Doubling Time

Do houses double in value every 8 years? The rate of appreciation is volatile, but the stable rate of appreciation in Irvine is 4.4%, and it takes houses 16 years to double in price.

6232 SIERRA SIENA Rd Irvine, CA 92603 door

Irvine Home Address … 6232 SIERRA SIENA Rd Irvine, CA 92603
Resale Home Price …… $1,269,000


Fly, robin fly
Fly, robin fly
Fly, robin fly
Up, up to the sky

Fly, Robin Fly — Silver Convention

California real estate prices take flight fueled by kool aid intoxication and a firmly held belief that trees really can grow to the sky. The reality is that prices cannot go up faster than incomes without (1) raising debt-to-income ratios and (2) lowering interest rates.

We inflated prices beyond the limits of people’s ability to service debt, so the Federal Reserve has lowered interest rates to compensate. They can’t hold rates down forever.

The discussions about appreciation always come back to the question, “How quickly should house prices appreciate?” Today we are going to explore that question plus a related one, “How long should it take for a house to double in value?” Once we answer the first question, the answer to the second question is applied mathematics.

How Fast to Appreciate

Home prices do not go up by magic. I discussed this at length in Ownership Cost: Income, Payments and House Prices:

“Wage inflation is the slow increase in aggregate wages over time in
a given area. Wage inflation is a driver of price inflation because
workers will use wage increases to bid up the cost of goods and
services they demand. in a housing market, wage growth pushes up prices
as follows:

Assume a worker is earning $100,000 and can borrow $400,000 to bid
on property in today’s market. In one year, if this worker gets a 3%
raise (not this year), he will be making $103,000, and if other terms
do not change, he will be able to borrow $412,000. If he has also
increased his savings, the amount he can bid on real estate has also
increased by 3%.

A property that might sell for $500,000 today can sell for $515,000 in one year and it is no more expensive in terms of its financial impact; debt-to-income, savings impact, time of amortization — the key
variables remain the same. This is “normal” home price appreciation.”

If this is the mechanism at work, then what is the rate of wage inflation, and why do prices in California go up faster than wage inflation?

Wage Inflation

Since 1975, wages have grown by 4.3% annually in Irvine. This is well above the national average of 3.3%. This explains much of the health of our local real estate market and the long-term growth in prices we have witnessed.

Wage inflation has primarily caused the long-term rate of home price appreciation in Irvine to stand at 4.4% — at least that is the rate from 1984-1998, the last period that spans two market bottoms (see below).

Irvine, CA, Projections from Historic Appreciation Rates, 1984-2026

What is your prognosis for long-term wage growth in Irvine? Will we continue to outpace the country by 1% per year indefinitely? Will outsourcing and offshoring cause our wage growth to be below its recent 4.4% rate of growth? Over the long term, wage growth equals home price appreciation.

Declining Interest Rates

One reason we have seen prices rise faster than the general level of inflation and the local level of wage growth is due to the long-term trend of declining interest rates over the last 25 years.

Declining Interest Rates, 1984-2006

Note that I am only looking at interest rates since they stabilized after the inflation fiasco of the 70s. I don’t need to add the drama of the huge interest rate spike of the early 80s to make the point.

Lower interest rates make for larger loans. Part of the 4.4% yearly appreciation rate in Irvine over the last 25 years is due to steadily decreasing interest rates.

Debt-to-Income Ratios

Another reason for price increases greater than wage growth is our ever-increasing debt-to-income ratio. Since the late 1970s, lenders have been testing the limit on the DTIs people can handle before they default. Each time lenders enable borrowers to cross the threshold of 32% DTI (based on market aggregates), the market will continue higher due to irrational exuberance and kool aid intoxication until the music stops.

Take a look at the chart below that graphs the aggregate debt-to-income ratio in Irvine based on the national contact interest rate, Irvine income data and Irvine median home price data. The shaded areas have been added to show some key thresholds.

Irvine debt-to-income ratios 1975-2009

When the government first engineered loan modifications, they tried to modify people to 38% DTIs — which was a big drop for many — but the number is just too high, and borrowers redefaulted at very high rates. The recent rounds of loan mods have been at much lower DTIs.

Each time the aggregate market DTI moves above 32% (1979, 1987, 2003) the market enters its manic rally phase when prices move higher when they should be moving lower (contrast with 1994). Thirty-two percent represents a Ponzi limit in residential lending. Each time lenders develop a loan program to push DTIs higher (interest-only loans, Option ARMs), they simply create a Ponzi Scheme that inevitably collapses. When the market DTIs get down below 32% into the green range, prices stabilize near 28% DTIs — at least when the FED isn’t buying mortgage debt and directly controlling interest rates.

Doubling Time

So back to the original question, “how long should it take for a home to double in price? In Irvine, a home should appreciate at 4.4% per year to match wage growth. At 4.4% growth, a home will double in price in 16 years.

If you buy a home during a period of debt-to-income payment affordability, and sell during a period of very low affordability (time the bubble), you can make significantly more than 4.4% — as today’s 11.5% attests; however, the opposite is also true.

If you buy during a period of very low affordability, you may be at or below water for a very long time. People who bought in 1988, 1989 and 1990 saw no significant appreciation for a decade. What will be the fate of those who bought from 2003-2009? I have profiled many of them….

At 3.3% it takes 22 years for prices to double, at 4.4% it’s 16 years, at 7.2% it’s 10 years.

Many have made the analogy about trees growing to the sky to illustrate the problem of very high or differential appreciation rates. For those of you that like charts and graphs, below I show what prices will be like in 20 years if we step back to 2000 prices as a base (like the chart above) and project forward to 2030.

It is human nature to project short term uptrends to infinity. Californians believe they are capable of producing unlimited appreciation working within limited incomes, limited borrowing and limited savings. Prices occasionally appreciate quickly, and lenders enable unlimited HELOC spending which taxes the limits of homedebtor avarice, pride, lust, envy and gluttony. Wishful thinking enabled by lender greed; the California housing cycle.

6232 SIERRA SIENA Rd Irvine, CA 92603 door

Irvine Home Address … 6232 SIERRA SIENA Rd Irvine, CA 92603

Resale Home Price … $1,269,000

Income Requirement ……. $233,563
Downpayment Needed … $253,800
20% Down Conventional

Home Purchase Price … $429,000
Home Purchase Date …. 4/10/2000

Net Gain (Loss) ………. $763,860
Percent Change ………. 195.8%
Annual Appreciation … 11.5%

Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $5,450
Monthly Cash Outlays ………… $7,540
Monthly Cost of Ownership … $5,590

Property Details for 6232 SIERRA SIENA Rd Irvine, CA 92603

Beds 4
Baths 0 full 3 part baths
Size 2,550 sq ft
($498 / sq ft)
Lot Size 6,625 sq ft
Year Built 1972
Days on Market 6
Listing Updated 11/18/2009
MLS Number S596070
Property Type Single Family, Residential
Community Turtle Rock
Tract Bm

10+++One of the best ever to come on the market in Turtle Rock Broadmoors! Charming single level custom home completely remodeled with over 750 sq. ft. added in 2008. Looks like it is right out of a magazine! Excellent floorplan with HUGE state of the art kitchen designed by well known designer Lynn Pries. This dream kitchen opens to HUGE family room w/high ceilings….HUGE Bedrooms..4th bedroom currently used as an open office area that can easily be converted. Quality craftsmanship throughout featuring all new windows,french doors, gorgeous wood floors, raised ceilings, remote control skylights, wainscoting, 2 air conditioners, epoxy garage floor, etc. etc. Enjoy relaxing on the darling porch with a custom brick fireplace and white picket fence. Worth your wait to finally buy without building your own. Architectural plans included for future expansion if needed! Sought after neigborhood! Best Irvine Schools: University High and Bonita Canyon Elementary. No Mello Roos & Low assoc.


This property was purchased on 4/10/2000 for $429,000. The owners used a $130,000 first mortgage and a $299,000 downpayment. They did increase their mortgage debt during the last nine years like everyone else did, but they only took out and spent about $300,000 — which was their original downpayment. They spent their initial equity, but the bubble has enriched them, and if they sell now before the high end collapses, they stand to make about $750,000.

39 thoughts on “Doubling Time

  1. SanJoseRenter

    IrvineRenter, this is a fantastic post. Thanks!

    Of course, with manic California house prices like this, I have to ponder about buying here …

    I guess I’m just slow at drinking the Kool-aid. :8

    1. dirk

      Nice room, but it feels cold already.

      Some of the photos look altered/enhanced. It is interesting to look at each TV, which seem to all be showing old black & white movies.

    2. LC

      Man, those people sure love bricks. It is a really cheap material, and quite pourous. Nothing that I would use for a floor.

  2. AZDavidPhx

    Couldn’t you picture the couch being replaced some kind of factory machinery? When I first saw that flooring, I thought I was driving through Pittsburgh.

    I say we just rip it out and put in some wood panels and a basketball hoop; turn the room into a basketball court with Kobe cutouts all around the room.

    That or haul in some giant beer fermenting tanks and open up an Irvine Brewery.

    This place has lots of potential.

    1. JL

      Irvine Brewery eh? Let me see: happy hour special brew, watered down and tastes suspiciously like Kool-Aid, served in an ‘extra-large’ shot glass, for $50. Get yours now before the price goes up!!


  3. AZDavidPhx

    I could not help but notice that for all the hype in the house description about customized DREAM KITCHENs; there is not a single good photo of the kitchen. Are we just supposed to imagine what it looks like in our dreams? I am confused.

    1. LC


      The kitchen has been conceived and executed by the fabulous designer Lynn Pries. Do you know what that means, David? Please don’t trouble us with you unsophisticated questions again.


  4. awgee

    It may be helpful for people to consider the difference between price, worth, and value. The price of a home may double in eight years, but the value may be the same. If a 3 bedroom, 2 bath, 1800 square foot home is 3 bedroom, 2 bath, and 1800 square foot in eight years with no major improvements, the value is the same, regardless of the price or worth.

  5. thrifty

    2 air conditioners. I thought Irvine had cool ocean breezes year round 🙂
    Can anyone living in Irvine tell us about how many weeks a year you need a/c?

    1. MattMan

      I have lived in Irvine for 8 years; 5 of those I had no A/C and I just recently installed an AC unit. I like warm, so I turn on my A/C just a small handful of times a year – maybe 5 (no joke; I rarely use my A/C.)

      But, I also live in the part of Irvine that is closer to the ocean. The inland parts seem to be up to 10 degrees warmer on average, and I’d have to use A/C a LOT more there. So, I suppose it depends on your heat tolerance and where in the city you live.

    2. Sue in Irvine

      We live in Woodbridge and we’ve used our AC a lot the last few summers. Global warming I guess.
      I do like this house except for the brick (real or faux?) floors. And the back yard doesn’t look very large, unless I’m looking at the side yard.

  6. ockurt

    Depends where in Irvine you live…

    North of the 5 you’d probably be running the a/c most of the summer and into the fall.

    South of the 405 you don’t need the a/c quite as much but you’d still run it a few times during real hot summer days.

    Believe it or not, Irvine can get rather warm in the summers.

    1. IrvineRenter

      Late summer this year was hot. It was beautiful in July, but after I wrote a post about how great our climate is, it got into the upper 80s for weeks. I live in University Park, and there are not many days of the year we need the AC. Many of the properties here still do not have central air. It is cooler on the ocean side of the 405.

      1. ockurt

        Yeah, it was a strange summer this year. Rather mild to start, then warmed up late as you mentioned.

        When I was in Westpark it was either last summer or the summer before that, it was nearly 100 degrees for a few days and the local pool was packed.

        Many folks don’t realize how much hotter it gets in the summer when you venture north of the 405. If people want to test this theory, in August they should start at Culver in TR then go all the way up to the Northern Sphere.

        P.S. Loved the Caddyshack references from a couple of days ago. One of my top ten movies.

  7. IrvineRenter

    Blogs: Providing Real Information Behind Real Estate Properties

    DENVER, Colorado–(EON: Enhanced Online News)–As the real estate market’s presence on the web grows, renters are looking to the internet for information not previously found on paper. What they are finding are the un-marketed answers to their questions; the answers realtors are trained not to give.

    “This [property] is within walking distance to the Stock Yards and if you’re lucky you grab a train as it lumbers by your rear window….what a great way to save on that ever increasing gas bill”

    A regional blog named Denver Real Estate Bubble is one of the millions of examples out there. “This [property] is within walking distance to the Stock Yards and if you’re lucky you grab a train as it lumbers by your rear window….what a great way to save on that ever increasing gas bill,” the blog writes about a duplex in the center of the city.

    When a consumer visits a real estate blog or portal that uses informal language and humor to provide information, they are more likely to connect on a personal level with the writer. That is the rich connection that the internet allows for.

    However, readers should not be misled by the informal approach to online writing. While real estate blogs are providing some clear guidance, they are usually written by real estate professionals. Some of which are more willing to give raw information than others. A deeper value is added for readers when other consumers respond to entries and leave their mark as well.

    On Curbed.Com, a New York based real estate blog, a renter comments on her weekend of apartment hunting, “Went to a few open houses in Williamsburg and they were DEAD – the agents were so happy to see me except a couple who were about to fall asleep. I think I am going to wait it out a bit longer as a renter.”

    This type of information is bringing more people to the web every day. A consumer survey recently published by RentBits.Com shows that out of the 500 people surveyed, 76% use the internet as their go-to source for rental information. There is no mistake, the internet is number one and it is because the web provides information that the traditional sources do not. While real estate websites prove factually informative, it is the blogs and social media outlets that are enriching the online rental market experience.

    1. mike23w

      I went from reading this blog, once in a blue moon to every day.

      I’m not sure if it’s just me.
      But it seems the last few/several months, the number of posts involving analysis has increased substantially and that’s what draws me to reading this blog every day.

      The content is original with a unique perspective on how the real estate market works. I read each day: socketsite, SeattleBubble blog, burbed and a few other blogs on real estate (also follow CalculatedRisk which has a wider breadth of topics) and this one is hands down the most informative while still being a fun read.

      I appreciate the huge work that goes into creating this blog.

      Thanks IR.

      1. IrvineRenter

        Great, I have been doing more analytical posts lately, but I get concerned that it can be too much. I am glad you are enjoying it.

        1. Bitter Renter

          No, the analysis posts are definitely not too much, and, along with the astute comments by some of the regulars, are the reason I come to the site regularly.

        2. Jeff

          I also come for the analysis posts. This site has constituted an informal education in real estate pricing, finance, and market dynamics for me. I definitely appreciate the work you’ve done recently to organize your older posts by topic. Thank you!

  8. BeachRenter

    Thanks for continued good work IR – Enjoy it daily. This is a decently upgraded house that didn’t go crazy with over the top bathrooms and kitchen but it is not worth $1.2 mil. Small lot, no yard except in front. List the house for between $900K-1 mil and sell it while people are still willing to pay this. Otherwise, these folks risk following the market down with inconsequential, one step too late price drops.

    1. LC

      This house backs on to Shady Canyon, a major street with freeway access. This kind of location is very hard to sell. The lot is actually good size for the area — it is weird that it looks like there no backyard. This house is going nowhere slowly. Brand new houses near the bluffs in Huntington Beach can be had for less than $1 million.

  9. mike

    A side note:
    Does anyone know the health of the Columbus Grove HOA? They are asking over 400.00 a month + another 1,433.00 per year mello roos and I fear this may go up due to non-paying debtors. My purchase decision is hanging on this issue. If anyone has any info or knows where to get it I would appreciate it.

    1. IrvineRenter

      I have emailed our HOA expert. If he has any special insight, he will comment here. Unfortunately, I know nothing about the HOA there. I imagine they have some issues with missed payments and reserve funding, but I don’t have facts to support this supposition.

    2. newbie2008

      That’s like paying an extra $100,000 plus in purchase price (=$(400*12+1433)/0.05).

      What are you getting for $6233 in fees per years?

  10. newbie2008

    Good take on DTI ratio and DSTI (debt service to income) ratios. That would imply that people really cared. There was an article on gambling and its simarility to drug addiction on the pleasure center of the brain. Maybe Kool-Aid addiction is also similar. On is not likely financially make out well with a high ratio but people, banks, and the govt keeps on jacking them higher until they can’t pay the pusher any more. Lucky, they have a rich uncle to pay the banks off. Uncle Sam.

    Gambling is more honest… Odds are displayed on legal casinos. Cash up front or broken bones late or worse.

    In BM, the asking price of rent has dramatically dropped. I heard from a RE that the asking rent for 1M house was $3500 for ~2400 sf. A $500 drop in 3 month. Previously it looked as if $4000 to $4200 was the the range regardless of SF. Try to make that work out for a rent to buy model. the $4000 rent also reflects the medium household income with a 35% cost for rental housing which is high in my book. The lower rents reflect the lowering of incomes and increase rental unit availability.

  11. IrvineRenter

    Renters becoming latest victims as foreclosure crisis widens

    NEW YORK — A new wave of foreclosures stands to hurt people who may have never taken out a mortgage: renters. In cities such as New York, Chicago and Los Angeles, where many investors are carrying upside-down mortgages on large rental buildings, some tenants are watching their homes fall apart along with the financing.

    Janeia Sandiford, a 24-year-old GED student in New York, has two young children and a deteriorating apartment. When a leak over Sandiford’s bathroom and kitchen caused the ceiling to flake off and then cave in, nobody came to fix it for a year, she said. She lacked heat most of last winter, and she has duct-taped her loose-fitting windows in place to cut down on drafts.

    “I’m really worried about the kids,” she said.

    The real estate investment company Ocelot Capital Group bought the building where Sandiford lives and about two dozen others in the Bronx in 2006 and 2007. As the new owners struggled to keep up with payments, 10 of the buildings appeared on the city’s list of most dilapidated rental properties in 2007 and 2008. Last winter, as Ocelot defaulted on its loans amid the deepening financial crisis, the buildings plummeted further into decline. Together, they racked up thousands of Code C violations –the most serious kind — from housing inspectors.

    Fannie Mae, which had bought much of the debt from the original lender, entered foreclosure proceedings for Sandiford’s building early this spring. A state court appointed receivers.

    In the meantime, the building on Manida Street has been beset by problems, according to tenants and their advocates, whose accounts were confirmed by the crumbling walls and damaged plumbing apparent on a tour of the property and its neighbor, also owned by Ocelot. Vandals stole the lock on the front door, giving squatters access to vacant apartments to sell drugs. Plumbing in the building was disrupted after the squatters broke through the walls and stole pipes to sell as scrap metal.

  12. avobserver

    4.4% appreciation rate appears to be way too rosy for the next 20 years. The combination of economic forces (fueled by easy credit) over the past 20 years that enabled this rapid appreciation may not exist any more for years to come. What we have right now could be the inception of a secular bear market in housing if unemployment rate remains in double digit, and credit contraction/debt deleveraging slowly runs thru its course. IMO it’s far more likely we will experience <2% appreciation rate if the environment we are in today becomes the new norm.

    Of course positive surprises can happen and some unforeseen miraculous factors will again create genuine growth and rebalance US economy (something akin to another PC/Internet boom perhaps?). Anything can happen but that’s not the point. The point is about how we as home buyers manage our risks in the face of growing uncertainty. At this juncture the probability for the market condition to return to what can accommodate >4% appreciation, IMO, is extremely low. Over 14% of homes are in some stage of default nationwide and could be much higher in CA, 12.5% unemployment rate in CA and likely to climb further. Our state is again in a big hole on its budget.

    But hey we are talking about Irvine here aren’t we? You know – the place that can easily defy all economic gravity and common sense, and be perpetually insulated from the rest of the world and reality in general.

    1. IrvineRenter

      I was hoping someone would explore this angle in the comments. I don’t think we will continue to see wage growth in excess of national averages for the same reason house prices can’t grow to the sky. When any area gets far ahead of the rest of the country or world in pay, the substitution effect will limit future growth.

      I also think it is likely we are entering a long-term bear market in real estate. We should be at today’s price levels a decade from now, and we should experience slow appreciation for a decade thereafter…. but then again, Irvine is different…

      1. newbie2008

        I don’t see CA wages keeping up with national average changes except for a few field and expertise. Average blue collar worker in other parts of the USA can live very comfortable, but not in CA.
        Likely to get a net population decrease while the other states will see increases.

        CA state and county insolvence to will also be issues to be hot topics for business and intrastructure problems.

  13. tonye

    IR, hmm….

    This place was a Plan 2 (like mine use to be). Per the pictures, I see that they have expanded into the backyard, pushed out the pocket by the dining room (that’s where the chairs and TV are between the kitchen and living room) and filled in the atrium with a sitting area.

    I figure that at a minimum this job cost $300K. Unfortunately, the did not add a 3rd bathroom and they kept the kitchen in the same place (we moved ours and added a second story).

    So, from the numbers, it looks like they are indeed 700K into the property.

    Now then, from a comp with my own house, we got 2700 sq feet, 5b/3ba, also dual ACs (four zones), and we kept our atrium. Our location is not as good though. The comp is based on my refi a few months ago (we got hard numbers based on sales).

    This house is worth $900K -based upon the numbers last March.

  14. norcal

    Hello IR,

    Thanks so much for this analytical post! My buddies and I have been wondering about precisely the things you graphed today – historical DTI in Irvine, annual growth in Irvine vs. national growth, and so forth, and it’s COMPLETELY WONDERFUL to have this information in one place.

    Kudos to you!

  15. newbie2008

    More green shoots, but for whom?

    The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses
    Nouriel Roubini | Nov 15, 2009
    From the Daily News:

    Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

  16. cynic

    if this worker gets a 3% raise (not this year), he will be making $103,000, and if other terms do not change, he will be able to borrow $412,000

    That is not correct.

    Assuming that the additional 3k translates to (after tax) $200 per month, the borrower can afford to take out a 37,000 mortgage at 5% over 30 years. That means he can pay 437,000 – as long as he is willing to put the marginal income into the house.

    It is a common fallacy to assume that marginal income is spent in the same way as base income.

  17. Homes Alexandria VA

    I wonder what home value projections will be in future years given the state of the economy?

Comments are closed.