Long-Term Appreciation

Most people vastly overestimate the actual long-term appreciation of real estate. Today, we will look at a condo purchased originally in 1990 that has appreciated at 4% per year to reach today’s still-inflated pricing.


Irvine Home Address … 90 LAKEPINES Unit 5b Irvine, CA 92620
Resale Home Price …… $195,000


Looking out at the road rushing under my wheels
I don’t know how to tell you all just how crazy this life feels
I look around for the friends that I used to turn to to pull me through
Looking into their eyes I see them running too

Running on – running on empty
Running on – running blind
Running on – running into the sun
But I’m running behind

Running on Empty — Jackson Browne

Appreciation seems to be running on empty, or has the Federal Reserve permanently refilled our tank?


I covered the various methods of predicting where prices would bottom in The Great Housing Bubble. The chart below comes from Future House Prices – Part 1:

Figure 37: Irvine, CA, Projections from Historic Appreciation Rates, 1984-2026

The story for the most inflated markets such as Irvine, California,
is much the same as the national forecast. If the 4.4% rate of
appreciation seen from 1984-1998 is repeated, then prices will decline
45% from the peak, bottom in 2011 and return to the peak in 2023. Since
prices peaked in 2006, this method of price projection shows an 18 year
peak-to-peak waiting time: not a comforting forecast for Irvine

Most people assume California real estate appreciates 6%-10% per year with some years being even better. This fuzzy thinking becomes an obvious absurdity when projecting large rates of appreciation because the prices quickly become so large that people could not make payments with a 100% DTI. Trees cannot grow to the sky, and prices cannot exceed income growth in the long term.

Of course, most people don’t really analyze the implications of what they say or think, they just accept the conventional wisdom of the masses even when this information is wrong. Worse yet, people then act on this information, buy overpriced property, and end up losing money or waiting a very long time for prices to come back. Knowledge is power.

IHB Library

For those of you who have not discovered our library, we have all the analysis posts I have written for this blog in one organized location:

And for those who missed the announcement, I have uploaded the full content of the Great Housing Bubble to the IHB:


Irvine Home Address … 90 LAKEPINES Unit 5b Irvine, CA 92620

Resale Home Price … $195,000

Income Requirement ……. $36,712
Downpayment Needed … $39,000

Home Purchase Price … $110,500
Home Purchase Date …. 1/25/1990

Net Gain (Loss) ………. $72,800
Percent Change ………. 76.5%
Annual Appreciation … 4.0%

Mortgage Interest Rate ………. 5.20%
Monthly Mortgage Payment … $857
Monthly Cash Outlays ………… $1,320
Monthly Cost of Ownership … $1,050

Property Details for 90 LAKEPINES Unit 5b Irvine, CA 92620

Beds 1
Baths 1 bath
Size 710 sq ft
($275 / sq ft)
Lot Size n/a
Year Built 1978
Days on Market 5
Listing Updated 11/2/2009
MLS Number S594735
Property Type Condominium, Residential
Community Northwood
Tract Lk



This property records for this post show the 1990 purchase to illustrate the long-term rate of appreciation. The property was most recently purchased from a lender on 9/30/2009 for $160,000. This is a quick flip to make about $30,000.

  • The owners who were foreclosed on had a more interesting story. They purchased this property on 4/17/2003 for $183,000. They used a $173,850 first mortgage and a $9,150 downpayment. Then the fun begins….
  • On 11/30/2004 they refinanced the first mortgage for $213,750.
  • On 11/7/2005 they refinanced again for $260,000.
  • On 3/31/2007 they refinanced again with a $244,000 Option ARM and a $30,500 HELOC.
  • Total property debt is $274,500.
  • Total mortgage equity withdrawal is $100,650.

This borrower gave up in late 2008…

Foreclosure Record
Recording Date: 07/10/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 04/03/2009
Document Type: Notice of Default

One hundred thousand dollars is a good HELOC take from this property.

In case you missed this great post over at Housing Doom yesterday…

Where have all the bubble bloggers gone?

Bubble bloggers were for the most part, regular folks who saw an insane real estate market and said, “It’s going to crash, and someone should say something“. Some, like HousingPanic, Ben Jones and Patrick had inspired a national audience, others were smaller and more local.
There was a lot of comradery in those days. We’d check each others
posts, and add each other to the blogroll. We had fun taking potshots
at the likes of Lereah and Mozillo and watched the data in our local

This morning I read Chuck Ponzi’s Top 10 signs you’ve been following the housing bubble too long. Chuck, we’re you writing about me?

10. You kinda miss the days when everyone was still on blogspot. Uh… except for that Ritholtz guy.

9. Everything looks like a bubble now. Even bubbles.

8. Oompa Loompas and “The Tan Man” evoke feelings of intense disgust.

7. You know who Tanta and the Mortgage Pig are and you miss them.

6. You KNOW Neil has got popcorn.

5. The inflation vs. deflation argument was sooo 2007.

4. You wonder if Schiller has a time machine.

3. You know the rental multiplier for your neighborhood.

2. You think the Flying Monkey Warriors vs. Greg Swann battle was epic and you totally know who won.

1. Hoodoodanode?

Frustrated with trying to buy a home? (funny)

43 thoughts on “Long-Term Appreciation

  1. Freetrader

    Irvine Renter, apparently you didn’t get the memo, hot off the line from CNN/Money:

    The housing crisis is apparently OVER, and prices are at ROCK BOTTOM. I think that means that they cannot go any lower?

    If you don’t believe me:


    Of course, while it is interesting the JP Morgan Chase is hiring some new loan officers, it isn’t indicative of much — the loan broker industry must be 25% of the size that it was four years ago. People are still going to get mortgages, and there simply aren’t that many solvent banks left. It may be that prices really are at “rock bottom” in some markets, but it could also be a simple matter of sloppy editing.

    1. AZDavidPhx

      Sounds perfectly logical to me.

      The government is giving out freebies to house debtors and insuring the losses when the FB defaults.

      What kind of greedy pig of an organization would not want to take advantage of this win-win of a deal?

      They will originate bad loans, collect their middleman fees and dump the loan on the government ‘GSE’s.

  2. question

    Interesting post Larry, thank you. But am I incorrect in thinking that the year of purchase used as a baseline in this example, 1990, was also a bubble year, thereby somewhat distorting the 4% appreciation rate cited? Or does the fact that November 2009 prices are still inflated and still headed down compensate for what appears to me to be an inflated 1990 baseline price? Thank you Larry…

    1. E

      Nope…you’re not incorrect.

      This turd was bought at the peak of the last bubble…and it was a big ‘un.

      It’s still “popcorn” time.

    2. IrvineRenter

      Yes, 1990 was the top of the last bubble, and we are still inflated. Beyond that, I want to show people when you look at true long-term home ownership, houses do not appreciate at 6%-10% per year which is the common belief.

      1. tkaratz

        So you are attempting to disprove the commonly held belief that homes do not appreciate on the average of 8% by:

        1) looking at only one condo
        2) picking an arbitrary start date
        3) picking the least desirable of all inventory in a single sub-market
        4) not referencing the average return on the s&p 500

        But hey, I understand, standalone facts rarely proves anyone’s point

        1. Walter

          Sounds like you know something we don’t.

          Can you show us a So Cal property that has appreciated 8% a year over the last 20 years?

          1. tonye

            I bought at the _beginning_ of the late 80s bubble. We made our offer in January of ’87. Not counting the rebuilding that I did in the late 90s (from 1800 sq feet to 2700), my property would have appreciated at 7% for those 22 years.

          2. Walter

            From the beginning of 87 to the end of 89, values shot up so if you did the comparison over 20 years, you will be much closer to the 4% talked about in the post.

            That said, if anyone wants to believe RE values go up 7% – 8% a year long term, so be it. Also, now that I think of it, this whole topic does not make much sense unless the values are inflation adjusted.

          3. Geotpf

            Well, IR does mention that the 4.4% rate is inflation plus 1.3%. The thing is, there are so many price swings (especially now, but also in the 1990’s) that it really does depend a lot on the start and end dates you are using.

      2. norcal

        I was also wondering why IR chose the years he did for an example of appreciation. If you choose different years, do you get a different appreciation? And how does house price appreciation correlate with median income?

  3. MojoJD

    I remember taking a long, hard look at this property 5-6 months ago as an investment. I didn’t think that it would be too hard to reach rental parity at near 160K. I never actually took the next step and visited the property, though.

    I also didn’t like the fact it was so close to a registered sex offender. =P

  4. Rocker

    So far it seems that is true, “bubble bloggers” underestimated the power of the government to at least make things look as they are stabilizing in the real estate market, I guess, as it’s kool aid on the upside, there’s kool aid on the downside too, is probably too early to say.

    I’m a little surprised that Schiller is “giving up” on what’s next, again probably too early to say.

    Life is not fair even after you do 100% of the right things, in this case: save, don’t abuse your credit and buy a house, but for prudent people that decided to wait to buy a house and decided to rent, luck was definitely not on their side because they were hurt when the bubble was going up and they were hurt again when things went down, by hurt I mean, they did uncomfortable things while waiting, and probably now they have a reduced income or no job at all.

    1. Lee in Irvine

      I suspect a lot of “bubble bloggers” don’t think this battle is over. Many bears realize that the govts actions of zero percent interest rates and spending 10%(+) more than it takes in is unsustainable. Yet the REIC doesn’t think so. The govt has merely given the REIC a reason to (temporarily) cheer … and cheer they should.

    2. wheresthebeef

      Rocker, I’m renting and waiting to buy…I wouldn’t touch this current market. The risks far outweigh the rewards. I know plenty of people who bought in 04 and 05 that are in a world of hurt. Yes, they have enjoyed living in a house for 5 years, but at a price…a very high price. I’ll keep renting and saving, hopefully fundamentals win out in the end.

      1. matt138

        The fundamentals always win. Trying to fight market forces is stupid, expensive, unsustainable, and creates unintended consequences.

    1. Kelja

      You wonder – how long will we bury our heads in the sand and ignore the warning signs.

      Just about how long we can ignore Iran is building a NUKE. Reality will make a sudden and intrusive appearance when most least expect it.

      There is one thing all humans share and that is the ability to wake up every single day and rationalize something.

      1. mike in irvine

        “There is one thing all humans share and that is the ability to wake up every single day and rationalize something. ”

        I agree.
        Last i was hoping that prices would ‘suddenly’ drop and reach a new normal. Now i realize that a house is not like owning a stock. It is easier to sell stocks at a loss and move on, the emotional baggage with housing leads to a false sense of reality. I see friends changing their sq ft. or number of rooms on Zillow to increase the estimate value of their homes. They feel that they are doing the right thing, nothing wrong in correcting the distorted picture.
        The government is doing the same thing at a much larger scale…i just hope they are sucessful in engineering a soft landing.

        It reminds me of the South Park episode about the economy where the president’s economic advisors make headless chicken run around to decide the value of a bailout.

  5. Newbie2008

    Is the rate of new 90 days behind paying going up or has it reached a steady state and the banks are just delaying FC, so total 90 days or more behind increases? If the new non-payers are at a steady state or decreasing with delayed FC, the over 90 days would be going up, but one could claim things are getting better (less acceleration of rate of non-payer). That’s that the BO and WS are saying about unemployment. Less new unemployment applications, so lower rate of layoffs.

    Only 7% non-payers on mortgages —
    only 10.2% unemployed (U1).
    Only 18% out of work.
    The rescession is over!

    RE question: For OC, is the sq. ft listed the area to the inner walls or to the outter walls?
    If the latter, this condo only has about 670 usable square feet.

  6. OC Progressive

    Talked to my local Realtor yesterday.

    More buyers than sellers for any home priced to the market. Very few homes on the market. Tons of inventory that the banks can’t process, and an interesting story about short sales being used to create a valuation for the lead home in a package of crap being sold to vulture investors.

    Also an interesting story about lenders and condos where no lender would approve a loan because too many units were already in default, rendering condos unsellable.

    This is the best guy around, who is one of the few survivors now, and the poor guy just looks like he has been beaten down.

    1. whatever

      I am in the middle of buying a condo in OC (for my personal use) and while hanging out in my loan broker’s office this week I see stacks and stacks of loans being processed for real etate partnerships.

      While individuals may not save much, there are plenty of people with disposible and investment income, and they are putting it into OC real estate.

      Can they keep up with the sellers and prevent price declines? I don’t know. All I do know is that while I agree the appreciation numbers on this post, they go OUT THE WINDOW if there is massive inflation. Yeah, interest rates will go up making homes more expensive to purchase, but the people already in them (and who have jobs) will see their income appreciate and thus the pay-off value of their loan goes down.

      My reason for buying: when will interst rates on a real estate loan go LOWER?

      Aanyway, keep in mind that the unemployment rate for college education men is 4.5% right now (go to interactive chart on NYT here: http://www.nytimes.com/interactive/2009/11/06/business/economy/unemployment-lines.html

      If we assume that the vast majority of heads-of-housholds in Irvine – as a fairly upper middle class city – fall in this category, this number sucks but it isn’t the armegeddon of 10%+. So movement down in this particular market may be muted more than other areas.

      1. Unemployment in all sectors

        I think unemployment or partial unemployment is hitting all job classes white and blue collars alike. This is not to say don’t buy a residence if you are comfortable ith your employment situation, and so congratulations. BTW, you don’t need an armagaddon for prices to fall, nor a huge economic expansion for prices to rise. The way it has been is that if a couple of properties rise in a neighborhood, all neighborhood rise by roughly the same percentage (and the same on the way down)…

      2. newbie2008

        Trends implies that Irivine’s unemployment has risen 2% in the last two months. Thus about 8% now. Better than 10%, but the trend does not look good.

  7. priced_out

    I have a semi-funny response to your community-of-housing-bubble-bloggers comment at the tail of your post.

    I started blogging about housing prices in my town, Chapel Hill, NC and at one point posted a link to my blog in the comments section of your blog.

    At some point later, I started googling to see if my blog would turn up for various queries involving Chapel Hill real estate (kinda like how your blog is #4 when searching for “Irving real estate”). At the time, I could be found on the 2nd page when googling “Chapel Hill Bubble.”

    I haven’t posted a link to my blog since then, and over time, my blog has fallen further and further behind the page ranks. My blog doesn’t show up until page 15 when you search for “Chapel Hill Real Estate”.

    IR: your blog holds so much sway that it can make a crappy blog like mine shoot up in the page ranks. Way to go!

  8. Ane

    Maybe we are wrong, maybe 2006 is not the top of bubble, after all it is 2012.

    Obama is giving anything $$$$$ away to re-inflate the bubble for HIS 2012 president election. He still have last card (asset) to play that is US dollar. He is using US dollar to bail out the housing bubble.

    When he re-nominated Ben for Fed chief, I knew it’s game over. Shames on Ben that as a GD scholar uses that GD name to print money. Ben knew it is totally different ball game now and 8o years ago. For example, why even interest rate are so low and inflate still so low, because this is a new world, with globalization you can’t apply 80 years ago to now.

    Dollar down 15% this year and keep dropping, with re-inflated bubble, Obama will be reelected (sound familiar, with housing bubble, Bush got reelected). And the bubble bigger is coming.

  9. Buying in CM

    I’ve been reading this blog forever. It saved me from buying a 1/1 condo w/ carport in Costa Mesa for $400K in ’06. Nine months ago I put an offer on a short sale condo 2/2 w/ 2 car attached garage and yard. The house was part of the shadow inventory and I just found out the bank approved the short sale and we negotiated a price of $245K.

    Here’s my response to the objections I’ve seen for buying in Orange County.

    1. Interest rates can’t stay low for much longer

    This is true, they should (and probably will) eventually go up which would put downward pressure on house prices.

    2. Foreclosure moratorium ending

    I anticipate more foreclosures and the recent data out from the real estate sector bears this out. However, there seems to be plenty of demand in Socal.

    3. Spring/summer rally season over

    True, there is always stronger demand in the spring and summer. This means winter may be a better time to buy. However, there is typically less inventory in the winter too. I am not sure this means housing prices will tank in the next few months.

    4. Foreclosures rising…shadow inventory

    True, but houses on the open market (ie not short sales) seem very, very scarce right now. There has got to be some pent up demand by now.

    5. Record unemployment

    Unemployment will (well at least should) rebound in 2010. Therefore this will put upward pressure on housing prices not downward.

    6. California in all sorts of financial trouble

    This would be my long term worry, whether to even live in California…10% income tax, and almost 10% sales tax, crappy schools, yikes, the worst bond rating in the nation. There should probably be some changes made to the way property taxes are collected.

    7. Higher taxes are on the way nationally

    Overblown fear. Maybe partly true (dividend tax rate is going back to normal), but more than likely will not affect most people (very much anyway).

    8. OC housing prices are still too rich compared to income and economic fundamentals

    My gut tells me this is totally true, but obviously I am not an expert in this area. I don’t understand how the prices are so high over such a large area of OC. Select areas like newport beach or laguna makes sense. However, for prices to be so high all over the place just seems fundamentally wrong. Everyone can’t be making $250,000/yr.

    ** For me, the decision to buy depended on what I was buying and where I was buying it. It is not always a bad or a good time to buy anything. So the question is, “Was it a bad time to buy that condo for 245,000”. I think it is a good time to buy that condo for $245,000. However, I do think it is a bad time to buy a condo for $350,000 or buy a regular 1000 sqft house for $450,000. There may be more of the shadow inventory like mine that already has offers placed but are just waiting for the bank to approve the short sale. If that’s the case it’s possible the full shadow inventory would never hit the real market and we wouldn’t see a true bottom here in OC.

    1. Geotpf

      The main things I would look for when deciding this purchase is how much the same property would rent for, and how long you plan on being there. If you only plan on being there for a short period of time (five to ten years or less) and you can rent a similar place for less than your monthly costs (including taxes, insurance, HOA fees, repairs, and a prorated part of your down payment and closing costs), continuing to rent might be a smart move.

  10. E

    Would the people who think that there will be ANY type of “recovery” please tell us all EXACTLY what the new jobs will be, who is going to fund them and how much are they going to pay the employees.

    After that, I’d like to hear from the people who still have jobs and ask them to state why their jobs are so important, secure and in what way they really contribute to the economy beyond being nothing but “useless eaters”.

    I’ll go first.

    I’m a useless eater.

    1. Ane

      Easy answer:
      Remember, Jobless recovery with inflating house bubble to bail out stock bubble, so Bush can be re-elected 2004.
      The prices we paid are $2 trillion national debt.

      Now, Ben and Wall St teach Obama again, this is jobless recovery. With devalue another 15% dollar (total 30%) along with another $5 trillion debt, the housing bubble can be bailed out. And president is YOURS again in 2012.

      The prices USA paid this time is ….
      eternity darkness.

      1. Geotpf

        I don’t think that housing prices will be a big factor in Obama’s re-election in 2012. The Republicans not having a good candidate (Seriously-can you think of a Republican who has a chance if he or she ran? I can’t.) and the power of incumbency are the main factors.

  11. Beinformed

    Just my opinion, but prices will come down when Obama and wall street can no longer use smoke and mirrors to guise the people, Obama cannot do anything about healthcare, the war, the swine flu or where the olympics will be held. The sad part about all of this is that we are selling out our country bit by bit to foreigners. By the time prices come down most US citizens will be out of work with no money to buy a home, the only ones left to buy will be the Russians, Chinese and anybody else that has the cash the banks want. Throught history this has been a very strategic move to conquer a country, to infiltrate from within. Learn Chinese because your landlord will be one.

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