Is Real Estate over heating?

Always compare buying to renting.

Renting, $3,800/mohttps://www.zillow.com/homedetails/63-Birmingham-Irvine-CA-92620/147889254_zpid/

Buying: $1,062,000https://www.redfin.com/CA/Irvine/216-Midvale-92620/home/58555380


$212,400 down @ 5% interest = $885/mo
$1,250/mo Property Tax
$4,305/mo Mortgage (at 4.5% 30yr)
$100/mo home insurance
$110/mo HOA

Total: $6,650/mo
Minus $1,110/mo paying down principal
Net: $5,540/mo


When I bought, buying was a lot cheaper (my net cost is under $3,000/mo for a similar home). As soon as the prospect of home appreciation goes away, there will be little incentive to buy.
 
Looking at West Irvine, homes are getting offer within a week. More likely full price or even over price offers.

Higher rate likely pushing people off the fences away from waiting. I suspect many that buying have a long term hold on these. And they gotta have good sustaining income.
 
paperboyNC said:
Always compare buying to renting.

Renting, $3,800/mohttps://www.zillow.com/homedetails/63-Birmingham-Irvine-CA-92620/147889254_zpid/

Buying: $1,062,000https://www.redfin.com/CA/Irvine/216-Midvale-92620/home/58555380


$212,400 down @ 5% interest = $885/mo
$1,250/mo Property Tax
$4,305/mo Mortgage (at 4.5% 30yr)
$100/mo home insurance
$110/mo HOA

Total: $6,650/mo
Minus $1,110/mo paying down principal
Net: $5,540/mo


When I bought, buying was a lot cheaper (my net cost is under $3,000/mo for a similar home). As soon as the prospect of home appreciation goes away, there will be little incentive to buy.
Click to expand...

Do most people look at the opportunity cost of the downpayment?  In my dealings, most people don't look at opportunity costs and further cancel the prop tax with the MID and deduct the principal.  That style of calculating brings this to $3500 a month. 

USCTrojan and IR, what do you see from your buyers?  How do they compare rent vs buy?

Also, rent vs buy should be on 2-3 bedroom condos.  SFRs like this $1M don't rent very well. 
 
rkp said:
Do most people look at the opportunity cost of the downpayment?  In my dealings, most people don't look at opportunity costs and further cancel the prop tax with the MID and deduct the principal.  That style of calculating brings this to $3500 a month. 

USCTrojan and IR, what do you see from your buyers?  How do they compare rent vs buy?

Also, rent vs buy should be on 2-3 bedroom condos.  SFRs like this $1M don't rent very well.
Click to expand...

For many buyers, tax deductions are barely relevant. Let's say this buyer pays $3,200/mo in interest, but only 88% would be deductible due to the new $750k cap for about $34k/yr in deductible interest. Assuming the buyer already pays $10k/yr in state income taxes, the total deductions would be $34k + $10k = $44k or $20k more than the standard deduction.

With the 24% tax bracket, the buyer would save $4,800/yr in taxes of $400/mo.

The new tax plan basically wipes out any tax benefits.
 
Burn That Belly said:
I don't think we're in a bubble though.

Like someguy said, we need to harbor more FCBs. As long as the FCBs are willing to come, we can keep building more homes. And mind you, there are 1.37B on them and only 326M Americans.

Just a few yrs ago, San Diego rounded up over 600 ("FCBs") being smuggled through a Mexican tunnel. ;D Vast majority of which will claim political asylum. From that point on, the cash will come in and homes will be purchased in their children's name.

(can't post la times article since they're making me pay 99 cent)http://www.chicagotribune.com/news/...border-chinese-california-20160607-story.html
Click to expand...

I walked by a half dozen or so 3rd trimester pregnant Asian women unloading from a cargo/sprinter van this morning in front of DTF at SCP.  Not making this up. 

America is on sale. FCBs, buy up now before it's too late. 

USCTrojan, you're more than welcome to pocket list my home at $888/sqft.
 
rkp said:
paperboyNC said:
Always compare buying to renting.

Renting, $3,800/mohttps://www.zillow.com/homedetails/63-Birmingham-Irvine-CA-92620/147889254_zpid/

Buying: $1,062,000https://www.redfin.com/CA/Irvine/216-Midvale-92620/home/58555380


$212,400 down @ 5% interest = $885/mo
$1,250/mo Property Tax
$4,305/mo Mortgage (at 4.5% 30yr)
$100/mo home insurance
$110/mo HOA

Total: $6,650/mo
Minus $1,110/mo paying down principal
Net: $5,540/mo


When I bought, buying was a lot cheaper (my net cost is under $3,000/mo for a similar home). As soon as the prospect of home appreciation goes away, there will be little incentive to buy.
Click to expand...

Do most people look at the opportunity cost of the downpayment?  In my dealings, most people don't look at opportunity costs and further cancel the prop tax with the MID and deduct the principal.  That style of calculating brings this to $3500 a month. 

USCTrojan and IR, what do you see from your buyers?  How do they compare rent vs buy?

Also, rent vs buy should be on 2-3 bedroom condos.  SFRs like this $1M don't rent very well. 
Click to expand...

Most of my buyers aren't really looking at rent vs. own comparisons but force more on keeping their gross monthly total payment at or below a certain amount while looking for a home that meets their needs.  The driver of the purchase is either wanting to buy their first home or looking to move up to a larger property because they have outgrown their current home.  Most of my Irvine/Tustin Ranch buyers are putting materially more than 20% down. 
 
Burn That Belly said:
USCTrojanCPA said:
rkp said:
paperboyNC said:
Always compare buying to renting.

Renting, $3,800/mohttps://www.zillow.com/homedetails/63-Birmingham-Irvine-CA-92620/147889254_zpid/

Buying: $1,062,000https://www.redfin.com/CA/Irvine/216-Midvale-92620/home/58555380


$212,400 down @ 5% interest = $885/mo
$1,250/mo Property Tax
$4,305/mo Mortgage (at 4.5% 30yr)
$100/mo home insurance
$110/mo HOA

Total: $6,650/mo
Minus $1,110/mo paying down principal
Net: $5,540/mo


When I bought, buying was a lot cheaper (my net cost is under $3,000/mo for a similar home). As soon as the prospect of home appreciation goes away, there will be little incentive to buy.
Click to expand...

Do most people look at the opportunity cost of the downpayment?  In my dealings, most people don't look at opportunity costs and further cancel the prop tax with the MID and deduct the principal.  That style of calculating brings this to $3500 a month. 

USCTrojan and IR, what do you see from your buyers?  How do they compare rent vs buy?

Also, rent vs buy should be on 2-3 bedroom condos.  SFRs like this $1M don't rent very well. 
Click to expand...

Most of my buyers aren't really looking at rent vs. own comparisons but force more on keeping their gross monthly total payment at or below a certain amount while looking for a home that meets their needs.  The driver of the purchase is either wanting to buy their first home or looking to move up to a larger property because they have outgrown their current home.  Most of my Irvine/Tustin Ranch buyers are putting materially more than 20% down.
Click to expand...

I like how USCTrojanCPA presents first-hand real world data and not article statistics. It truly represents the local market that is happening in Irvine/Tustin.

Same thing with me and someguy. We know where we stand in our neighborhood. Half our neighbor's homes are sitting empty and we like it that way. These folks don't give a damn about DTI or loans. Cash money baby. Foreign investment homes, vacation homes, parachute kid's home, Chinese culture marriage-requirement/dowry homes, call it whatever you'd like.

2018: 'Thou shalt love thy FCB neighbor as thyself.'  Embrace it with open arms because the situation is rampant.
Click to expand...

I kind of laugh when I read articles that generalize or throw out false assumptions, sorta like when I read articles how China is clamping down on money moving over from China to the US in 2017.  Having seen many FCB and near FCB bank statements, the money is still flowing over into the US but just in smaller sub $50k wire transfers. 

The other thing that is very interesting about most Irvine/Tustin Ranch non-FCB/financed buyers from what I've seen is that they tend to "under buy" when looking to purchase a home.  What do I mean?  Here's an example of what I'm talking about...buyer A may be loan pre-approved to buy a home up to $1.5m but they end up looking to keep the purchase up to max of $1.1-$1.2m and will adjust their downpayment to get to their desired total monthly payment. 

I'll be the first to admit that I thought Irvine/Tustin Ranch home prices would be flat in 2017 and 2018 but they continue to grind higher, especially in the sub $1m market where there is a serious lack of resale inventory.  I found that one of the best leading indicator of where market prices might be heading is looking at the direction of the # of months of resale inventory of homes on the market.  We currently have less active resale listings in Irvine today than what we had last April as a data point.
 
Lots of buyers are ?under buy? for sure.  Builder saw the financial profile of their pre-qualify buyers and realized there are plenty of room to raise their prices on the subsequent phases. 
 
The one thing about the ?underbuy ? phenomenon is banks have relaxed their lending standards a bit in terms of loan sizes , if not necessarily for credit scores . So what may previously have been a max is now an underbuy

But otherwise agree
 
irvinehomeowner said:
This is all so deja vu... anyone remember when I talked about FCBs over 10 years ago?

Where's graphrix?
Click to expand...

He's busy working as an economist I think.  I actually got him a phone interview where I work last year, but the position he was going for wouldn't have been a great fit.

fortune11 said:
The one thing about the ?underbuy ? phenomenon is banks have relaxed their lending standards a bit in terms of loan sizes , if not necessarily for credit scores . So what may previously have been a max is now an underbuy
Click to expand...

Yep, and this has really loosened up in the past year.  From today's Wall Street Journal:

Rising Home Prices Push Borrowers Deeper Into Debt

Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis, according to new data from mortgage-data tracker CoreLogic Inc. That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said.

Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher.

At the same time, the average rate for a 30-year, fixed-rate mortgage has risen to 4.40% as of last week from 3.95% at the beginning of the year, according to Freddie Mac , putting still more pressure on affordability.

CoreLogic studied home-purchase loans that generally meet standards set by Fannie Mae and Freddie Mac, the federally sponsored providers of 30-year mortgage financing.

Last summer, Fannie Mae moved to back more loans made to borrowers with debt-to-income ratios of up to 50%, up from a typical limit of 45%. Freddie Mac also started backing more of those loans, according to industry researchers.

Fannie?s new policy has resulted in 100,000 new mortgages that otherwise wouldn?t have been made last year and early this year, according to the Urban Institute, a nonpartisan research organization.

Caliber Home Loans, a Texas-based lender, said 25% of its funded loans have debt-to-income ratios of greater than 45%, up from 10% about a year ago.
https://www.wsj.com/articles/rising-home-prices-push-borrowers-deeper-into-debt-1523356200
 
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