Northwood Pointe Cottages

Beyond the horizon of the place we lived when we were young

In a world of magnets and miracles

Our thoughts strayed constantly and without boundary

The ringing of the division bell had begin

Along the long road and on down the causeway

Do they still meet there by the cut

Lanes EndThe grass was greener

The light was brighter

With friends surrounded

The night of wonder

Encumbered forever by desire and ambition

Theres a hunger still unsatisfied

Our weary eyes still stray to the horizon

Though down this road we’ve been so many times

High Hopes — Pink Floyd

Are those who bought during the rally encumbered forever by desire and ambition? Will their hunger go unsatisfied? Our market has gone down this road many times, but each time the grass is greener and the light is brighter. Like moths to the flame, the greedy get consumed by the market’s hunger. In our long night of wonder many will long for the simplicity of youth.



Today’s rental price comparison is not for the same property, but it is for two identical properties in the Northwood Pointe village of Lanes End. The for-sale property is an REO we profiled on a number of occasions with the most recent being The English Garden ** Final Update **. The bank has relisted the property at a market price designed to move the house. As we will see, it is still overpriced relative to value, but it is a significant step forward for market affordability.

Paisley Place Front 54 Paisley Place

Asking Price: $490,000


Asking Rent: $2,350

Gross Rent Multiplier: 208

Rent Finance Value: $371,795

Income Requirement: $122,500

Downpayment Needed: $98,000

Purchase Price: $506,429


Purchase Date: 11/9/2007

For Sale Address: 54 Paisley Place, Irvine, CA 92620

Rental Address: 212 Garden Gate Lane, Irvine, CA 92620

Beds: 2

Baths: 2

Sq. Ft.: 1,050

$/Sq. Ft.: $467Rollback

Lot Size: –

Type: Single Family Residence

Style: Other

Year Built: 1998

Stories: Two LevelsRental

View(s): Hills

Area: Northwood

County: Orange

MLS#: S513519

Status: Active

On Redfin: 44 days

From Redfin, “Quiet interior location in Northwood Pointe Cottage in Lanes End. Charming curb appeal! Cozy fireplace with attached garage. Walk to Blue Ribbon Schools, Association pool, tennis and parks.”



If the rental rate is appropriate for this “median” home then the market here is only overvalued by about $120,000 or 30%. That is real progress from the peak price paid for this unit which was about 60% to 70% over rental value. Of course, that means we are only at the halfway point for the correction in this neighborhood, but we are getting there…

163 thoughts on “Northwood Pointe Cottages

  1. George8

    1050 sf in two levels creates small rooms. I’d have hard time buying or renting at the asking price or rent.

  2. NoWow!way

    This way of valuing homes makes the most sense.

    I wonder what the impact on the overall market will be if all these people who are losing their homes are basically unable to repurchase for at least 7 years – like a BK will do to your credit.

    Will people who did shortsales and foreclosurs be precluded from buying into RE again for a certain amount of time?

  3. NoWow!way

    Quail Hill and the newer hi-impact housing at Tustin Field had units with basically 3 stories.

    I think the stairs and little landings were included in the square footage. People didn’t used to question those things before, if it appeared to add a couple hundred more feet to the specs.

  4. zornundo

    Seeing stuff like this makes my grateful I don’t live in SoCal. Not to knock on SoCal by any means, but I love my beloved Tennessee. It is very interesting to note that I found a property nearby for sale that had a closing on it the first week of December 2007 and is now for sale as a REO. I think it’s a first payment default. The good thing is that the property is now listed a good 17% off that sales price. The December 2007 sales price seemed ok, but this new price is unbelievable.

    So I’m looking at some FHA loans, cuz I don’t have much of a down payment, but our household has a good income and no other debt. The interest rates are crazy! Our bank website is quoting a 15-year fixed at 5%!!

    So I’m wondering that because the bank is listing this property so soon after taking possession, that they would be amenable to taking offers under the asking price? Oh, and it’s $63/sq ft, with a full, but unfinished, basement.

    Somebody will just have to explain why the home in the listing is worth the extra $400/sq ft! 😛

  5. ipoplaya

    Based on current rent values and a 160 GRM, my home was around 38-39% over-valued at its peak price. Market for my place has already declined 18, maybe 19%, based off recently sales, so it feels like we are indeed near a midpoint in this correction.

  6. Trooper

    Speaking of “1st payment default”…. I’ve got a theory….

    I’m wondering if some sort of black market hasn’t been created to produce straw buyers, you know…the ones that buy a house for full (or over) asking, then don’t pay one dime towards the mortgage.

    If I was an unethical effed seller, I might just kick someone back 25K to buy my depreciating asset for full price. I’m guessing if it’s someone with decent credit (straw buyer) ….25K might be a good payout to them to compensate for the dented FICO.

    So it would be a “win-win”, I would be able to sell my house…most likely for profit. Pocket $$ that would be disappearing daily if it remained on the market….the straw buyer gets 25K….the realtard and broker make their $$….and only the bank is the bag holder (and sticking it to “The Man” is probably not as difficult to think about…)

    Anyone have any thoughts on this ? Are the underwriters considering this? I’m guessing it’s already happening.

  7. ipoplaya

    It’s worth that much more because someone can and will pay that much… Well, maybe not that much, but I suspect someone will snap up this REO in fairly short order. It’s called demand, it’s extremely local, and it’s almost worthless to even discuss.

    If I were in the market for a home, I sure wouldn’t buy one in TN and commute 12 hours per day so I could own for $63 per sf. Additionally, if I could afford to continue to live near family and friends here is sunny So Cal, I would never consider quitting my very well-paying job and moving my entire family to TN to own for $63 per sf. Get it? My demand doesn’t influence your prices and vice versa.

    Now if I was struggling to afford to live in So Cal, I’d sure as heck consider TN. I scanned job postings in Memphis and it appears the salaries for experienced accounting and finance management folk, such as myself, are only 20-25% less than they are here. Teachers, like my wife, make 25-30% less. I saw some nice McMansions in Memphis, 5/3 on .3 to .5 acres, in the high $200K range. Amazing that a family can buy a big nice house at just 1.5-2X income.

  8. ipoplaya

    Based on what Prime? You think rent on this place will somehow decline by 50%. Are the martians landing tomorrow too? Are you still having drinks with their leader?

  9. zornundo

    I do understand that demand is all local. I was just sooo excited when I saw this property pop up. After a little digging, I think owners went BK, and that’s why its REO.

    so you married a teacher, too? 😉 What is it about accountants and teachers? Teachers don’t make scut in TN. Probably something to do with the low-ish property taxes here. North and Northeast is where the teacher $$$ is at. Spoke to a friend of mine in NJ, where property taxes are a little excessive, and he was doing tax work for some teachers, and they make some big ol $$$.

  10. ipoplaya

    Given the cost of housing, I don’t think teachers make a bad living there. I was looking at salary schedules at Memphis City Schools –

    If you figure a mid career teacher, i.e. 10 years exp, makes $55K in Memphis, they could afford a big ole 5/3 in the Memphis area at 5-6X just their teacher salary. That multiple here for the same sized place would be more like 16-17X.

    Accountants and teachers are good combos. Most teachers are people type people while few accountants are. Many of the teachers I have met are far from financially savvy, so it’s good when they have a partner that’s numbers oriented.

  11. Nickster

    I love the first payment default theory. Crooks are a lot smarter than we give them credit for. There are a lot of people out there that are on the verge of losing it all, however they have yet to go into default, so why not double down and try to use the last few months of your good credit to pull a laundered “25,000” out as some seed money for a new life.


    Has anyone seen that new youtube like relestate site Looks pretty cool.

  12. Mel

    Maybe it’s me, but I would never pay that rent when I could get an upgraded IAC apartment in Newport Beach that has a few more square feet for $100 less a month. On the other hand, I can see why this would be appealing to someone who didn’t want to appear to be renting or just didn’t like the idea of renting from the Irvine Company.

  13. Alan


    Your rental comparison may be accurate; however, until the owners have a tennant, the asking rent remains a wishing price and may not be market. We know it is not below market because if it were, the property would have been rented.

    So you should say, current asking price is at least $120k overvalued compared to asking rent for comparable property, but since compareable remains unleased, the overvaluation may be considerably higher if the owners have to drop their asking rent to lease the property.

  14. ipoplaya

    That’s insane Vincent. You people are whacked this morning.

    Even if you fully finance this place at $350K right now (if you could somehow get it), your net after-tax housing expense would be around $1700 all-in (interest, taxes, MR, hoa, insurance). Conventional 30-years are well under 6% today.

    This $1700 is far below what it rents at. That is far far below what equivalent IAC properties in the area rent at. That $1700 is probably the lowest that rents on this unit could ever go as a result of a recession…

    Conclusion, at $350K today, it’s a pretty screaming good deal especially if you intend to live in it and rent it out later.

  15. ipoplaya

    The asking rent is a little high, but not by much. It would rent at $2200/month without much of a problem…

  16. Kim

    I look at the photo of the garage door in the for-sale listing and see the sunlight coming in under the entire left half of the door and I think to myself, if the builder couldn’t be bothered with ensuring that the garage floor and driveway are level, what else couldn’t they be bothered with? I couldn’t be convinced to buy this house at any price.

  17. ipoplaya

    Someone from Seoul just might to get into Canyon View for cheap.

    I’m acquainted with a family that bought a 2600sf in NW when they already had 3000sf in another area of Irvine just to gain access to Canyon View and Northwood High. Their 3000sf rental has lost hundreds of thousands in value, but they are still happy with their choice.

  18. Mr Vincent

    ipop, the country is about ready to enter a recession. Most of the RE jobs created due to the bubble are in the process of being eliminated.

    Real estate will probably over-correct on the down-side. This property which I thought would of sold by now was built for munchkins. (Nothing against munchkins 🙂 )

    Countrywide says foreclosures highest on record

  19. No_Such_Reality

    I see four IAC complexes near there with 2/2 same size and garage style complexes with rents from $1900 to $2100.

    That’s today. Once again, they may get this rental asking price. But you easily can peel 10% or so off the that.

    Frankly, $1700 is only 10% below current low end MSRP rent at IAC for similar units (sans detached wall). That won’t take much, that’s a promo of a month off on a 12 month lease.

  20. Alan

    the only way to find out is to ask.

    until it has a tennat, we are blowing smoke speculating what it would rent for. how many months has it been listed at this price? maybe you could have your wife call and play dumb IPOP and see what she can find out.

    my point is that using IR’s 160 multiplier, each reduction of 100/month in rental income translates into a 16,000 equivalent value reduction to buy.

    if it eventually rents at $1,800, which may not be too far off given that the economy is going into the sh#$%er, then it’s value drops to $288k

  21. William E. Jones


    I read about fraud rings that work as you suggested above – they have crooked loan officer and a crooked appraiser and everyone agrees to cook the books together, then split the gain. Some people have been arrested, but I haven’t heard of cases in OC.

    This can work when the market is really crazy and so many deals are flying around that people don’t look at them carefully – the pressure is on the close so many deals per week or month. It’s all about volume, baby!

  22. tenmagnet

    Wow, that story illustrates some serious social conditioning.
    Does going to those schools guarantee admission into Harvard?
    I thought there was parity among all Irvine schools.
    What makes these two schools exceptional?

  23. FairEconomist

    I say this is a reasonable purchase *now* from a rentsaver point of view, assuming the rental price is realistic. At 6%, the interest cost of borrowing 490K is $2450/ month, only $100 more than the rent. I don’t think principal payments should be part of the cost of owning – they are forced saving, and will eventually be recovered. If you include the benefit of your borrowed money depreciating at 2.5% inflation then the ownership cost drops to $1838/month, probably below rental costs even if that rent is a wishing price.

    Now because of herd behavior prices may well continue to fall for some time and that’s certainly a good reason to delay buying. I think it’s very possible prices will keep falling to the cashflow breakeven IR target because you need to be about that point for waiting to stop making sense even if prices are dropping. That’s probably what we’ll need to break the seller’s market. But at that price this (and any other house) is a killer rentsaver purchase, because your ownership costs are fully covered by rentsaving, making the principal payments and inflation effects pure gravy.

  24. OCNativeInIA

    I’ve never understood quite how this works. Would this high-FICO straw buyer need to have no savings or assets for this to work? Otherwise wouldn’t he be putting his 401K on the line for not much payoff?

  25. reid

    How are you arriving at that $1700/mo number IPO? I’ve run the numbers several different ways based on financing 350K @ 5.75% and I’m coming up with monthly outlays of $2100-$2400 depending on tax assumptions.

  26. ex-Tangelo

    You put way too much emphasis on the “160” value of GRM.

    See the first two charts that Irvine Renter posted on

    A 160 GRM is the same as a 13.3 on the charts (They use annual rent-to-price multiples, yours is a monthly).

    The charts don’t line up, but neither one settles anywhere near a GRM of 160 (or 13.3 annually). The Calculated Risk chart touches 16 or 17 annually, once, in 1971.

    Like a P/E in stocks, it’s better to keep track of current trends in owner-equivalent rents than to fixate on a magical number. A number that’s an outlier means the thing is over- or under-priced relative to others, but it may never actually return to what you predetermine is ‘normal’.

  27. No_Such_Reality

    While I believe in keeping models simple for comparison, unfortunately, the waving of a hands and merely looking at rough parity of interest costs will lead the woefull buyer into defaults when they discover all the sundry costs of owning. Not just the HOA & property taxes, but the 6% selling commission, insurance, sundry repairs and touch-ups and that principal payment you blithely ignore to the tune of $500 a month.

  28. ex-Tangelo

    I once bid on a 1,000 sq ft 2-story home on a 643 sq ft lot. Yes, that’s not a typo. I didn’t get it — I was outbid. It’s since resold. The property has had no problems finding people who want to live in it.

    The home’s design can make small spaces feel comfortable. Size is just one thing on people’s list of what they want in a home, and some don’t want or need ‘big’.

  29. Alan

    “Now because of herd behavior”

    Are you a realtor? Seriously..

    Last time I checked it was the laws of supply and demand at work, not some psychologic mumbo-jumbo.

    see calcuated risk’s free jan newsletter, it’l tell you all about the housing market.

    key point..

    normal inventy 6 months of sales
    inventory below 6 months… prices rise
    inventory above 8 monts… prices fall

    inventory now well over 12 months and for the expensive properties, over 750K, 16 months and rising.

    combine that w tight credit and a tanking economy and you don’t need no psycho mumbo-jumbo

  30. ipoplaya

    So MV, you think this recession will drive a 30+% reduction in rents? Do you own any stock? If you do, your contention makes little sense.

    It would have to be a mighty recession with some massive unemployment for such an event to occur in spite of inflation… The markets would have to correct by huge percentages if your scenario were to come to fruition so I am guessing all your net worth is in cash, under the mattress.

  31. No_Such_Reality

    Tangelo, good point. IMHO, that’s one reason the newer IAC apartments rent for so much. If you look at the floor plans, they at 900-1000 sf. However they are lucky if the 10 sf of unusable space. No stairs, no hallways, just all usuable space.

  32. Alan

    IAC complexes also may command a small rental premium over a private party because of the ammenties provided and professional maintence of the complex.

    Taking IAC asking rent and cutting it 10% is probably a reasonable approximation of true market rent.

  33. CK

    What IAC complexes are you looking at that are priced in that range. IMO, the only IAC complex which is a good comp to this is Woodbury Place — which has attached and detached townhouses w/2 car attached garages and is in an *equal* neighborhood. Their Plan D 1,035 sq ft is currently $2,440.

    Don’t forget that people will pay a premium to rent in cetain neighborhoods for schools. Northwood Pointe (Canyon View Elem/Sierra Vista MS/Northwood HS) is one of those neighborhoods. IPO is right on with his $2,200 rent estimate.

  34. ipoplaya

    NSR – These IAC apartments are apartments. Attached on all sides, people above and below, etc. People pay a big premium, surely $100s of dollars per month, to have their very own structure. That is why this place would rent today for $2200-2300. It’s over a 20% reduction to fall from what it rents for today to $1700. Where were those reductions during the last recession? They weren’t there. I paid $1600 to rent a 1000sf 2/2 from IAC in 1999 and it cost me $1600. The notion that rents in the short to mid term will fall to levels previous to our equivalent to the tech recession, in spite years of inflation and wage growth, is absurd.

  35. ipoplaya

    Monthly pre-tax interest cost of $1677 on $350K @ 5.75%
    Monthly pre-tax prop tax / MR of $500 based on $6K per year
    35% tax deduction of monthly $2177 pre-tax spend
    $150 per month HOA (high estimate, I think total is more like $120)
    $100 per month insurance (which is too high, it would be more like $50-60)

    Add it up, what do ya get? $1665 per month after-tax. I do not used a principal repayment because if you were renting, none of that spend on rent would be saving. If you factor in principal repayment, the monthly after-tax spend would probably be equivalent or close, but you’d be increasing your net worth by the amount of principal repayment. This would not occur with the rent spend, so it must be excluded to compare apples-to-apples.

  36. NanoWest

    This morning when I looked at today’s blog entry I almost spit my coffee out. I’ve been in these units and they are teeny wheeny and they have small rooms and they are pathetic. The outside garden concept is nice.

    This place is worth and $200,000. I don’t care what the rent comparison is………………….

    As this market spirals down, and we find out that Orange County has at least 10% more residences than people to live in them, rents will start to decline. A place like this will be renting for under $1400 in about 3 years.

  37. ipoplaya

    I have heard that Canyon View has an almost prep school like environment. API is very high, something like 940-950 I think. Northwood isn’t actually that best known for academics as Uni is the academic HS of choice in Irvine.

    I haven’t wanted to live in the Canyon View area as I’ve heard the kids there have some pretty high stress levels. I’d actually prefer my kids go to school somewhere with a little less pressure but still with the chance to be pushed academically if they are gifted. You only get to be a kid once!

  38. Genius

    $2350 to rent that place is a bit much. That’s expensive even compared to West LA.

    I can see it selling in the low $300’s eventually, but I know little about the location. Whoever built that subdivision sure knows how to pack people in tightly. I don’t think martians would even bother landing there.

    What would a massive recession do to rent prices? Have rents taken a dive previously?

  39. tenmagnet

    Yeah, I was thinking the same thing after looking at the kitchen photo. It has a cramped, studio feel to it.

  40. tenmagnet

    Well said, I agree about parents placing too much pressure on kids, particularly in Irvine.
    Your story about the couple willing to lose a substantial amount of money renting their house and buying a new home in this school district really illustrates the point.
    Do you think this is common in Irvine or are these people an exception?

  41. No_Such_Reality

    Renters are much more flexible than potential buyers. We can slice and dice all we want trying to claim more premium status, but in the end, rentals really boil to how many beds, baths and garages does it have for 90% of the rental market.

    Last downturn, there were discounts all over the place.

  42. Hmmmm

    As for how good the schools are…where would the kids live in a unit this small? Is this more of an empty nester unit? The schools don’t matter.

  43. ipoplaya

    I don’t put much emphasis on GRM. Just do on posts as many people use it here. Even if equivalent rent prices were to fall by 10%, my home will be a good buy decision on a monthly cashflow basis for a renter at an interest rate of 7% after another 20% price drop.

    Assuming rents fall by no more than 10% and interest rates climb by no more than 1-1.50%, the bottom is no further than 20% on my particular property here in Irvine. Today, it’s renting for $2800 and selling for $575-600K. By the time my 1600sf detached 3/2 gets down into the high $400s, it will likely be a good buy.

  44. Genius

    Ever see ‘Pump Up The Volume?’ I wonder if anything similar to that happens in real life. Pirate radio in Irvine anyone?

  45. CK

    Maybe Hillary Clinton can run on that platform? “If you vote for me, I’ll rollback rents to the same level as the last time a Clinton was President”.

    Think about it — rents falling back to the level they were when ole Bill was fighting impeachment, lobbing missles into Afganistan to try to take about Bin Laden, etc?? Now think about how long ago all that seems. C’mon folks, be realistic.

  46. ipoplaya

    You’re rent NSR, my 1000sf 2/2 IAC in 1999 for $1600 WAS discounted. Inflation has gone up 20% at least since then, so $1920 will probably be a discounted price for the same kind of place during this recession. Makes sense if you consider it would rent for $2200 today.

    A rent rate of $1700 on this property would far exced the discounting seen on rents during the last recession.

  47. FairEconomist

    But why is demand low for buying 490K houses when it’s high for renting the same house for more per month in the long run? (Leaving aside Ipo’s estimate that it’s about 7% high – 450K might be better for the real breakeven) The reason is that most expect house prices to drop further, because of the inventory overhang, which is only there because of the expectation. So prices are dropping, but ultimately because people expect them to be dropping – herd behavior. Same on the way down as it was on the way up.

  48. ipoplaya

    I’m hoping I can pick up that currently rented Irvine home from the NW owners on the cheap. I’d be happy to stop the bleeding for them, especially if we can go private party and pay zero realtor commissions.

  49. ipoplaya

    Lots of families with only one child in Irvine… There’s a bunch in my neighborhood. Many families with two kids living in 1250-1400sf.

  50. FairEconomist

    I own a house and can say with confidence based on 10 years of experience that the sundries are comparable to the interest deduction, which I also ignored. Well, not in our case because our house is almost entirely paid off, but that makes for a very low cost of owning too. A more precise model is of course great and you’re welcome to do one if you wish, but until you have you can’t claim it will contradict my results.

    When you sell the house, you will get *every penny* of your principal back, unless you’re shortselling or jinglemailing. If you’re a responsible owner and borrowers you can’t count principal payments as a cost. They are a forced savings, an entirely different thing.

  51. No_Such_Reality

    I’ve owned for years too. They are not comparable. Nor is the HOA, Mello Roos, Property Taxes, Insurance negligible. Nor is the cosmetic touch up needed to sell in anything but a bull market. Nor is the locked location standpoint. Nor is a plumber call. Nor the special assessments from the HOA because they’ve mismanaged projects and over run costs.

    Why is demand renting versus buying? It’s really simple. Renting is running near half out of pocket compared to owning.

  52. Alan

    I KNEW IT..

    The fact is there are only so many buyers in the market.

    During the boom, the number of buyers was inflated by at least 50% over the expected number because of financial “inovations” (or FREE MONEY TO ANYONE W A PULSE)

    look at autos… used to sign 3 year leases, then they went to 5 year leases, sure the first year or two voume was up but now volume is down because people keep cars 3 years instead of 5.

    same w houses, fewer people need houses now because they were oversold in the boom years and now the market is flooded. combine that w drying up of free money and no one is in a hurry to buy and you get the perfect storm.

    in a normal market, if you only had 6 months of inventory and normal lending conditions and no recession your point might make sense, now it’s just like your cherring on against the tide.

  53. IrvineRenter

    The straw buyer would be utilizing a purchase money mortgage which are non-recourse, so the lender cannot go after any of their assets. Plus retirement accounts like 401Ks are exempt from lawsuits anyway. The only negative to the straw buyer is a lowered FICO score, and if they are deemed by the IRS to be a non-owner occupant, taxes on the lender’s loss. If they are an owner occupant by the new law congress just passed, they will not have a tax bill.

  54. tonye

    The price of a Honda Accord is actually less in one of the high volume SoCal dealers than in any in TN.

    RE is not the only expense that you gotta take into account when looking at the cost of living.

    And I’ll bet that during the winter season tomatoes and fresh fruits are cheaper in Irvine than in TN.

    Besides, I don’t think the St. Petersburg and New York Philharmonics ever stop in TN.

  55. zornundo

    I’m not bashing Irvine at all. I would very much like to visit SoCal at some point in time. I love reading all the different perspectives and such. I am sure I would rather have you all as neighbors than the white trash I’m currently putting up with.

  56. ipoplaya

    I live one of those shoddily constructed newer Cal Pac homes and in 6.5 years I have called the plumber twice, not had any electrical problems – although I did use an electrician to run some power for some scounces we put up, and had zero special assessments from my HOA. Never had a broken or repaired appliance either, besides our washer, which we brought with us when we moved and it was ten years old. Maintenance costs on a new or newer home are considerably less… Repairs and maintenanced have probably averaged only $25/month for me. Not exactly a prohibitive number in a buy vs. rent analysis.

  57. FairEconomist

    at 6% interest, interest deductions should be worth about 1.5% of property value per year. Where do you live to make those incidentals considerably higher? Anyway, on this property HOA+taxes is about 7,000, which *is* about 1.5% so they *do* roughly balance here. I’m also with Ipo on repairs and maintenance. If they’re a big number, you managed to find a money pit and are the exception.

  58. shiny

    it strikes me as silly to complain about white trash in Tennessee: it is like moving next to a garbage dump and then complaining about the smell: it is known as the coming to the nuisance doctrine. Personally, i am quite fond of white trash, them is my kinfolk/ancestors. Being middle-aged, i was weaned watching white trash TV: Gomer Pyle, the Beverly Hillbillies, and my all-time favorite: Hee-Haw.

    Hee-Haw especially. They don’t make shows like that no more.

  59. FairEconomist

    Alan, there *are* people with money to buy right now. They are choosing to rent, as demonstrated by the high rent prices. This is a rational decision as long as prices are falling, but once they are stable anywhere marginally below current prices it won’t be (for people planning to stay for a while, of course).

    No, I’m not a realtor. LOL. If you knew me, you’d realize how ridiculous that would be.

    This isn’t generic. Irvine seems to have one of the best rent/buy ratios in Southern California. But with interest rates at 6%, very low by historic standards, 208 is a reasonable price-rent multiplier, only somewhat high. Just as it was crazy for people to ignore fundamentals during the inflation of the bubble it’s crazy to ignore fundamentals during the pop.

  60. CK

    Don’t fool yourself, Zornudo….You can find plenty WT here in OC (and even Irvine). Irvine is a large city (200k population, 55 or so sq miles), and like any other large geography, there are pockets of less than desireable areas with an inordinate amount of monster F-150’s. For instance, today’s house is NOT in a WT area, hence the neighborhood premium discussed here.

  61. CK

    As shiny just indicated, Westpark II (where he apparentely lives) is a neighborhood where you might find a lot of WT.

  62. westpark renter

    I am waiting to buy somewhere around the 200-225 per sq. foot. area. Irvine is super overpriced and I am starting to feel uncomfortable being white and a minority here. A lot of these asians buy at these stupid prices because they think that prices have always been this high.

  63. shiny

    That is ridiculous: West Park is dominated by the furthest thing from white trash: relative newcomers from Pacific Rim countries who value education. Education is like kryptonite to white trash.

  64. OptimusPrime

    LOL… I thought the same thing when I saw this. I think $180k 🙂

    But tell it to our friend knife catcher ipoplaya

  65. CapitalismWorks

    Don’t forget the $250/500k tax free gain on sale. What other investment has that perk? None.

  66. OptimusPrime

    LOL…nice racist comment there. I’m sure Asians weren’t the only ones taking advantage of the free money and I’m sure they’re in the minority of foreclosures.

  67. CapitalismWorks

    BTW Alan, where did you 50% increase in buyers figure come from? My guess is out of you A**!

  68. CK

    I didn’t say the WT dominated in Westpark, just that you would find a higher % of it there than other Irvine neighborhoods. Please see comments below from “Westpark Renter” which support my thesis perfectly. FYI, however, the schools in Westpark are not known for their excellence. Culverdale sucks and Westpark Elem is not much better, and also has the strike of being a year-round school. Only upside is they changed boundaries this year to where older Westpark (formerly known as WP II) now attends Uni.

    I know of what I speak — I rent in Westpark right now for convenience, but will DEFINITELY vacate prior to my child starting Kindergarten.

  69. shiny

    are you denoting the neighborhood along the 405 as westpark II? I am in the newer section of Westpark as compared to those homes but I believe it is still in the Uni High school district: multiple of my neighbors have their kids going there, it is considered the holy grail for the Irvinites I know so I am surprised you denigrate the schools.

  70. Major Schadenfreude

    “Countrywide says foreclosures highest on record”

    I think people want to know when Countrywide will “foreclose”!

  71. CK

    As I understand correctly, they used to call the oldest area (over to about San Leandro?) WP I, and then the 80’s section (over to Barranca) WP II, and the 90’s part (served by Plaza Vista School) WP III — but now I think they have cosolidated it to be just “Westpark” all the way from 405 to Barranca, and Westpark II for the area built in the 90’s. I could be wrong though.

    Anyway, I don’t dispute that Uni is great, although I suspect in the next 5-10 years it will be overtaken by Northwood as the “premier” Irvine HS as the areas south of 405 continue to age and there are less school age kids. I tend to focus on the Elem schools more at this point, and was not impressed with either Culverdale or Westpark Elem…And we went as far as touring the schools and talking to the administrators as we were going through our decision tree on Irvine neighborhoods.

  72. westpark renter

    Let me reaffirm my contention. Asians who come in from another country don’t remember when houses in Westpark were 399k in 2000. They assume that prices have always been high. Thus they have nothing to compare the current prices to and they buy it. As to the racist comment, all people have at least a little racism in them. If they say they don’t they’re just lying. I am just saying when I walk around Westpark and there’s 12 asians to my one white person I kind of feel out of place that’s all. So get off your high horse Optimus Prime. Great name. Just another geek. So go pop in another star trek dvd or matrix dvd and wish that you could have a date with a woman. LOL!!!!!!

  73. Alan

    i read calculated risk dude…

    tanta has many graphs

    the one I’m referring to is annual housing units sold in the USA

    it was mostly stable but spiked about 6 mil/yr but spiked up to i think 10 mi during the free money bubble. tanta expects sales to fall this year to as i recall 4.8 mil/units. the excess units (10 mil – 6 mil) sold during the bubble can be considered pre-sales form future years, depressing next’s years sales until supply demand normalize.

    Read tanta dude, your the one talking out of his A***

  74. CK

    Didn’t you folks get the memo? Americans need an incremental increase of least 1,000 additional sq ft per child, as well as at least 1,000 additional pounds of steel and glass for their SUVs for each additional child. 1,000 sq ft home is fine for a couple….But you need at least 3,000 sq ft with two kids. A CR-V is fine with no kids, but with two you need at least a Yukon Denali XL for two kids.

    How do they do it in Europe and Asia?

  75. OptimusPrime

    LOL….wonder what area you live in. It’s more 5 to 1 Caucasians to Asians with a little mix of Persians and such in my neighborhood in Irvine. BTW…nice jab at my name but I am married. So flame elsewhere 🙂

    I agree, all people have a hint of racism in them…they just hold it in instead of just single out a group like you.

  76. Major Schadenfreude

    How many people have benefited from that tax break?

    Typically, the proceeds of a home sale go towards the purchase of another home, so they don’t really enjoy the “appreciation” of their home investment – except in the form of their new, larger home. It would be ridiculous if the government “taxed” this transaction.

    Now, if a person sells their home, rents for a spell while the market crashes about them and then purchases a home later after their tax break money has appreciated substantially, then I’d say the break worked to their advantage. I don’t know too many people doing this.

  77. ex-Tangelo

    If this home isn’t covered by any restrictions on remodeling (is it part of an HOA that doesn’t allow it, etc), and if I were to move in to a place like this that felt cramped, I’d see about removing interior non-load bearing walls and making a more open, brighter space. The ‘great room’ has been trendy lately, but in small spaces it really does help.

    (I don’t know the floorplan, so I don’t have even the faintest idea if it’s possible or would even help)

    And that gas range looks like the cheapest possible model. If it comes with the home, and it bothers you, sell it and get something you like instead. $600-1000 gets you a ridiculously nice range. Don’t turn down a home for something easily changeable like a kitchen range.

  78. Major Schadenfreude

    You bully!

    I’ll bet you make your kids walk or ride their bikes to school too!

    Oh, the humanity…

  79. ipoplaya

    Hey renter, did you ever consider that asians can read, understand math, etc? “Assume that prices have always been high”… They don’t need to have lived here to figure out what prices used to be… Think about what you are saying. If you move to Phoenix, are you capable of learning about historical housing prices there if you so choose?

    You are talking about people whos kids prop up the API scores of IUSD schools, especially so where there are larger concentrations. Somehow you think they aren’t intelligent enough to make prudent buying decisions for themselves? Plaza Vista ranks out better than other Westpark schools likely because its 56% asian. Culverdale and Westpark Elementary are 44%. These are families that put a huge premium on education…

    The asians you have issue with have probably been better savers traditionally, often live in higher concentrations (with three generations in a house, double up the kids in bedrooms, etc.), so they can probably afford to spend more.

  80. ipoplaya

    I got the Armada when the 2nd kid came… Why pay a premium for the Denali when I could have a better-built gas guzzlin’ monster from Nissan?

    Have to say, I am a big fan of the on-board entertainment system. My son can watch a DVD with the ole wireless headphones and I can listen to whatever tunes I want. Great invention.

  81. CK

    Yeah, those kids are such babies nowadays. I had to walk a mile through the snow with holes in my shoes to school. Or was that two miles?

  82. ice weasel

    I’m not taking sides here but I do think that anyone who believes rents are immune to downward pressure in an extremely unstable economic place we are in might be a bit of an optimist.

    Can rents go down 30%?

    Perhaps. Is is assured that rents will not go down at all?

    I would opine that is highly unlikely.

    As to the value of a property, I still think anyone who buys anything now is taking a big chance (and my sympathy to those who have to for their own reasons). Saying any given property won’t be worth less in a year than it is now is a bit of stretch. IR has posted examples up and down the spectrum.

    I’ll say this, it’s a cute little place and IR seems to think well of the hood. It looks cute (speaking on someone who isn’t a size queen). Maybe it will hold.

    Either way, you could be stuck in a lot worse.

  83. slacker kate

    driving through Nashville I was impressed with the variety of neat stuff on the radio – many genres, several NPR stations… went to visit a friend who bought a 1000 sf 2-1 sort of near Paducah for $17k and started making metal artwork.

  84. TurtleRidgeRenter

    I love your blog, IrvineRenter, have been lurking for awhile, this is my first post, so here’s my own-vs-rent story.

    My husband and I moved here a year ago from the Washington DC area. We sold our 2500 sq ft, built in 2002 townhouse in Northern Virginia in April 2007 for exactly what we paid for it in April 2004. We got that thing sold just in the nick of time as the whole DC market was imploding. We almost broke even on owning vs renting in Virginia for the 3 years we lived there. For the “privilege” of home ownership.

    Things do need repair, even in a new, well-built house. We paid plumbers, handymen, appliance repair people and HVAC people to fix things, averaged about $1,200 a year. I spent a week’s vacation power-washing and sealing our deck. I was not a Real Housewife of Orange County. I was a Real Housewife of Loudoun County.

    Now we are happy to be back home in Irvine, renting IAC townhouse, 1200 sq ft, 3 floors, 2-car garage, Turtle Ridge for $2700/month. Great closets and storage. Beautiful pool, hot tub, and garden maintained like a botanical garden.

    The Irvine Company fixes everything, inspects smoke detectors, changes filters, changes ceiling lightbulbs for us. We don’t even have to own a ladder. We’re in our early 50s, so this is huge. So much value-added for us.

    To buy the exact same type of townhouse in this area would cost us around $5000/month. And we would have to do our own maintenance. No increase in the quality of life for almost twice as much money. This is pretty much of a no-brainer for us. We’re both working hard at our jobs, enjoying the SoCal lifestyle, and in no hurry to buy a house. In fact, we might never want to buy a house again.

  85. ipoplaya

    Definitely rents can go down. Can they go down by almost a third in the near term? Highly unlikely unless unemployment sky rockets in OC. Will Boeing, UCI, and Disney have a vast number of layoffs as a result of a recession spurred by a credit crisi. Probably not, but I supposed anything is possible.

    For any bloggers needing a 50% reduction in current market home prices to buy, I submit you need to spend less time blogging and find ways to make more money. Things are closing escrow in the $300-350 per sf range. They are not likely to drop to $150-175 per sf. Will we see a 50% drop on some of the WTF prices out there today? That is possible but it is more a factor of just how high a wishing price is being asked.

    For example, I know my place is worth around $575-600K today based on very recent sales and yet people still offer my home up for $700k or even $750K. If I slapped it up at $550K tomorrow, you can bet I would have a buyer within 30 days. Obviously the guy who lists my place for $750K is going to wait for a buyer that never shows and need to come down 35-40% at the bottom of the market assuming he hasn’t found a knife catcher.

  86. westpark renter

    5 to 1 whites to asians in westpark. Now I know you’re totally stupid and clueless. Go back to your Matrix dvds optimal moronicus.

  87. westpark renter

    Zip Code 92606 (Irvine, California) people
    View levelCityStateMetroCountyCityZip Code The 2007 Irvine (zip 92606), CA, population is 24,071. There are 7,949 people per square mile (population density).

    Family in Irvine (zip 92606), CA
    The median age is 33.7. The US median is 37.6. 52.81% of people in Irvine (zip 92606), CA, are married. 9.31% are divorced.

    The average household size is 2.57 people. 29.70% of people are married, with children. 7.38% have children, but are single.

    Race in Irvine (zip 92606), CA
    42.11% of people are white, 2.13% are black, 47.59% are asian, 0.22% are native american, and 8.14% claim ‘Other’.

    7.32% of the people in Irvine (zip 92606), CA, claim hispanic ethnicity (meaning 92.68% are non-hispanic).

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  88. ipoplaya

    Welcome TRRenter. I am a bit curious about your $5K number. I see a place that is probably similar to what you are renting:

    I assume one could acquire this place for $575K. It’s a few hundred more square feet than your apartment… If you fully financed $575, i.e. no down, assuming a 6.75% jumbo rate, the pre-tax interest + property taxes would be $3901. After tax cost with tax deduction for interest + prop taxes would be approximately $2500-2600. Toss in $200 for HOA and $100 for insurance and you’d have a total after-tax cost of $2850 vs. your rent of $2700. Not a sizeable difference but obviously not a good buy decision.

    Assuming you had 20% down in the bank earning %5 and re-running the numbers using a conventional with a rate of 5.75%, I get an after-tax spend of $2167 + foregone after-tax interest earnings of approximately $300/month for a net cost of $2478. If you had the cash in the bank, and you could get this property for $575K, you’d save money every month vs. the rent you are paying and have a couple of hundred more square feet.

    If this place dropped to $500K and mortgage rates stayed the same, the fully financed monthly total would fall to $2562 and the 20% down number would go to $2291. Therein lies what I would call the difficult choice. Keep renting for $2700 or save $400 per month by buying… In your situation, sounds like you’d prefer to pay the “premium” in this case to rent and have the service.

    If you ever do decide you want to buy, let me know and for that $400 per month I will change your bulbs/filters, etc. and keep your appliances working. Appliance home warranty plans are a few hundred dollars per year. I’d buy one for your property and still clear $4000 per year for helping you maintain your home. Why should IAC make that money?! They are rich enough!

  89. shiny

    anteater: you may want to investigate the performing arts center by south coast plaza: all manner of high-falutin’ culture/ballet/symphony/opera and whatnot. I don’t appreciate such things but I do like the fine dining in the area: Mortons/Pinot Provence/Antonellos/Marche Moderne/Scotts: all pretty good but travel to San Francisco and bring some cash if you want some real gourmet fare. Check out Cyrus in the wine country, nothing like it down here.

  90. CapitalismWorks

    “I read calculated risk dude…” LOL. Good for you.

    Please post the source reference. Considering Home ownership rates increased roughly 3-4 % during the bubble years, I am trying to reconcile with the 50% increase in buyers… Obviously, there was an increase in “qualified buyers” by virtue of easy credit. The 50% figure sounds more than little high to me.

  91. CapitalismWorks

    “Now, if a person sells their home, rents for a spell while the market crashes about them and then purchases a home later after their tax break money has appreciated substantially, then I’d say the break worked to their advantage. I don’t know too many people doing this.”

    I know people doing exactly this… Several, in fact. In fact, I think there are more than a few on this board.

  92. shiny

    I think you are all smoking a little too much of the “it’s special here” weed. Rents will definitely take a hit in a recession, a recession that has already blossomed in OC with tons of high-paying-real-estate-related jobs blown to the winds.

    I recall my bz law professor always using an analogy for his contract lessons: buying used underwear at garage sales. We would laugh but he would say laugh now but you will see differently in the future. It has been 30 years now but I worry that he may have been a mini-Nostradamus.

    The harbingers of economic bad tidings are becoming overwhelming. don’t believe me, click on reuters or yahoo bz news.

  93. ice weasel

    Ipop, I won’t and can’t some particulars with you however, the whole adjusting for inflation thing-automatic rent increases over time may not be a valid model going forward. Just as a SFR for sale in 2001 at price X+ inflation isn’t necessarily a valid for, well, for much of anything right now.

    I’m not saying that adjusting for inflation is invalid in general, all I’m saying is, these are uncharted waters we are sailing into. Trying to apply the map of the past to them could be hazardous.

    And who knows, I could be wrong, maybe rents will go up.

  94. westpark renter

    I like those 2002 prices. 2002 prices = reality. 2007 prices= psychoses . BUY AT 200-225 SQ. FT.

  95. dano

    Just a note to CK – don’t make your housing decisions based on test scores of the various Irvine Elementary Schools. It’s not the schools that will make your kids successful, it’s not the teachers, it’s not the principal and it’s not the student/teacher ratio. If you and your spouse value education and pass on that value to your kids then they will do fine at any public school in Irvine. Move to a place that you can afford and will make you and your kids happy. When my kids were in school (UCLA and UCI graduates) I saw many families move their kids to “better” schools only to destroy their children’s social lives by moving them away from their friends and neighbors. Then the parents had to spend hours each day driving their kids to “magnet” schools or other schools that were not in their neighborhoods just so they could be in the “best” schools. Then years later you see the test scores and their own neighborhood school scored just as well as the “magnet” schools…it was such a waste. There is more to school than just test scores…..

  96. mark

    Not a parent, but I agree that the parent is THE most important factor by far. The second most important factor IMO is the socio-economic status of the friends your child will have at the school. If the other kids are pressured to do well and expected to make it to a prestigious school, that will influence your child greatly.

  97. tenmagnet

    Judging from the outside the Bella Rosa house appears rather plain.
    The inside tells a different story altogether.
    I’m amazed with the décor.
    Luv the interior, with all the upgrades, this one’s a trophy.
    The $1.1M price tag is way too high but this house has one of the best interiors I’ve seen in a while.

  98. CapitalismWorks

    Yes, I have seen the site, and NO I haven’t seen anything supporting your claim:
    “During the boom, the number of buyers was inflated by at least 50%…”

    When you have a moment please post the link. I find the information truly unbelievable. Meaning, I don’t believe it.

    If it is indeed true, I would like to verify the source as such verification would have a tremendous impact on my level of bearishness (which is already quite high I would note).

  99. buster

    There be definitely somes white trash in iRvine. One of my neighbors did a midnight move last September, stiffed the landlord on 3-mos rent, and quit his job to be a cage fighter (no kidding). Some lady in a suit knocked on my door about three weeks ago and said she was from Enterprise Rent-A-Car. This guy had “stolen” a car by renting it and never returning it. Now that’s true Irvine White Trash.

  100. CK

    Dano and Mark — Oh, I agree with both of you 100% — and know our influence is primary, and the environment is secondary. Note that we did tour both of the elem schools serving our current address, to “get behind the numbers” — Culverdale and Westpark. We just were not impressed with the schools. I’ll leave my opinion at that as others here may have a different opinion. I’ll also note that we actually decided on the schools serving Northpark as our final destination — which are actuall Tustin USD (a lot of folks here like to imply TUSD is inferior to IUSD). After visting Hicks Canyon Elem we were much more impressed by what seemed to be a balanced focus on academics and socialization than in the IUSD schools in our preferred neighborhoods. Plus we feel we can get both a starter and move up home (eventually) without ever leaving Northpark. Thanks to both for your thoughts.

  101. Major Schadenfreude

    Certainly there are more than a few on this board doing that, but move away from this board, now how many?

    Most people I know buy just one house. When it gets to small, they sell it and dump the profits into the larger house.

    I’m sure it is a benefit if a couple retires and they move to a smaller house. However, a lot of the retiring folk around here are under Prop. 13, so they are going to hang onto the big house. It makes family gatherings during the holidays more convenient as the out-of-towners can stay there. Plus all the neighborhood roots.

    I can see the benefit for a party that can buy one house, live in it for a couple of years, then buy another house without having to sell the first house. They sell the first house after it appreciates by more than 250K (which doesn’t happen that quickly in a normal market) and collect the tax-free profits.

    However, most people I know don’t have enough cash lying around to buy a second house.

    So, the “tax benefit” is inconsequential to most people, IMO.

  102. ipoplaya

    Hey CK. Did you ever consider the Peters Canyon, Pioneer, and Beckman trifecta? I have been looking at places in Tustin Ranch. The stretch of TRanch that goes from where Pioneer hits Jamboree at the top down to Portola. I kind of like El Dorado, which is the development just above Peters Canyon. Kids can walk to both elementary and junior high and have Cedar Grove Park right there as well.

    I have heard nothing but good things (except for complaints about traffic) about both schools…

    I’ve also considered Sheridan, which is TUSD as well with an Irvine address, with Myford, then Pioneer, and Beckman. Sheridan is small, but nice. Have starter condos up through 3000sf detached.

  103. mmg


    well I have news for you, houses will drop to around 200 sqft including irvine, for condos it will be less. anecdotal evidence all around me suggest people are going to be hurt big time, people are losing jobs, those that havent lost their job have lost their housing ATM and you know what that can do ITS LIKE LOSING A JOB :LOL:

    IPO if you are making good money in your house hold, you will be surprised at how much you will be able to buy in one to two years, IR had an earlier post about how rents and prices where close in Irvine, will are on our way back, may take long but will get there.

    No family making >120 is going to buy 1000 sqft, or at least I think.

    my prediction 250k tops.

  104. mmg


    your 1600 sqft place will drop to 350k in a couple of years, then let us kno if you are willing to buy this appartment for 500k :mrgreen:

  105. ipoplaya

    I hope you are right mmg. We make very solid money now (my wife makes close to the Irive median herself and she is the lower wage earner) and our daycare expenses will drop by $800-1000/month in a year or so when switch up from nanny to full-time preschool.

    A year is the longest we’ll be able to hold out… I’ve got kid crap all over the place, can’t park anything in the garage, and already pay for a 150sf storage unit that is practically full. While I might be one of the more bullish ones here, I fervently hope for a quick and vicious decline in prices. I’d much rather buy my 30-year house for 3X household income vs. 4X.

  106. mmg

    because IRVINE IS DIFFERENT :mrgreen:

    I rent a bigger detached house with amazing view in a nicer city for 200 more, no way this appartment rents for more than 1700.

  107. ipoplaya

    Read my posts. I said at $350K its a good deal based on today’s market… At $500K its a shame.

    I seriously doubt my place will go all the way back to 2001 prices in nominal dollars, but if it does, good for me as the bigger SFRs will be going for $500-600K and my household income will likely have gone nowhere but up.

    I think to propose that prices will fall to 2001/2001 prices in nominal dollars means we are going to see wage deflation over the few years. How probable can that be? My house has dropped in value by 18% already but I’m getting a 4% raise to start 2008 to cover increase in CPI.

  108. CK

    Yep IPO, we sure have looked at all of those areas…Personally, I have grown to prefer TR to Northpark….It has more of a neighborhood feel to me — but my wife is really hung up on the manned guard gate. Whatever. I’ll keep working on that, we’ve got some time. One way or another, we are headed for a 714 (or now 678) area code.

  109. alan


    a pissing contest…

    hey, I don’t have to prove nothin

    here’s the link..

    looks like i overstated the numbers

    between 1980 and 99 annual sales flucuated between 2.5 and 4.5 million units, then w the free money infusion sales zoomed up to over 7 million units, about 50% greater then the average anual demand in the previous decade. tanta’s point is that these excess sales can be looked as as caniblizing potential sales from future years.

  110. alan

    assessed price is $838 so they are still asking for more than they paid.

    by the way IPO, I think you set a new record for posts today.

    did your wife kick you out of the house?

    if you have this much time you should take up golf!

  111. ipoplaya

    I’m a desk jockey Weird Al. Just tidying up our year-end numbers and waiting while my staff preps our stuff for the annual audit. It’s a slow time of year in the services business. With everyone at our customers out on vacation during Xmas and New Year’s, we don’t put many people to work in early January.

    I’ve got two big ole flat panels on the desk so I can keep IHB up and running on one of them all day long and do my work on the other. You’ll never be rid of me, at least not until I buy a house. Once I buy, even if the market is still tanking, I’ll be the resident bull.

  112. alan

    Do you like South Park Ipop

    They did an episode a couple years ago “WOW” about a troll on World of Warcraft who was a fat slob, sat at a computer all day and killed all the other characters.

    Do you look like that character?

  113. ipoplaya

    What’s World of Warcraft? Haven’t watched much South Park since my young and single days so I couldn’t tell ya. I do play that South Park Xmas song ever year, what’s it called? Merry F’ing Xmas I think. That’s one .mp3 I’ll keep forever…

    JK on WoW. Also in my younger and singler days, I was a gamer. Mostly Unreal and Quake III. Oddly enough, when I was a gamer, I was in the best darn shape of my life… Then again, I had no kids and no wifey so I could work, game, work-out, booze, play the market, and still find time to sleep somehow.

  114. BD

    Is anyone concerned that all of the careful analysis of price bottoms etc. is predicated on things like inflation, falling rates and rising rents? What if our economy entered a serious local or national recession? The smartest guys on Wall Street (Goldman) are calling for it now!

    What if we were in for a protracted period of disinflation or stagflation (slow or no growth with rising fuel and commodity costs) – sound familiar? What if local OC employment weakend significantly because of lost RE jobs and that spilled over into reduced consumption which caused further weakness and job losses? This is exactly what happens when a recession occurs. It’s a cyclical process that builds economic momentum in the exact way that leveraged housing booms build momementum only in the WRONG direction. Tell me are you not concerned? If these things come to pass in even a very modest way, it will be tough for our unprecedented and extraordinarily over priced RE to bottom where many of you expect it to…because your thesis based on a return to normal, not on significantly weaker economic growth or a recession.

  115. CapitalismWorks

    No a pissing contest would be a comparison of incomes, education, savings, number of notches on the bedpost etc.

    Verification of unsubstantiated claims is what intelligent people do in order to correctly form ideas and resultant expectations. But then you knew that already.

    OK, let’s get this straight. Here’s your quote:
    “During the boom, the number of buyers was inflated by at least 50%…”

    Is it possible that you referrring to SALES and not BUYERS? That seems to be what the chart you linked to references…

  116. Jake

    That’s a WTF rent. Who in their right mind would pay 2300 a month for an REO property the size of a shack? My god, Irvine is bizarre.

  117. CapitalismWorks

    We may be the same person after all! Quake III consumed many hours.

    Wow is an immersive online RPG involving hundreds of thousands of player interacting in a virtual environment.

  118. CapitalismWorks

    If there was no tax benefit, housing prices would be lower. I think much is clear. Taxes would reduce move-up equity.

  119. ipoplaya

    I was addicted to Quake III for a while. In 98-99, while living in San Diego, I’d work my Fortune 500 accounting manager gig during the day, manage my Etrade empire in the evening, and then play Quake III online for 3-5 hours a night. I think I was sleeping from 2am to 7-8am…

    Something had to give, so I quit my cushy Fortune 500 accounting gig (with a pension plan that the company contributed 7% of wages to, 100% 401k match on up to 6% of wages, and an annual performance bonus of 15-25%) and moved to Irvine to live the life of a day trading gamer.

    Man, what a dumb move that was… At least I got my wife and now my kids out of it though so it’s all good.

  120. ipoplaya

    Don’t waste your time CW. Weird Al makes claims and puts forth assertions and doesn’t back ’em up with facts or analysis.

    Yesterday it was why would someone pay $1M for an Irvine house when they could buy instead on Newport Coast for $1M… Well, turns out, there is nothing on Newport Coast evn close to $1M. He just spouts some stuff to see what sticks. Not necessarily any facts behind them…

    I still get a kick out of Alan’s contention that the 4000sf place in guard gated Northpark that will fall below $700K at bottom. sub $175 per sf in nominal dollars to live in a Northpark mansion. Okee dokee Al…

  121. Lost Cause

    Yeah, with all of the educated people in Irvine, it just doesn’t make sense that they would choose to live in a corporate feedlot.

  122. ipoplaya

    What if, what if, what if… What if we have a couple of quarters of slow to no growth and the economy turns around before the end of 2008?

    We have lost RE jobs already, whole entire subprime companies are gone, and OC unemployment is at 4%. Residential construction has already slowed substantially. Do you think there are a vast number of mortgage companies employing people today to do nothing while volume has wilted to almost nothing? No, those people are already on the street.

    Companies react quickly to changes in market conditions. OC unemployment jumped in the summer when the mortgage industry hit the skids (from 3.5 to 3.9%) but has since only ticked up to 4.2%. Sure that is going to get worse, but you aren’t going to see 7-8% unemployment in OC as a recent of housing price declines and home sales volume slowing alone.

    When I talk about bottom, it’s in the context of over-valued house prices resulting from extremely low mortgage rates, exotic mortgages, subprime purchasers, etc. over the past 5-6 years that have artificially inflated home prices, especially in this region. They aren’t so crazy across the entire US… This is an asset bubble.

    At any time, our economy could suffer or falter from a massive variety of reasons and it would adversely effect home prices everywhere. Personally, I wouldn’t even try to predict that. That is not an asset bubble, which is the primary concern of most here, that is just the natural ebb and flow of a market system. There are economic expansions and contractions. They happen and the economy rolls on… It’s natural and fairly unpredictable given the number of variables.

  123. BD

    …So what happens then when, not if, the recession – now predicted by GS and so many others – materializes? Look at LEADING INDICATORS The facts are these: rising unemployment, inverted yield curve, risng energy costs, negative savings rate, yadda, yadda, yadda… Gentlemen don’t debate the facts – just the implications. So folks, what’s the implication for OC and RE in OC?

  124. ipoplaya

    That all depends on the depth and length of recession. The beginning of the housing boom started after the tech recession when unemployment was in the low 5% range in OC. Conventional 30-year fixed mortgages declined from 7% to 5.5% fueling home purchases and prices and then the exotics and subprimed kicked in.

    So right now at this time, conventional mortgage rates are very close to where they were in the early boom period and unemployment is lower than it was then. Unfortunately conventionals won’t get you squat yet, hence the slide in home prices.

    IMO, if unemployment goes up to only 5-6% locally and stays that way for period of a year or two at most, home prices will fall the 20-25% they probably should and rents will remain relatively stable. If unemployment spikes past that, into the 6.5-8% range, rents will have to come down and further drag down home prices. The extent of that will depend on how long the recession continues for and how widespread unemployment is nationally.

    This is obviously pure conjecture at this point. Yes a recession is likely. I believe that enough to have moved my entire 401k balance out of equities in December and put a bunch of other money into bonds and commodities. How big it it will be, no one really knows. Just a few months ago the Street was saying 50-50 on recession and most of the target portfolios for high net worth investors at the big brokerages just recently started adjusting to accomodate recession. MS, GS, ML, half the time they are just getting on the bandwagon…

  125. ph7

    There is an old saying in Chinese, roughly translated: rather be the head of a chicken than the tail of a cow. And if you think Koreans are different from Chinese, think again. Not all asians want to have their children in top schools.

    I highly suspect what your acquaintance have told you is true – they may have told you in order to save face (moronic asian behavior). No family is happy when loosing hundreds of thousands of dollars. No matter asian, white, or otherwise. Unless they are extremely well-off and I doubt Irvine is the destination of choice for the well-off.

    However, I am not discounting the falling dollar which makes US properties in general more attractive to foreigners. Still, in macro economics, their presence will be marginal.

  126. ph7

    Wonder why so many around the world hate us? Shame on the American consumers – we carry over 9 trillion in debt!. And the US government for promoting consumerism, especially with the recent talk of rebate checks. Iraq is a prelude to the ultimate fight for natural resources with nuclear technologies. For those of you who are naive to believe wars are fought for the sake peace you might as well go back into the caves – no economy survives without natural resources, unequivocally.

  127. TurtleRidgeRenter

    Hello, ipoplaya, and thank you for your warm welcome and detailed analysis.

    I’ve actually looked at that very same property on Coral Rose! Although on paper it seems like it’s bigger than the 1200 sq ft rental we have now, in person it is cramped and dark. The garage and closets are tight. I think a lot of that extra 200 sq ft is wasted space we wouldn’t be able to use, strange little nooks and stairways.

    (This shouldn’t really be part of the analysis, but… overall, that development has the same feel as the old rowhouses in Baltimore. Rent the movie Tin Men to see. And no views from that property. We do have a a little bit of a pretty view here from the windows and balcony at our IAC. And woe is me, I have normal-sized furniture that won’t fit in those little rooms.)

    When I do the math, I get $3,005 a month on a 5.75% 30-yr fixed of $515,000 (assuming $100,000 down payment.) The RE taxes add another $625/month. HOA adds another $196/month. From experience, I’d budget $100/month for repairs and maintenance. For a total of $3926/month for a place that seems less bright and spacious than what we have now for $2700/month. Sure, there are tax deductions for the RE taxes and interest: brings the cost of owning that place down to about $3,200/month.

    I guess what I’m saying is that that property doesn’t offer a compelling enough set of features to make me want to pay a premium just to own, vs renting. Although your offer to come over and change our filters and lightbulbs for a monthly fee is tempting!

  128. ipoplaya

    One thing to be consider, probably not in your situation, but I appreciate the opportunity to use you as an example, is principal repayment. You correctly ran those numbers but your figure of $3,005 includes over $500 in principal repayment. This “forced” savings will increase your networth by $500 each month ceteris paribus.

    For a proper expense based comparison between renting and buying, you should exclude the principal portion of the payment calculatiojn. In other words, that cost of ownership that you came to of $3200, which includes over $500 of savings via principal repayment, is actually the same on an expense basis as your rent of $2700 today. Obviously on a cashflow basis, it is a different story as the savings is indeed “forced” unless you opt for interest only loan with a higher rate.

    Or to make it even more simplistic, the $3200 you arrived at via those calcs is practically the same in terms of net worth as paying rent of $2700 and putting $500 into a money market each month.

    Then again, if the place is fugly and you love your apartment, who cares!

  129. kkchua

    dear trooper,

    I’m a realtor from malaysia. Just wanna check with you, how do you get the exclusive listings from the buyer? mind to share. thanks.


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