell now, take their losses and put their money into something productive.

  36. lawyerliz

    Sometimes we take good care of our house, and sometimes we just let it rot for a while. Depends on money and laziness situation. I don’t think we spend that much, but then, a new roof is quite expensive. haven’t had to do that. Hurricane Andrew bought us a new roof, and then house we bought on space coast had a new roof, so no roofing experiences that we had to pay for, ummm, I think ever.

  37. AZDavidPhx

    tealeaf –

    This is a great blog.

    The person who runs it puts together great summaries each day that I find very interesting.

    Furthermore, you people are nuts for the spending the kind of money that you do on your housing; it’s entertaining to watch.

    I also enjoy reading all of your comments; even yours.

  38. Alan

    The problem with house maintenace is that it’s not a regular bill you can count on but teases you with several good months of low cost, then whamo, disaster strikes… water heater leaks, you have to replace the disposal, power outlets fail, sprinklers break, trees need trimming, then the huge ones roof. That’s why is absurd that people think they can budget more than 28% of gross just to payments, there’s no way they can maintain the beast if all their 40% of their income goes to finance the original purchase.

  39. Chris_Silicon_Valley

    Not me. I had to buy in ’05 because my wifey wouldn’t have a kid while living in an apartment here in Silly-con Valley. I grew up here but hated this place but had to stay because of….agasp!, the damn 6-figure job. Had to convince her to sell during the summer because I foresaw the down market and took a lot of convincing (plus the fact that we’re FINALLY leaving this crap cesspool that they called the high tech vanguard/mecca of the world)….but in the end I still lose a few grand but it beats not being able to sell at all nowadays.

    Mr. Vincent, your second part might be true but your first part, “We all become fanboys of where we *live*” is definitely not completely true.

    Merry Xmas to you all.

  40. Chris_Silicon_Valley

    I’m here (not that anyone cares) because I used to live, bought and sold a few properties in Irvine. I appreciate what IR is doing wrt this blog and I too feel that Irvine housing price is getting out of whack. However, comparing with the Bay Area, Irvine’s current price is closer to reasonable than you think. With its nice school district (yes, CA sucks in terms of comparing with national educational standard but, hey, Irvine school district is one of the best in CA….oh well), cookie-cutter master planned city (try living in SF for those that hated cookie-cutter city), proximity to all the fun places (yes, traffic, but that’s what you get in metro area) and, agasp!!!, LA without actually live in LA, what else can you ask for? Anaheim? Nah….I’ll pass.

    Call me elitist but I’d rather that Irvine’s housing price is not comparable to either Anaheim or Santa Ana’s housing price but higher. How high? Nah, let’s not get into racist comments here.

    Perhaps Irvine’s current price is totally nuts for Midwestern folks. Oh well, to each his own and….whatever floats your yacht.

  41. tealeaf

    thanks for the remarks. my hope is that you will at least appreciate there is a bit of diversity to the areas discussed here (as said previously, 14 zip codes et al). some are absolute garbage. others do command a premium over the others. whatever the case, as you know, there is a pecking order of value — this isn’t cuba. tonye can fill you in on the rest.

  42. gec518

    So have you been renting in Irvine since 2004? What kind of property, price, and time frame that you may become an owner instead of renter?

    Congratulations on finding your final destination (perhaps?) – Irvine.

    We’ve been renting (IAC) since we moved here in 04. Something like Cortile in Woodbury or Sage in Quail Hill would be perfect for us, but not at over $500,000. Thanks to this blog I can stay well informed and jump in at the right time, preferably in about 2 years. Hopefully by then something like Cortile or Sage will be available for under $400,000, closer to $300,000 would be even better.

  43. zoiks

    Did you folks see that OC jobs declined by 8.2% or 8,6%, according to the LA Times? That’s fricking huge. I’m wondering if it was a typo. It mentioned specifically that it was largely due to the financial services (i.e. subprime) sector, though I imagine construction and realtors had a hand in the decline. (Looks to me like furniture is getting ready to blow up as well.)

  44. AZDavidPhx

    Certainly – I agree with you on that Tealeaf. People will always pay more to live in the nicer neighborhoods. I pay more to live in Scottsdale just because it is nicer than most of the rest of the Phoenix metro area. I’m not saying that we should adopt a Cuban style system.

    The thing that is special about California is that your prices have influence on the rest of the country.

    When people in CA keep taking out huge loans to buy each others houses and eventually trade it all in to buy a house in AZ (or almost anyplace else) – it impacts those outside markets.

    I’ll be very happy when your market comes back down to normal because it will indicate that the market here is stabilizing as well. With the speculators leaving the game and the house returning to being a “home” rather than a savings account and the “creative financing” going away – it will be good for everyone.

    We had a huge influx of out-of-state speculators snapping up properties in AZ because of their relative “cheaper” prices. It is now very difficult for people who actually work here to afford a home because prices were driven up to CA (pre-boom) levels without the supporting incomes.

    It is nice to see the Phoenix flippers getting their humble pie though.

  45. tealeaf

    It’s not so surprising. Von Karman is ‘subprime alley’ and the losses in the feeder businesses (title, furniture, notary, etc) are substantial.

    I work for a healthcare-related small business (~400 employees) and this past week we had 7 requests for emergency loans. We normally get 1-2 per QUARTER. Every one of the requests was related to foreclosure – the spouse lost a job and the home is at risk.

    Sad in the micro, but healthy in the macro.

  46. crackpot

    Re renting: what do you do if you have pets? I think it would be hard to rent if one has a couple of cats, or a dog. People here talk about how great it is to sell one’s house and take up renting, but do any of you who have done this have long-time animal companions?

  47. ipoplaya

    I’ll sell ya my place gec when I’m ready to move up. I have one of the early versions of the Cal Pac detached 4-pack condos in West Irvine. I got lucky and scored one that actually isn’t in a quad. It faces to a single-loaded firelane / street that you can’t park on. It’s nice not having the common auto courts and it’s great to have a interior single-load street with eight houses for the kids to play on.

  48. SoCalSports

    AZDavidPhx – I live in Irvine and I’m on your side. There is nothing special or magical about Irvine. There are many things I like and many things I dislike about this city, just like any other city. The people that say otherwise have some kind of vested interest in Irvine, and are not being objective. It’s natural to be defensive about something that you have some cash invested in. But getting emotional about an investment can cloud your judgement when things start to go bad, like the current RE environment. Look at the 10 year history of the houses featured on this blog. Irvine’s property values follow the same trends as any other city. Property values are going to revert back to historical norm just like everywhere else.

  49. tealeaf

    We don’t have any pets, but on our recent search for a rental, I was cognizant as we plan to get a dog very soon. It essentially cuts the prospects down by about half. IAC allows pets (with a deposit and slight monthly upcharge to discourage it), and many landlords allow them as well. Just adjust your search criteria – there are plenty of places that allow pets.

Comments are closed.