A Reasonable 3/2 in Irvine?

Hard Candy Christmas — Dolly Parton

Everyone seems to be worries that prices will never fall to affordable levels, despite the fact we are witnessing unprecedented price declines everywhere. Those of you desirous of a high-end Irvine property have not seen the price drops you would like to see, so you conclude they will never get there. If you widen your view a bit, you see properties declining in value all around us and even within Irvine at the low end.

If you are watching the high-end market, these will be the last to fall because this is where knife catchers are most active. The high-end watchers of the IHB are a microcosm of the market. Even among this group, there are people willing to jump in at different price points. Each person capable of buying has a different degree of kool aid intoxication. Each potential buyer has a different tolerance for fear of being priced out — which is still the primary motivator of knife catchers. If you only make lowball offers, you may never get filled, and you will never own. This reality gets amplified into the fear of being priced out, and through this fear, people raise their bids.

Pause for a moment… Reflect on the emotions you felt when you read, “If you only make lowball offers, you may never get filled, and you will never own.” Did you feel the fear? How strong is it? Will you act on this fear? If you are introspective enough to have these emotional awarenesses, you can gauge your own level of kool aid intoxication. We are all different, and the most fearful are the most likely to become knife catchers.

Personally, I rely on my analytical skills to keep my emotional responses under control. I have faith that market pricing will fall to levels consistent with rental parity. It is a faith backed up by market data pertaining to previous market bubbles. I also recognize that even if prices do not reach rental parity, and if I never own, I will be better off financially by renting. It is a win-win. Intellectually, I recognize this truth. Emotionally, I have to let go and trust my intellect. It isn’t always easy.


For those who have been waiting for prices to reach rental parity, there are still signs the market is heading that direction. Before we get “there,” we need to identify what “there” is. In a stable real estate market, rental parity is a general guide, but not all market segments stabilize at rental parity. The low end, composed of undesirable condos and other properties where owner-occupants are rare often trade at prices below rental parity. The less desirable it is, the closer it trades to investor cashflow levels (GRMs from 100-120). The median type property that owner occupants desire trade near rental parity. This is particularly true for “starter homes,” those nicer condos and small 3/2s. The above median properties often stabilize just above rental parity (+10%.) This happens for a number of reasons: 1. The longer ownership period of these homes justifies a higher investment premium. 2. The limited supply makes them scarce. 3. Rents are more variable at the high end as most people who can afford the higher rents generally own instead.

In the market bubble of the late 80s, the low end of the market got bid up to rental parity, and the high end was pushed well above. When prices crashed in the early 90s, the high end crashed first, then the low end got hammered. With the low end already at rental parity and within levels of affordability, it made sense for the high end to crash first. Once the more desirable properties were at rental parity, there was an exodus from the low end that caused prices there to plummet. I mention this because I believe this is how the next stages of the drop will play out.

Since the Great Housing Bubble saw an unprecedented degree of price inflation, both the low end and the high end prices became elevated far above rental parity. As the low end comes down to rental parity, it is starting to find some support. At this point, we are looking much like the market in 1991 — the low end is nearing rental parity, and the high end is still grossly overpriced. If history repeats itself, the low end may stabilize temporarily near rental parity while the high end declines. Once the high end drops to rental parity, the low end will take another drop down to investor cashflow levels. Is it going to happen that way? Who knows, but that is my best guess.

Today’s featured property is a 3/2 that appears to be at rental parity here in Irvine.

Asking Price: $360,000IrvineRenter

Income Requirement: $90,000

Downpayment Needed: $72,000

Monthly Equity Burn: $3,000

Purchase Price: $550,000

Purchase Date: 8/2/2005

Address: 416 Monroe #166, Irvine, CA 92620

Beds: 3
Baths: 2
Sq. Ft.: 1,368
$/Sq. Ft.: $263
Lot Size:
Property Type: Attached, Condominium
Year Built: 1986
Stories: 2
County: Orange
MLS#: H08171801
Source: MRMLS
Status: Active
On Redfin: 3 days


It doesn’t look like the realtor is expecting a big payday here…

This property was purchased on 8/2/2005 for $550,000. The owner used a $440,000 first mortgage, a $55,000 HELOC, and a $55,000 downpayment. Not to worry, he opened a new HELOC for $110,000 on 9/20/2005 and removed his downpayment. The owner isn’t losing anything here…

If this property sells for its asking price, the various lenders stand to lose $211,600 after a 6% commission.

This property is being offered for 35% off its 2005 purchase price.

What is it worth?

I have looked at this property from a conventional financing perspective and from the more realistic perspective of an FHA buyer. In either case, I believe this property is near rental parity.

416 Monroe big down

  • With the lower interest rates, I used an assumption of 6% rather than 6.5% I have been using previously. Perhaps some can find a better rate, and for some it will be worse.
  • I do not believe there are Mello Roos for this property.
  • Since this is a condo, I put only a 1/2% maintenance and replacement reserves. If the condo association is well managed, there should be no special assessments, and with the entire exterior being the responsibility of the association, maintenance should be minimal.
  • A buyer making $90,000 is not going to see a huge tax benefit. The marginal tax rate is only 25%, and with the loss of the personal exemption, the effective tax savings rate is closer to 15%.
  • The lost income from the downpayment should be an after-tax amount, so I have reduced this from 5% to 3%. There are still 5% CDs available (in those banks nearing collapse…)

416 Monroe FHA

  • The picture is very similar for an FHA borrower. They have to pay a higher interest rate because they have to cover the FHA insurance, and since the mortgage is more than 80% of the property value, private mortgage insurance is required. These costs, plus the larger mortgage balance, increase the monthly cost of ownership.

In both scenarios, the total cost of ownership is under $2,400 per month. What do you think this would rent for? I think $2,400 is about right for a 3/2 in Irvine. Of course, that doesn’t mean rents cannot go lower, and during this recession, they probably will. However, this property seems a reasonable price given current rents and the cost of ownership. What do you think?


Hey, maybe Ill dye my hair
Maybe Ill move somewhere
Maybe Ill get a car
Maybe Ill drive so far
Theyll all lose track
Me, Ill bounce right back
Maybe Ill sleep real late
Maybe Ill lose some weight
Maybe Ill clear my junk
Maybe Ill just get drunk on apple wine
Me, Ill be just

Fine and dandy
Lord its like a hard candy christmas
Im barely getting through tomorrow
But still I wont let
Sorrow bring me way down

Ill be fine and dandy
Lord its like a hard candy christmas
Im barely getting through tomorrow
But still I wont let
Sorrow get me way down

Hard Candy Christmas
— Dolly Parton

92 thoughts on “A Reasonable 3/2 in Irvine?

  1. granite

    I am renting a 1540sf detached house on the better side of Monroe for $2260. The owner tried to get $2500 for 3 months and dropped his asking to $2300.

    From my recent experience I wouldn’t pay more than $2200 to rent this place. I suppose with poor credit I would have have to pay $2400.

    Nice to see desirable places are coming back to earth in my own neighborhood. It brightens my Monday morning. Thanks for profiling this.

      1. Mike7

        Granite will never find a 1540 for $900 a month in Irvine, but I agree it is too much rent anything over $2000 a month in rent is stupid. Live in a smaller place and save some money for a down payment.

          1. granite

            Yes, it is practically against my religion to pay more than $2000/mo. But 8 years of apartment life got to us when the family above us let their 2 young children treat our ceiling like a trampoline.

            At least IAC allowed us to break the lease knowing we were good renters and that it is very difficult to evict young families on the “Bond” program.

  2. lowrydr310

    Perhaps it would rent for $2400 a month in Irvine, but I wouldn’t pay that, and I don’t understand why anyone else would.

    What’s so special about Irvine? I used to live in “The Ranch” near Irvine Center Drive and Yale until my family sold it in 2002. It’s simply not worth the price premium.

    I had a 2BR apartment in Manhattan Beach for $1400 that was just a few blocks from the beach.

    1. Joseph

      I’m as bearish as the rest of them, but your 2BR in Manhattan Beach will not rent for less than double–and probably triple–what you paid in, what, 1995? 1975? Anyway, your point is apt, as beach proximity is about the only thing that will hedge against the price collapsing we’re seeing/ will see. I can’t imagine paying a premium for Irvine unless I can walk, skip, or hop to the beach.

      1. lowrydr310

        That’s not entirely true; the beach cities went up exponentially as well, possibly more so than inland neighborhoods. I don’t think they’re immune from any drastic price drops either.

        Many of the people I know who purchased in Redondo Beach or Manhattan beach were overextended; they wanted to get ‘in’ at any price point. A friend bought a 4BR house in South Redondo for around $350,000 in 1999 then sold it for $750,000 in 2004. $400K in five years?

        What was different in 1999? Based on what I’m looking at, we’re in a different financial mess right now and prices are most certainly going to fall to 1999 or earlier levels, regardless of location.

        Too many people are still in denial, as the reality of this situation is not supportive of their bets; they’ve gone ‘all-in’ on the poker game of SoCal real estate.

  3. AZDavidPhx

    This place is about the same size as the place I rent in a nice area of Scottsdale, AZ (with plenty of grass and little of CK’s dirt or Ipoplaya’s tumbleweeds) and my rent is 900.00 and I probably earn about the same as many people who live in Irvine.

    Of course we all know that Scottsdale is not as sacred as Irvine, but I would phrase it this way – it would not make economic sense for me to leave AZ to come live and work in your area where the majority of my income would be spent on shelter and leave practically nothing for savings.

    I would imagine that this is the same conclusion that many others arrive at. In the days of air conditioning – the “our weather is better than your weather so it is worth it!” justification does not wash. Likewise, the “our salaries are higher than your salaries” justification does not wash either because while your salaries are slightly higher on average – they are not 2x higher which is essentially what would be required for me to justify paying double my current rent for the same type of shelter.

    Your rents are completely inflated and as businesses start collapsing into the recession – it is going to bring them back down to reality. So I would say that it is hard to say that this property is near rental parity when rent will most likely decline in struggling economy.

    1. Jazy


      I like Scottsdale too, but I rent in Huntington Beach for now. How much extra do you figure you pay on electricity to make your home comfortable? Especially in months like May through September.

    2. CK

      AZ — you know I am just joking with you about the dirt. To each their own, and I am sure there are just as many reasons for you to love where you live as their are for us to love where we live.

      But you might want to test market that “in the days of air conditioning” arguement a little more. Suggesting that one needs to spend their time inside a controlled environment might actually make the case against Phoenix for those inclined to enjoy the outdoors.

      1. AZDavidPhx

        CK –

        Down here in Phoenix, we all live in mini Biosphere2’s. The death rays from the sun scorching the barren landscape make going outside for a walk in the park an impossibility.

        Unfortunately since all I care about is saving money, I have to make some compromises.

        I’m still saving up for my silver space/environmental suit, but they are on backorder. Hopefully when it arrives, I’ll be able to go out a little more. Maybe one will show up under the tree this year!

        1. Bitter Renter


          Hilarious exaggerations aside, though, different people have different levels of tolerance to different types of “non-ideal” weather (and even opinions on what makes for ideal weather would vary greatly from individual to individual), so I really don’t think it’s valid to discount the entire weather argument just because A/C makes it a non-issue for *you*.

        2. doug r

          Maybe you can pay someone to go outside your place at night and install solar panels on your roof and yard. Electricity and shade!

    3. Mike7

      Scottsdale is a great town, they have good restaurants, shopping, and tons of hot college girls to party with. But thats about it. Irvine has got the same three notes and then some. What many people don’t understand is that Irvine and other nice neighborhoods are for people that can afford them. People that have money usually live in nicer areas. The ones that can’t afford the nicer neighborhood but force themselves in unnaturally live above their means. Hence consistently complain about how high prices are. I can afford Irvine but don’t like it as much as say, Newport Coast. I would love to move to Newport Coast and am planning to in 2010. But till then will live well below my means very comfortable in Irvine.

      1. tlc8386

        What attacted people to Irvine was the better paying jobs thus the people were able to pay for these homes back in 1997 they were around 300-400K for a typical 2500 sq. foot house or so with a 5k sq foot or so yard. Duel incomes were over 100k so those with young children could work their way upward. This is typical with nicer areas as their white collar jobs affords them more. But what happened when the homes tripled and the tax rate also went sky high. What happens when the white collar jobs disappear as in downtown Irvine’s Financical Kingdom disintegrates. What happens when Irvine has little jobs left to pay for those homes that tripled? And what happens when the kids grow up and that 100k does not buy them a car, college or anything else you thought it would?
        The problem in Irvine it sucked the income out from the homeowner with increased prices for taxes and building Irvine without thought to who is actually living in Irvine? Can singles live here–college students after college, elder folks—NO only those with duel incomes and small children everyone else has to move out to afford the costs as life ages. Irvine has NO design to support any other life force. And thus it will implode with it’s high paying government jobs collected from your tax rate that no longer exists—

        So much for Irvine —LOL

  4. NanoWest

    This apartment is worth about 260K. The rent versus own calculator is great. But anyone that is thinking of buying it to rent out better also plan on….

    a) Cost for time spent to manage the apartment
    b) Vacant time, suppose 1 month per year
    c) Extra maintenance to clean up between tenants.

    1. lunatic fringe

      Excellent points! Most would be landlords rationalize away these extra costs saying “I can do that myself for nothing”. Well, no you can’t. 10% off the top for property management and 5% for vacancies are real costs that must be recognized and put into your proforma.

  5. Surfing in Newport

    The high end is just starting to get hammered. I’m looking for a place in Newport Beach and have seen the following:

    Harbor View Homes, the Monaco model sold for up to 1.7 million at the peak and could get $3,700-$4,000 per month in rent. Lowest current listing is 1.2 million, but rents have dropped to $2,900.

    The largest town home in East Bluff sold for 1.4 million at the peak, a REO just sold for 725K.

    As much as these places have dropped, they still have a ways to go to get to rental parity or lot value. Last time I estimated lot value in Harbor View Homes it was around 750K, it’s probably lower now. Rental parity is obviously even lower. Rental parity for the large town home in East Bluff is probably around 500K.

    1. Dog

      Surfing, I’ve been analyzing and tracking the same neighborhoods as you for some time now — Port streets, Eastbluff, The Bluffs, Newport Shores, Irvine Terrace, etc. Since this blog is Irvine focused, I’d be interested to take a Newport-focused discussion offline. It would be good to bounce some views around on fundamental values for these neighborhoods to keep value-focused as all those around me talk about jumping in for the ‘great deals’.

      If interested shoot me an email at ocfund1@msn.com.

      1. freedomCM

        Why not just put it in the Forums? There are a number of people tracking Newport, and there is a whole section for non-Irvine parts of The OC.

          1. Bitter Renter

            Thirded. My parents’ third landlord in a couple of years is planning on demolishing the N.B. house they’ve long been renting in February, so they’re trying to figure out where to go from here, and I’d love to listen in to your N.B. discussion.

            If you do this, please let us know what the name of your thread is.

  6. Perspective

    I think part of the impatience is due to our memories of how lightening-quick prices accelerated from 02-05. Our minds expect the correction to occur at the same speed while decelerating.

    We’re now 2 to 3 years into this correction and prices in desirable areas still aren’t reasonable. If the forecasted bottom is around 2012, that’s nearly a decade of our lives where it feels like life’s been “on hold.” It’s a hard emotion to control.

    1. MalibuRenter

      Prices are dropping faster than they rose. From the peak in Sept 2006 to Sept 2008, the CS index has dropped back to March 2004 levels. That’s 2.5 years prior to the peak.

  7. Will


    Last night 60 Minutes had an interesting report on the Option-Arm Reset Wave coming. They interviewed one guy who said this will be worse than the sub-prime chaos. You should try and see it on the web if you have not seen it. Do you know how many Option-Arm resets there are in Irvine?

    1. QualityPicks

      No doubt that the option-arm recast will put more pressure in the housing market. But we live in a surreal economy, that just keeps lying and pretending in order to avoid total failure. Banks will re-fi or fix the introductory payment for a few more years for a big percentage of customers. They are not fixing the problem, just spreading in an attempt to make it manageable.

      That is why I believe home prices are going nowhere for 15 years or so. Those timing the bottom to try to make money with appreciation will likely be disappointed for many many years. Supply will just keep entering the market from people that were re-financed or that got their low payment fixed for a few more years and from current knife catchers that don’t know what “afford” means.

      So when I buy a house in two years or so, I will do so only because it will be cheaper than renting, and because I have a big enough cushion to weather the bad times. This “cushion” I believe is something people are not taking that much into consideration right now when trying to determine if it is affordable to buy a house. I just tell people this: “You need to put 20% down and have at least 6 months of expenses in cash, and still be able to save for retirement in order to say that you can afford a house”. People only think of the monthly payment, and even then, they stretch it beyond sanity. Not to mention they don’t consider maintenance expenses.

      Anyway, housing will not be a good investment for many years to come.

      1. Jim Jones

        “So when I buy a house in two years or so, I will do so only because it will be cheaper than renting, and because I have a big enough cushion to weather the bad times. This “cushion” I believe is something people are not taking that much into consideration right now when trying to determine if it is affordable to buy a house. I just tell people this: “You need to put 20% down and have at least 6 months of expenses in cash, and still be able to save for retirement in order to say that you can afford a house”. People only think of the monthly payment, and even then, they stretch it beyond sanity. Not to mention they don’t consider maintenance expenses.”

        I too have a hard time understanding how buyers could ingnore these very basic assumptions. Now many are paying the price after foreclosure with zero savings\retirement and trashed credit.

    1. Priced_Out_IT_Guy

      Funny isn’t it?

      If you make $90,000/yr, your take-home cash flow is about $58,500/yr or $4,785/mo assuming 35% gross W2 taxes in CA. So JUST your rent is 50% of your monthly cash flow. Haha

      No thanks, I’m with AZDavid on this one. I’d still rather live in the desert. 1300sq ft is also a bit small for 3 bedrooms and the feel of the condo layout is more like an apartment complex.

      IMO, for an SFR this would be desirable but not for a compact condo. Unless entry-level SFRs come down to this price I’ll be buying in Oceanside next 1-2 years. My commute will be the same anyways.

      1. Nameless

        A single-income family with two kids under 18 and a $90,000/yr gross income would net $5,796/month when renting, if they put 4 allowances in the W-4.


        On top of that, they’d be eligible for a $2,844 tax refund on April 15. (That’s not including the stimulus rebate) So, they’d be overpaying their federal taxes by $237/month.


        $2300/month rent is not that bad when your net income is $6000/month.

        1. AZDavidPhx

          Wow, who would have thought that having children could save you so much money. You are right, 2300.00 rent is quite the bargain. IT_Guy just needs to have some more kids and then he’ll be able to afford to rent this place. Makes perfect sense.

          1. Nameless

            IT_Guy already has kids, or else he wouldn’t be interested in the place. In case you haven’t noticed, it has 3 bedrooms and it is within walking distance from an excellent elementary school. 3-bedrooms in high-rated school districts are generally purchased by married couples that either have or plan to have two kids.

            If you’re single, you can move 5 miles northwest from there and find ample selection of 1-bedrooms in Tustin or Santa Ana for less than $1000/month.

          2. irvinesinglemom

            I’m single, but I have a kid. I hate that – don’t just assume if you’re single, you don’t care about the school district.

        2. a@b.com

          Our household gross is well over three times your gross number and we absolutely refuse to spend anything near $2300 for rent. There are alternatives that net you more money in the wallet, if you are able to manage the lifestyle and travel.

          $2000+/month flushed into the rent toilet is obscene, but it does keep the landlords happy there are those still willing to pay bubble rent prices for the privilege of living in OC.

          1. Chris

            So I guess most everyone in Silicon Valley who rents 2bd/2bth in decent locations (no Santa Ana-like places please) is obscene.

            Who would have thought. I should check with my head doc now….calling….

          2. irvinesinglemom

            I’d rather be cash-poor due to paying high rent to live in Irvine, than live my life on the freeway.

  8. Dave

    You mention the marginal tax rate is 25%–but that’s only federal. I don’t know the CA rates, but surely they add another 6-8%? NY sure does at that level.

      1. Nameless

        You are correct, marginal tax would be 25% federal and 9.3% state. Also, state income tax can be used as an itemized deduction, and at 90k income it would be comparable to standard deduction for one person.

        I have an Excel homeownership cost spreadsheet that tries to do a tax calculation when owning and renting, and estimates tax savings to the next order of significance. Using the same assumptions as IR, I get this for a total cost of ownership in a 20% down scenario:

        Single buyer, no kids: monthly cost $1768 (monthly tax savings $560)
        Married buyer, no kids: monthly cost $1967 (monthly tax savings $370)
        Married buyer, two kids: monthly cost $2024 (monthly tax savings $313) – two additional exemptions move the family to the edge of 15% federal tax bracket

      2. a@b.com

        I suspect most everyone here pays > 9%.

        From bankrate.com:


        California collects income tax from its residents at the following rates.

        For single and married filing separately taxpayers:
        — 1 percent on the first $6,827 of taxable income
        — 2 percent on taxable income between $6,828 and $16,186
        — 4 percent on taxable income between $16, 187 and $25,546
        — 6 percent on taxable income between $25,547 and $35,463
        — 8 percent on taxable income between $35,464 and $44,818
        — 9.3 percent on taxable income of $44,819 and above.

        A 1 percent surcharge is collected on taxable incomes of $1 million or more, making California’s highest marginal rate 10.3 percent.

        For married persons filing joint returns and heads of households, the rates remain the same but the income brackets are doubled.

  9. Cubic Zirconia

    I have seen similar properties. The price before was overly inflated (no surprise there of course). But, the house doesn’t have perigraniteel. A big no-no in Irvine. The garage is detached. You actually walk through your patio to reach the garage. The condo I saw had open framing in the garage. I don’t know if it’s the norm. Also, bathrooms are typical apartment style bathrooms with no space to put nicer fixtures later on. It’s a good investment property.

    It’s a good price, but not for a regular 3/2 perigraniteel buyer. In the end it’s a place that you live in. You have to like it, not just for the price you pay for the interiors too.

    PS: I did offer a lot more than it’s price today to one of the similar properties here, and my realtard was so offended that she told me she won’t submit the offer. Thanks to her, I am saved:-)


  10. Jim Jones

    It only makes sense that in the absence of bubble mania that properties like these would only appeal to investors at investor cash flow levels.

    I don’t understand why anyone would be willing to make the financial comittment neccessary to become an owner\occupant of units like these unless prices were dramatically under rental parity.

    So to me when judging bottom, the rental parity numbers are only applicable when applied to properties rational people would want to own and occupy. Including crappy apartments in with decent SFRs in the rental parity calculation doesn’t make a lot of sense to me.

  11. Hormiguero

    ” At this point, we are looking much like the market in 1991—the low end is nearing rental parity, and the high end is still grossly overpriced.”

    good insight. the volume in the high end versus the low end certainly says something. it would be interesting to track how rates jump for jumbo loans, as well.

    how harsh will the end-game be? will 5BRs in citrus heights, houses west of PCH, etc, tumble back into six digits, with cash offers only accepted?

  12. StartYourOwnBlog

    People like AZDave have been posting here for years complaining about home prices and how “it’s not worth the renal cost.” My feeling is that this forum is for people WANTING to live in Irvine and want to pay a reasonable price for a place in a desirable location, named one of the best places to live, with weather that won’t burn you at 115 degrees. I’ve been to Phoenix and for $100/month, I wouldn’t live there. The place is boring, the weather is terrible, the schools aren’t as good, my family doesn’t live there, I’m 1.5 hours away from LA to San Diego to Mexico, to Skiing, water skiing, close to Las Vegas, ETC! A great combination.

    Dave, good for you that you like living in the desert heat, but people like me want to enjoy life and don’t mind paying a premium to live there. The way prices were inflated, yes, it has been too expensive, and we all know it will deflate, and once they hit a price that makes sense, we will buy, and the posts will reverse to what good deals are out there instead of seeing people lose there homes. People like to buy a Lexus instead of another car since they don’t mind paying a premium for something, in their eyes, is better.

    AZDave, stop posting here and either start a phoenixhousingblog or sit home and count the extra $ you have in your account.

    1. MalibuRenter

      “renal cost”? You mean like you have to donate a kidney to afford it?

      At the peak, people probably would have done it.

    2. HydroCabron

      “The place is boring, the weather is terrible, the schools aren’t as good, my family doesn’t live there…”

      Prices are lower in Arizona because your family doesn’t live there?

      1. StartYourOwnBlog

        The first 3 items made the point… I meant to say that since my family lives here, it’s worth it to pay a premium.

        I’m also not saying Irvine is it, it’s Southern California which will ALWAYS be much higher priced than AZ and for a lot of people (the millions living here), it’s worth paying a premium. As I said, I’m willing to pay a premium, but not the ridiculous premium of the last 4 years. AZDave keeps bringing up his $900/month rent. It’s worth it to pay more to live in what many people feel is “better.”

        1. AZDavidPhx

          Explain to me why all of a sudden Southern California commands this “premium”?

          Has the weather changed for the better since the 1970’s?

          1. StartYourOwnBlog

            Reread my post and you might understand why California requires a premium. I gave many reasons and there are many more, specific to each individual. I think it does, you don’t. If you’re so happy in AZ, don’t worry about other people paying that premium. I’m one of the many millions glad to make the extra payment per month.

            To your exact point, the weather is the same as it was in the 70s and when the prices drop to 70s prices plus inflation, then it’ll be even more worth it to live here. In CA, it’ll be, for example, 300,000 for a condo and 150,000 in AZ for the same type. I’ll gladly pay the extra 150.

          2. AZDavidPhx

            Good for you. Then pay your premium with your hard earned cash rather than take out a mortgage using creative financing. We shall see how much that premium is really worth then.

          3. RRollands

            Southern California home prices command a premium due to the population density and the availability of jobs…although that might change soon with all the recent OC layoffs and outsourcing. I’m currently renting an IAC apartment for $1615/month, and although it’s pricey, it’s still only 20% of my monthly after-tax income. However, if I lose my job and couldn’t find one nearby, I’d consider relocation–people go where the jobs are, and immigration (even domestic migration) are driven by the possibilities of better opportunities elsewhere. And if Schwarzenegger thinks it’s a great idea to raise taxes in a recession and pushes through his proposed increase in sales, property, income, and vehicle-license, there will no doubt be a mass exodus of taxpayers and employers who simply can’t afford to live here anymore, no matter how nice the weather.

        2. Chris

          Please, don’t generalize SoCal. You don’t even know what you’re talking about.

          I wouldn’t consider East LA, Compton, and Santa Ana as desirable.

          However, I do think Irvine commands a premium because of its population makeup. I wouldn’t wanna see Irvine fall back to 3x ratio.

      2. Bitter Renter

        > Prices are lower in Arizona because your family doesn’t live there?

        Stop it — you guys are killing me. 😆

    3. Jim Jones

      When I purchase something it most likely won’t be in Irvine. Excluding the high end stuff the construction quality doesn’t seem that great and the minimal yards in lieu of shared community space kind of turns me off. I see myself buying in some of the older communites in South OC. But there is lots of good info on this blog that I would think is applicable to the SoCal area in general. I wonder how many folks who post here plan on actually purchasing in Irvine.

      As far as comparing SoCal with other parts of the country I think you really need to factor in the weather, geography and attactions that SoCal offers and that most other areas of the country do not.

      1. dennis

        i lived in california for 30 + yrs i moved to central texas to get out of that septic tank you got be kidding the weather, weather is just aobout the same my heating bill runs about 50 dollars in the winter and my air conditioning when i use it runs about 75 on the high end, you can look out here and see for 25 mile plus , the ocean and beach in california suck, you can only go to disney , knotts etc only so many times, the mountains up on big bear the trees are dying, , when you people went nuts on pricing i sold got out of dodge now live in a great place, 3500 sg ft 5 acres cost 175000 paid cash, put the rest under the matress , yes i saw that coming too, retired at 42 , fish, go to beach on padre and in mexico, which by the way make calif beaches look like sewage holding ponds, oh yal on irvine old marine base toxic as hell i m sure down the road cancer rates will be higher there too,i will give nothern calif is nice but southern calif is just another desert like phonix take the water that you get from out of state and the gila monster will move back in

        1. Bitter Renter

          Dude, if your life is such a paradise now that you’ve “escaped” from So Cal, why is the O.C. real estate market still on your mind enough to be following this blog and posting your justifications for leaving?

    4. Dave

      Sounds like you don’t like people telling you that you might be making the wrong decision. Irvine is a nice place to live, but it’s far from perfect. I think that you’ve been listening to too much Irvine Company propaganda.

    5. AZDavidPhx

      Dave, good for you that you like living in the desert heat, but people like me want to enjoy life

      Then why does your post come off as though it were written by someone who is not enjoying life?

      In fact you seem to be upset as though something about my post really upset you. Someone who is enjoying life certainly would not respond with such frothing at the mouth rhetoric or waste their time coming up with every reason they could possibly think of to not like Phoenix as though they were somehow trying to convince themselves of something (perhaps trying to convince yourself that you are not overpaying to live where you do?).

      Keep spreading your joy – it’s infectious!

    6. AbroadThankGod

      I don’t think IR or anyone else here appreciates you suggesting that this forum should be exclusively for people that live (or want to live) in Irvine. Your attitude exemplifies the problems that got us here in the first place – arrogance, elitism and ignorance.

    7. a@b.com

      I welcome AZDave’s comments. Without him and others like him, this forum would be nothing less than a mass circle-jerk and pity party.

    8. tazman

      I like Arizona Dave’s posts, especially his mashups.

      As for his rental rate, i agree, it’s a LOT cheaper to live elsewhere in the country, but I make at least 50-60% more for what I do in CA than MN where I moved from…and no -50 below anymore.

      I’m gonna hang in Cali until retirement and then go buy my a palace somewhere cheaper.


  13. Lee in Irvine

    I know I’m repeating some things that have been said in the past, but I really think everyone needs to keep these points in mind before they make any large decisions that impact their finances.

    These declining values are still a joke. Throw out all the old valuation models … they no longer apply with the events that are going on in our local distorted economy. Stocks are down almost 50% in a little over 12 months. The mask of fictitious wealth has been removed from our phony, real estate, dependent economy. It is over.

    Orange County HH Income = Variable Data Point

    Orange County household income is almost certainly going to decline in most, if not all, of the white collar zip codes.

    Rental Parity = Variable Data Point

    “Rental Parity” is very iffy in a real estate dependent economy, full of homeowner borrowers who have yet had their day with the reaper.

    JMHO ~ We’re gonna see an unprecedented decline in rents and HH income in Orange County. This will place more pressure on our still, vastly, overpriced real estate market.

    All you have to do is look at the evidence, and understand how and why we got to this place, to form an Armageddon outcome. We’re gonna witness a shocking event.

    1. CK

      “JMHO ~ We’re gonna see an unprecedented decline in rents and HH income in Orange County. This will place more pressure on our still, vastly, overpriced real estate market.”

      Lee — I agree with you 100%. But as prices in So Cal start to approch parity with the rest of the country, then the folks in Minnesota are going to start saying “Geez, it’s 10 below zero here today and 72 in LA, and I can live there for only a xx% rent premium from the frozen tundra”. And they will start flocking here again, and the whole cycle will start all over. It’s inevitable.

      I know this from experience. After growing up in the frozen ‘burbs of Minneapolis I was getting out of the Navy in 1995, and faced with moving back to Minnesota or finding somewhere better. LA/OC in 1995 was a virtual bargain back then — the premium over the Midwest was negligble. So here I am, still. And almost my entire family followed me here. And this cycle will repeat itself with newcomers from all over the Midwest and NE. Heck, this phenomenon even hits Arizona. Ask AZDave how many purple jerseys were in the crowd to watch the Vikings beat down the Cardnials yesterday.

      1. AZDavidPhx

        CK – You would not believe how many people make the exact same argument to explain the large numbers of people moving to AZ.

        CA has pros and cons.
        AZ has pros and cons.

        You are going to think CA has more pros than AZ.

        Not everyone is going to agree with you. The fact that your immediate family followed you out there is a very small and biased sample. Surely nothing that you can use to extrapolate as decisions that will be made by all Vikings fans.

        1. DA

          Maybe the presence of large numbers of Vikings fans explains the lower rents and home prices…
          that makes ANY neighborhood undesirable

  14. QualityPicks

    You also need to think that rents were inflated too, not to the extent of home prices but they were. And so were incomes as the easy money was flowing everywhere. I think it is amazing incomes have been relatively stagnant for several years given that so many people were making a lot of money in real estate, specially here in Irvine.

    So “rental parity” is not an absolute measure of what I would consider affordable.

  15. DAve


    You heard it AZDave you got yer walking papers dude nice knowin’ ya while it lasted-

    Hee hee

    SYOB nice move trying to exile one of the most popular posters on this blog- hell while you’re at it why don’t you banish Irvine Renter since you’re more concerned with buying???

  16. erik

    great work as always.

    thought you might like a bit of humor – sort of.

    “Is Ben Bernanke Charles Ponzi’s Lovechild”


  17. stepping_up

    I’m not sure I agree with the assumption that knife catchers are driven by fear of being priced out. In fact, I think it’s just the opposite. I think what drives the knife catchers, myself included, is that for the first time in 5 years houses are actually relatively affordable.

    While the high end hasn’t had that big of a drop, even Ten gets excited about a few hundred thou less for the properties he’s interested in. Percentage wise, it’s not that much.

    In the middle though, I think you have a lot more people like us. In ’03 I had a downpayment fund, but it wasn’t 20%, so I figured by ’04 it would be. Nope, prices went up so much that I needed to save more. When I looked again in ’05, I said, “Forget it, ownership in OC isn’t worth the prices.”

    Fast forward to an REO in Spring of ’08 and we can comfortably afford a starter SFR. It’s not perfect by any means, but my husband and I were just talking last night about how much we enjoy the house over our rental. We talked about how much more money we would have and what we could buy next year for the same price, but the fact of the matter is that we sick and tired of renting.

    Anyways, my point is that we didn’t catch this knife because we thought that we’d priced out forever. Rather, we had been priced out for so darned long that it was astonishing that we were no longer priced out. At the time, we didn’t think prices were going to plummet that much more. While they have in our neighborhood since we bought (closed in May) they haven’t come down all that much since, maybe 10%. Does that suck? Yes. A whole heck of a lot in the big scheme of things factoring in happiness? No.

    If they plummet much further will it hurt? Yes and no. I’m a big sucker for what if scenarios and I pay attention to the market, so it will affect me, but not my husband. And, I also look at the other side of whether there might be more opportunity for us if prices plunge further. i.e maybe we could land that more ideal home or pick up an investment property in the further fall out.

    Also, I think we have lower expectations than others in our income bracket. We don’t feel wealthy, but it seems that a lot of other couples with our income level expect to waltz into their dream home. For them it’s one of those Irvine houses, for us it was a bungalow in Laguna Beach, but we wrote that off a long time ago. You bears may think that we should have kept that in our sites with some patience, but we just didn’t believe it would possible in the relatively near future to afford it. So, we looked at what we really wanted and decided that we could have a lot of it with plan B.

    1. Chris

      As long as you’re happy with your purchase and that you can pay your mortgage/prop tax/maintenance/HOA(if any) even without a job, good for you.

      I’m just throwing a bit more than $2k/month down the rental (or was that renal?) toilet living here in Silicon Valley. Not exactly paradise.

      1. stepping_up

        without a job we can’t afford rent or a mortgage, either way you are going deep in savings and/or debt.

        1. Chris

          Not if your net worth is high enough to generate passive income without a job or, if not high enough, at least survive until the economy bottoms out.

          If you’re assuming permanent employment, you gotta check yourself. This is why so many people are getting NODs even with prudent LTV of 80/20 on their homes. To me, 80/20 is a joke….50/50 is more appropriate.

          Problem is, too many people don’t assume or won’t imagine “worst case scenario”.

  18. DAve

    Yeah steppin’ up I come before you to announce that


    We also don’t feel rich because we don’t borrow money like those around us to feel that way. As a result while it IS a bitch this recent extreme downturn isn’t affecting us much. We live in La Verne which is in many ways the Irvine of the East San Gabriel Valley.
    We have been very clear to our children about why we don’t live the credit card/heloc lifestyle and sure enough present circumstances are providing them with proof of the soundness of our concept.
    The parents of their friends at school are losing their big fancy houses in DROVES now, and usually getting divorced in the process.
    It was always obvious to me that their lifestyles of unlimited texting for their 12-year olds wearing $90 t-shirts and $100 shoes and living 4 people in a 3-story house (we have 7 in 1500 sq. ft.) was all built on the borrowing house of cards. Now the kids are starting to believe me I think.

  19. Matt

    Wow. It’s been a few weeks since we’ve had the ol’ “Irvine ain’t everything” thread. Think I’ve chimed in on this one a few times myself, so I’ll let it be.

    However, on the larger point of rental parity in Irvine and the Irvine premium, I’ve actually been quite amazed at how the Irvine city limits seem to be holding value. My suspicion is that seeing a place like this priced like this, that the neighboring parts of Tustin are going to start exerting a little downward pressure in North Irvine. I don’t think Tustin or Irvine are done falling by any stretch, but I think Tustin will lead the way.

  20. Ang Lee

    “I also recognize that even if prices do not reach rental parity, and if I never own, I will be better off financially by renting. It is a win-win. Intellectually, I recognize this truth. Emotionally, I have to let go and trust my intellect. It isn’t always easy.”

    The sad reality of the situation is this. All of us have our eyes on the same few neighborhoods. Im on the east coast but the same thing is going on here. The fact of the matter is there are MORE of us looking (at various risk tolerances from the biggest knife catcher to the most careful calculating renter), than there are houses to buy.

    Think about that again. In certain neighborhoods you have too many people, too few houses – demand exceeds supply. As such, at the end of the day, the most risk tolerant of us will be PRICED OUT FOREVER. It is hard to accept that, and it is harder to say that, but it is true.

    1. Bitter Renter

      Don’t you mean “the least risk tolerant of us”? Also, “priced out currently” does not equal “priced out forever”.

Comments are closed.