Housing Analysis

[Mety]

IHO, I definitely appreciate a genuine discussion even if we disagree.
I am in a home already therefore my perspective is different. My take on "missing out" on a Irvine homes is similar to Mety. Irvine is such a cookie cutter city. People can name their favorites by village/track/model. By waiting (while inventory level is increasing) you can almost be certain that the one you like will pop up on resale eventually.

Once you pick a neighborhood or a village, for Irvine's case, the home floor plans are pretty much the same throughout. I would say the older villages such as El Camino Real, West Park I, and some older Northwood will carry a little more options, but villages built after 2011 are pretty much the same everywhere, cookie cuttered by Tee-Ah-See. So don't be too sad when the home you were interested is gone. The same one will pop up real soon.

 

[irvinehomeowner]

IHO, I definitely appreciate a genuine discussion even if we disagree.
I am in a home already therefore my perspective is different. My take on "missing out" on a Irvine homes is similar to Mety. Irvine is such a cookie cutter city. People can name their favorites by village/track/model. By waiting (while inventory level is increasing) you can almost be certain that the one you like will pop up on resale eventually.

Once you pick a neighborhood or a village, for Irvine's case, the home floor plans are pretty much the same throughout. I would say the older villages such as El Camino Real, West Park I, and some older Northwood will carry a little more options, but villages built after 2011 are pretty much the same everywhere, cookie cuttered by Tee-Ah-See. So don't be too sad when the home you were interested is gone. The same one will pop up real soon.

I agree that you would think that would happen but just remember that if you?re waiting for a deal, so are others so the cheap houses won?t be the ones you want. Those with the nice location, are not run down, etc will be the rarer listings and will be bid up.

Inventory was very high when we were shopping and this was during the last trough but most of the homes were meh, the nice ones people were keeping off the market. One of the 3 we wanted was bid up over 10% over our offer and it was only listed for a day... they even canceled the open house. You might be able to strike gold but then you?re gambling on two fronts, price and quality.

 

[usctrojancpa]

IHO, I definitely appreciate a genuine discussion even if we disagree.
I am in a home already therefore my perspective is different. My take on "missing out" on a Irvine homes is similar to Mety. Irvine is such a cookie cutter city. People can name their favorites by village/track/model. By waiting (while inventory level is increasing) you can almost be certain that the one you like will pop up on resale eventually.

Once you pick a neighborhood or a village, for Irvine's case, the home floor plans are pretty much the same throughout. I would say the older villages such as El Camino Real, West Park I, and some older Northwood will carry a little more options, but villages built after 2011 are pretty much the same everywhere, cookie cuttered by Tee-Ah-See. So don't be too sad when the home you were interested is gone. The same one will pop up real soon.

I agree that you would think that would happen but just remember that if you?re waiting for a deal, so are others so the cheap houses won?t be the ones you want. Those with the nice location, are not run down, etc will be the rarer listings and will be bid up.

Inventory was very high when we were shopping and this was during the last trough but most of the homes were meh, the nice ones people were keeping off the market. One of the 3 we wanted was bid up over 10% over our offer and it was only listed for a day... they even canceled the open house. You might be able to strike gold but then you?re gambling on two fronts, price and quality.

+1  Same thing is happening right now.  Even though the market is slowing down, the primo properties are going fast with multiple offers as I've seen with a few buyers in the past month. 

 

[irvinehomeowner]

One other con to waiting is interest rates.

I think a key factor being overlooked in the waiting game situation is how the buyer plans to purchase. If they are buying all cash, then a lower price is obv much more inviting. However, if you are like me, and are financing, a 5-10% drop is not as big a difference when you are looking at the delta in the down payment and the monthly payment. Additionally, if rates go higher, whatever savings you are waiting for, may be erased by a higher rate.

 

[meccos12]

One other con to waiting is interest rates.

I think a key factor being overlooked in the waiting game situation is how the buyer plans to purchase. If they are buying all cash, then a lower price is obv much more inviting. However, if you are like me, and are financing, a 5-10% drop is not as big a difference when you are looking at the delta in the down payment and the monthly payment. Additionally, if rates go higher, whatever savings you are waiting for, may be erased by a higher rate.

If rates go up, it will worsen affordability, which is being stretched thin already.  A 1% increase in rates leads to about a 10% decrease in affordability.  Thus the savings of a 5-10% price drop will be essentially wiped by a 50 to 100 basis point increase, or the cost of a 50-100 basis point increase is negated by a 5-10% home price drop.  I honestly do not feel we are going to see a 1% increase in mortgage rates however.  And if we did, we will certainly see a significant drop in prices. 

Lets assume however that we see a 50 basis point increase in rates and a 5% drop in home prices.  Although I just wrote that these things essentially negative the effect of each other, I would argue that I would still take higher rates and lower home prices for a few reasons.
1.  lower down payment and the opportunity advantage/costs of this  2.  more mortgage interest deduction.  3.  bigger effects with earlier payments.  4.  less property taxes.  5.  better possibility of refi to lower rates in the future. 

In essence I do not see any downsides to having higher rates with lower prices versus lower rates and higher prices. 

 

[irvinehomeowner]

One other con to waiting is interest rates.

I think a key factor being overlooked in the waiting game situation is how the buyer plans to purchase. If they are buying all cash, then a lower price is obv much more inviting. However, if you are like me, and are financing, a 5-10% drop is not as big a difference when you are looking at the delta in the down payment and the monthly payment. Additionally, if rates go higher, whatever savings you are waiting for, may be erased by a higher rate.

If rates go up, it will worsen affordability, which is being stretched thin already.  A 1% increase in rates leads to about a 10% decrease in affordability.  Thus the savings of a 5-10% price drop will be essentially wiped by a 50 to 100 basis point increase, or the cost of a 50-100 basis point increase is negated by a 5-10% home price drop.  I honestly do not feel we are going to see a 1% increase in mortgage rates however.  And if we did, we will certainly see a significant drop in prices. 

Lets assume however that we see a 50 basis point increase in rates and a 5% drop in home prices.  Although I just wrote that these things essentially negative the effect of each other, I would argue that I would still take higher rates and lower home prices for a few reasons.
1.  lower down payment and the opportunity advantage/costs of this  2.  more mortgage interest deduction.  3.  bigger effects with earlier payments.  4.  less property taxes.  5.  better possibility of refi to lower rates in the future. 

In essence I do not see any downsides to having higher rates with lower prices versus lower rates and higher prices. 

I don't think in the recent history of rates... has there been a decrease in prices equal to an increase in rates.

Now as you say, due to higher rates, there will be downward pressure on pricing but that doesn't really happen for certain products in Irvine because a large number of buyers don't finance so that pressure of affordability is small. You can look at the last dip as an example, while everyone else were getting drops of 40% on certain houses, those same homes would only drop 20% or less in Irvine. So a overall 5-10% drop in Orange County will be what in Irvine? 2-5%?

This is why I specifically said that this is depending on how you plan to purchase. If you are financing, you are at a disadvantage because your are competing against buyers who pay cash where the interest rate does not really affect them. So you are paying Irvine cash (not as low) prices while financing at a higher rate.

And in your scenario, the downside is you need to wait (again, not sure what house you will get) and you have no guarantees that the higher rate/lower price affordability will be better than the lower rate/higher price.

 

[irvinebullhousing]

One other con to waiting is interest rates.

I think a key factor being overlooked in the waiting game situation is how the buyer plans to purchase. If they are buying all cash, then a lower price is obv much more inviting. However, if you are like me, and are financing, a 5-10% drop is not as big a difference when you are looking at the delta in the down payment and the monthly payment. Additionally, if rates go higher, whatever savings you are waiting for, may be erased by a higher rate.

If rates go up, it will worsen affordability, which is being stretched thin already.  A 1% increase in rates leads to about a 10% decrease in affordability.  Thus the savings of a 5-10% price drop will be essentially wiped by a 50 to 100 basis point increase, or the cost of a 50-100 basis point increase is negated by a 5-10% home price drop.  I honestly do not feel we are going to see a 1% increase in mortgage rates however.  And if we did, we will certainly see a significant drop in prices. 

Lets assume however that we see a 50 basis point increase in rates and a 5% drop in home prices.  Although I just wrote that these things essentially negative the effect of each other, I would argue that I would still take higher rates and lower home prices for a few reasons.
1.  lower down payment and the opportunity advantage/costs of this  2.  more mortgage interest deduction.  3.  bigger effects with earlier payments.  4.  less property taxes.  5.  better possibility of refi to lower rates in the future. 

In essence I do not see any downsides to having higher rates with lower prices versus lower rates and higher prices. 

I don't think in the recent history of rates... has there been a decrease in prices equal to an increase in rates.

Now as you say, due to higher rates, there will be downward pressure on pricing but that doesn't really happen for certain products in Irvine because a large number of buyers don't finance so that pressure of affordability is small. You can look at the last dip as an example, while everyone else were getting drops of 40% on certain houses, those same homes would only drop 20% or less in Irvine. So a overall 5-10% drop in Orange County will be what in Irvine? 2-5%?

This is why I specifically said that this is depending on how you plan to purchase. If you are financing, you are at a disadvantage because your are competing against buyers who pay cash where the interest rate does not really affect them. So you are paying Irvine cash (not as low) prices while financing at a higher rate.

And in your scenario, the downside is you need to wait (again, not sure what house you will get) and you have no guarantees that the higher rate/lower price affordability will be better than the lower rate/higher price.

This ^ ??effectively this current has priced out a lot of buyers. A lot of scared people, afraid to jump in now.

 

[meccos12]

I don't think in the recent history of rates... has there been a decrease in prices equal to an increase in rates.

Now as you say, due to higher rates, there will be downward pressure on pricing but that doesn't really happen for certain products in Irvine because a large number of buyers don't finance so that pressure of affordability is small. You can look at the last dip as an example, while everyone else were getting drops of 40% on certain houses, those same homes would only drop 20% or less in Irvine. So a overall 5-10% drop in Orange County will be what in Irvine? 2-5%?

My previous post was not a argument that a price will drop a certain amount based on a % increase in rate, but rather that higher rates will simply put downward pressures on homes due to affordability, especially in this climate where affordability is being pushed to the limits. 
You seem to agree with this idea yet you think Irvine is immune rate hikes because we have many cash buyers for certain products?  Can you tell us which of these "certain products" in Irvine will be immune to this?  How many of homes in Irvine are being bought all cash?? 

Also the last dip does nothing to support your argument.  Yes Irvine dropped less than other cities, but tell me exactly how this supports your argument that rates do not matter in Irvine?

This is why I specifically said that this is depending on how you plan to purchase. If you are financing, you are at a disadvantage because your are competing against buyers who pay cash where the interest rate does not really affect them. So you are paying Irvine cash (not as low) prices while financing at a higher rate.

Again you make the flawed argument that rates will not affect prices in Irvine.  If you made the argument that in spite of higher rates, prices will continue to climb, due to facts A, B and C I might yield to your nonsensical argument.  However you are simply stating rates dont matter in Irvine because we have cash buyers.  Im sorry, rates do matter and its silly to think that Irvine is immune. I would argue that Irvine is perhaps slightly higher in cash buyers than other cities.  In fact, I read somewhere that Santa Ana had higher cash buyers than Irvine.  Does that make Santa Ana completely immune to rates??

And in your scenario, the downside is you need to wait (again, not sure what house you will get) and you have no guarantees that the higher rate/lower price affordability will be better than the lower rate/higher price.

Unless you found that dream house, why rush a decision like this in face of a slowing RE market?  I just see little to no benefit.  As others have mentioned in Irvine, that "dream house" you found is probably the same house 3 doors down to the right,2 doors down to the left and the one across the street. 

 

[zubs]

We have had this ongoing argument since 2007. 
Back then the theory was high interest rates causes housing to drop due to worsening affordability.  I would rather pay for a low priced house with high interest than a high priced house with low interest.

IHO was a true believer in this, so much so that he waited a couple of years too long to buy a house.
So with that experience under his belt he's taking a more moderate approach, and arguing with you.

 

[fortune11]

Meccos12 wins an award for meticulous and clean , readable multi quotes as well

 

[irvinehomeowner]

I don't think in the recent history of rates... has there been a decrease in prices equal to an increase in rates.

Now as you say, due to higher rates, there will be downward pressure on pricing but that doesn't really happen for certain products in Irvine because a large number of buyers don't finance so that pressure of affordability is small. You can look at the last dip as an example, while everyone else were getting drops of 40% on certain houses, those same homes would only drop 20% or less in Irvine. So a overall 5-10% drop in Orange County will be what in Irvine? 2-5%?

My previous post was not a argument that a price will drop a certain amount based on a % increase in rate, but rather that higher rates will simply put downward pressures on homes due to affordability, especially in this climate where affordability is being pushed to the limits. 
You seem to agree with this idea yet you think Irvine is immune rate hikes because we have many cash buyers for certain products?  Can you tell us which of these "certain products" in Irvine will be immune to this?  How many of homes in Irvine are being bought all cash?? 

I've stated this before. The detached SFR in certain neighborhoods is more resistant to price drops than attached condos and SFRs in other hoods. And I didn't state that Irvine is immune... I didn't even say that word once in my last post, I said the pricing is less affected than surrounding cities.

Also the last dip does nothing to support your argument.  Yes Irvine dropped less than other cities, but tell me exactly how this supports your argument that rates do not matter in Irvine?

I don't think that's what I said. Either you are not accurately reading the content of my posts pr maybe I'm not saying it right.

The lower dip in pricing in Irvine is an example of how Irvine prices are *more resistant* to downward pressure... which includes rising rates... or home prices dropping more elsewhere. I didn't say rates did not matter... what I did say is that rates will have a higher impact on someone who is financing in Irvine vs someone who is buying cash... or someone who is financing elsewhere where the pressure will have more affect on pricing.

This is why I specifically said that this is depending on how you plan to purchase. If you are financing, you are at a disadvantage because your are competing against buyers who pay cash where the interest rate does not really affect them. So you are paying Irvine cash (not as low) prices while financing at a higher rate.

Again you make the flawed argument that rates will not affect prices in Irvine.  If you made the argument that in spite of higher rates, prices will continue to climb, due to facts A, B and C I might yield to your nonsensical argument.  However you are simply stating rates dont matter in Irvine because we have cash buyers.  Im sorry, rates do matter and its silly to think that Irvine is immune. I would argue that Irvine is perhaps slightly higher in cash buyers than other cities.  In fact, I read somewhere that Santa Ana had higher cash buyers than Irvine.  Does that make Santa Ana completely immune to rates??

Again, I didn't say immune. Those are your words. What is "flawed" about saying rising rates has a lower effect on Irvine prices than surrounding cities. And is it "nonsensical" to say rising rates has little on someone who isn't financing (a cash buyer?) because it doesn't affect their affordability.

And by bringing in Santa Ana, you are comparing apples to oranges, because that's a different product/city, that rates/cash dynamics are also different. Rising rates will have a different effect there just like it has a different effect on certain products/hoods in Irvine. Or is that "silly" thinking?

And in your scenario, the downside is you need to wait (again, not sure what house you will get) and you have no guarantees that the higher rate/lower price affordability will be better than the lower rate/higher price.

Unless you found that dream house, why rush a decision like this in face of a slowing RE market?  I just see little to no benefit.

But isn't that what I said? If you find the house you want, if you can afford it, if you are staying long term... then buy it. As for other benefits, you've dismissed them so what else can I say?

As others have mentioned in Irvine, that "dream house" you found is probably the same house 3 doors down to the right,2 doors down to the left and the one across the street. 

Did you skip USC's post? What you're saying is not as close to reality as you and others think. Back when prices were high, 05-06, I could find the same house streets away from each other for sale... because more people want to cash out. When prices were low, 10-12, that wasn't the case. And again, the good ones, would have a higher price which basically negates any price drop.

Just like kenkeko, we disagree.

 

[irvinehomeowner]

We have had this ongoing argument since 2007. 
Back then the theory was high interest rates causes housing to drop due to worsening affordability.

Which we never got to see if it was true because rates dropped instead of rising.

I would rather pay for a low priced house with high interest than a high priced house with low interest.

Actually... I would have just settled for a lower priced house.

IHO was a true believer in this, so much so that he waited a couple of years too long to buy a house.

The reality was the price drops for the houses I was looking for never came. Out of all the homes we looked at from 08-12 only one 3CWG SFR hit the market for the price I was looking for but it didn't have a downstairs 4th br and was near the freeway.

This is why I caution against the "you can find the same house on the same street easily when the prices drop" theory.

So with that experience under his belt he's taking a more moderate approach, and arguing with you.

Yeah... is my opinion really that radical? Is it that flawed/nonsensical/silly considering I'm basing it on experience?

 

[zubs]

Something was wrong in 2011.  Interest rates were low and so was housing price.
So how can anyone say that high interest rates will lower property values?

There is a disconnect here.  Interest rates should affect the price of a house, but from watching s.cal properties for the last 10 years it doesn't.

Perhaps the shock of the 2008 decline turned everyone retarded?

 

[irvinebullhousing]

2011 Bank frozen also. Even interest low and housing comes down, Banks did not lend.

 

[lnc]

Something was wrong in 2011.  Interest rates were low and so was housing price.
So how can anyone say that high interest rates will lower property values?

There is a disconnect here.  Interest rates should affect the price of a house, but from watching s.cal properties for the last 10 years it doesn't.

Perhaps the shock of the 2008 decline turned everyone retarded?

Yeah, many still got PTS from that 2008 crash an keep thinking the next down turn will be a major crash like that one.

When the mortgage rate were going down lower and lower in 2011, many buyer hold off buying because they believe both the home price and mortgage rate will continue to go down further.  People try to avoid became a knife catcher.

And in the last few years with both rate and home price continue to go up, buyer are pressure to buy right away before both the home price and mortgage rate going up even higher in the future.  Buy now or price out. 

 

[fortune11]

One thing we all suffer from is ?recency  bias? or ?anchoring bias?

Meaning - recent low mortgage rates are what buyers are wed to and at 5 plus handle will balk even if some of them  can afford it despite tax law changes .

And recent high home prices are what sellers are wed to and very reluctant to lower them to something reasonable , even if that lower number is a good price overall in the larger scheme of things .

The result is a stalemate and lower transaction volumes . I don?t think this problem gets resolved until next year . Something has to give .

 

[irvinehomeowner]

One thing we all suffer from is ?recency  bias? or ?anchoring bias?

Meaning - recent low mortgage rates are what buyers are wed to and at 5 plus handle will balk even if some of them  can afford it despite tax law changes .

And recent high home prices are what sellers are wed to and very reluctant to lower them to something reasonable , even if that lower number is a good price overall in the larger scheme of things .

The result is a stalemate and lower transaction volumes . I don?t think this problem gets resolved until next year . Something has to give .

This is a great point.

So either something major has to happen to get any significant price drop worth waiting for or we are not going to get a real slowdown.

IMO, I don't consider a 5% drop a "slowdown".

 

[IrvineBug22]

So I wanted to see what everyone's opinion is.  Last down turn was 30-40% (worst ever) , the down turn before that peaked at 10% drop what do people think that this next down turn will be?

 

[paperboyNC]

So I wanted to see what everyone's opinion is.  Last down turn was 30-40% (worst ever) , the down turn before that peaked at 10% drop what do people think that this next down turn will be?

In my opinion, we will not see a repeat of the 2008-09 downturn in our life times. I predict the next down turn will be around 10% (though individual properties could plummet if an owner overpaid and allowed to unit into disrepair, foreclosure, etc.)

I think there is a chance of a complete societal collapse in my lifetime after which virtually all assets will be worthless and most people in the world will not survive. I'd say the odds of this exceed the odds of 2008-09 repeating. It's another reason to live it up now and not put all of your eggs in the retirement basket.

 

[Kings]

So I wanted to see what everyone's opinion is.  Last down turn was 30-40% (worst ever) , the down turn before that peaked at 10% drop what do people think that this next down turn will be?

In my opinion, we will not see a repeat of the 2008-09 downturn in our life times. I predict the next down turn will be around 10% (though individual properties could plummet if an owner overpaid and allowed to unit into disrepair, foreclosure, etc.)

I think there is a chance of a complete societal collapse in my lifetime after which virtually all assets will be worthless and most people in the world will not survive. I'd say the odds of this exceed the odds of 2008-09 repeating. It's another reason to live it up now and not put all of your eggs in the retirement basket.

so does that mean you're stockpiling cans of beans and jugs of water in your bomb shelter?