Current thoughts in 2011...

akim997

New member
I've been bouncing so many ideas in my mind regarding the local markets and keep switching from bearish to "pessimistically optimistic" to bearish and back...  I figured why not jot some ideas down so here goes.  Today's Irvine real estate market is becoming increasingly disjointed in that traditional SFRs are in high demand while anything else seems to be on the decline, including townhomes of which I currently own.  Based on local comps, etc., the gov't subsidies helped values to a high of ~$515K in 2010 or $343 per foot and SFRs were right around the same (no evidence of this, though).  In any event, as housing credits disappeared, so did the market for townhomes in Irvine, and we are heading towards $300/ft.  (maybe at $316 now?).    In contrast, SFRs, specifically newer builds in the existing market, are on the rise heading north of $360 /ft.  What gives? 

Based on experience, my feeling is that there is at least 100-200 families out there who would like to live in Irvine.  Some are actively searching, some are waiting for housing prices to decline because all signs point to down...  The problem is, you look around, and there are a bunch of people staring back at you... you wonder when they will pull the trigger, they are wondering when you will pull the trigger.  This dilmena causes many, including myself, to say "ah what the heck"... and potentially purchase, possibly against your better judgement....So what happens then?  These 100-200 are actively bidding on what is currently a LOW level of inventory... supply and demand kicks in, and short-run pricing is on the rise.    So what's next?  Does equilibrium pricing move up and stay up until more supply?  Perhaps?  Maybe TIC is managing inventory to create "shifts" in demand. 

Everyone's heard the arguments for rising 10yr T rates, which will affect mortgage pricing.  So... cheaper house at higher rate or more expensive house at cheaper rate?  OR.. are you really optimistic and do you believe rates will stay low and housing prices will crumble?  I don't know, I just had a friend tell me that he personally thinks we'll be in the the 200's per foot for new construction in Irvine if the mortgage subsidy gets cut or eliminated.  What about the conforming loan limit (for agency jumbo) decrease later this year.  Assuming the all cash FCB is nominal, doesn't that really affect housing affordability in the higher ranges?    Higher energy prices  -  wont it affect consumer income to spend on housing?  Isnt that what they are saying?  That inflation will further affect housing affordability?    Can we really have really high interest rates?  Why did Bill Gross just dump billions of dollars in treasuries?  If we are heading into an inflationary period, doesn't that start pointing to stagflation?  All this things create a jumbled mess in my mind.    So many signs point to a continued declining market.  Everything else around me is declining.  I looked at Amalfi Hills in Yorba.  Could have bought 2900 sq ft for under $800K.  Incredible.  Here it wont buy me but 2100.   

So what did I do even though all signs point to down?  Looks like I'm going to buy a house now....  what the heck am I thinking?
 
IHO disagrees with me but as much as I love Irvine it is not special. At least not special in terms of defying all economics. Irvine SFR prices will decline over time but how much and over what period of time is still a mystery to me. Irvine will probably carry a premium to surrounding cities for the foreseeable future for various reasons.

The issue is supply is relatively low and there are probably a higher % of Irvine equity sellers who are not really motivated. Also, the homes you are looking at (SFR, >2000sqft, $700K+) are at price points banks are loathe to foreclose on; thus creating shadow inventory and artificially restricting supply.

Add FCBs buying up homes with bags of gold and TIC selling postage stamp lots like hot dogs on the 4th of July and you have yourself an intoxicating Kool Aid mix.

It is frustrating to me that Irvine's prices are so sticky but in the long run it is my belief that prices will be closer to fundamentals and the bubble will finally deflate.
 
iacrenter said:
IHO disagrees with me but as much as I love Irvine it is not special.

I dont think IHO is in love with irvine's specialness (dont think that is a word), irvine is just more convenient for him.
 
@iac:

Hehe... Irvine is different... special is up to interpretation. By your own words, just the fact that it carries a premium and there are a higher % of equity sellers could be seen as "special".

qwerty is right... I don't love Irvine for it's "specialness"... I actually hate the fact that prices are so high here... Irvine is a very convenient location for my family and it has the right mix of nearby shopping, restaurants, schools, outdoor spaces, activities etc.

But I don't think many parts of Irvine will get back to "fundamentals". Back in 2003 when Quail Hill started selling, we already thought the prices were too high... and now, we wish we could buy in at those prices. Fundamentals would probably be 1999 pricing and I highly doubt we'll see a QH home go for less than or even at 2003 pricing.

I used to think that newer (> 1995) 3CWG homes in Irvine would eventually drop to $700k... I'm not too sure about that nowadays.
 
irvinehomeowner said:
qwerty is right... I don't love Irvine for it's "specialness"... I actually hate the fact that prices are so high here... Irvine is a very convenient location for my family and it has the right mix of nearby shopping, restaurants, schools, outdoor spaces, activities etc.

The problem is that IHO is not the only one with the same thoughts.  I think that majority of people who buy in Irvine would not think that Irvine is "Special".  Irvine has right mix of things for enough people that it commands premium.

Now, Newport Harbor with ocean view would be "special"...
 
Irvine2Irvine said:
irvinehomeowner said:
qwerty is right... I don't love Irvine for it's "specialness"... I actually hate the fact that prices are so high here... Irvine is a very convenient location for my family and it has the right mix of nearby shopping, restaurants, schools, outdoor spaces, activities etc.

The problem is that IHO is not the only one with the same thoughts.  I think that majority of people who buy in Irvine would not think that Irvine is "Special".  Irvine has right mix of things for enough people that it commands premium.

Now, Newport Harbor with ocean view would be "special"...
That's why Newport Beach homes (in general) sell for a higher per SF price than Irvine homes.  ;)
 
I don't expect Irvine to hit fundamental levels but at least move "closer."

You are right--special is a relative term. Irvine certainly is in demand by many demographics for various reasons but like any product, there is always some substitution effect. If prices rise too high, buyers will and do look elsewhere.

As a renter & tax payer what frustrates me the most, is all the billions of dollars used to bail out a sinking ship called the US housing market. All the government programs have failed and all we have done is kicked the can down the road. Instead of a painful couple of years we now might look forward to a decade of RE stagnation.
 
@akim

I share your frustration.  Been waiting for the past couple of years for the prices to fall, but it's just not happening.  But if I can get past all the years of indoctrination of how great it is to "own" a house, it just doesn't makes sense right now.

We're currently renting a 4br 2100sf paired home in Northpark which suits us fine.  To buy the same house, our costs would increase substantially from our $2900/mo. rent.  There seems to be little incentive to buy now versus a few years down the road.  The possibility of being priced out is low whereas the downside risk could be anywhere from negligible to substantial.  I would rather buy "late" where I missed 2-3% of gain than buy early and risk a 5-15% loss.  I recently asked a person what it takes to recover a 20% loss.  His answer, like most people's I talk to was 20% when the correct answer is 25%.

So, for now, I'm content paying what I think is a fair price/premium for living in Irvine while avoiding potentially substantial downside risk.
 
irvinehomeowner said:
I used to think that newer (> 1995) 3CWG homes in Irvine would eventually drop to $700k... I'm not too sure about that nowadays.

Do you know of any older (>1990) ones with CWG that are 700K or less?
 
TustinRanchResident said:
Do you know of any older (>1990) ones with CWG that are 700K or less?
Not 1990, maybe 1970-80 (just recently 49 Carver looked like a decent home for $700k, think it was built in the 80s).

I think if you break down the market, Irvine really does have a short inventory for certain ranges.

For example, a sought after mid-sized family home is the 4/2.75 (usually signifies a downstairs bedroom) built after 1990. The only two below $600k in Irvine is a West Irvine home and an El Camino Real home (next to the 5) and are both shorts. Everything else is $679k+ (and I even used a 1980 cutoff date).

And while everyone says the Shadow Inventory wave will help with that... I'm not too sure there is that much distressed product in Irvine now... 4-5 years out from the burst.
 
Why do you think prices will rise too high for people to look elsewhere. The prices are being set by
TIC survey/ marketing machine. And they really seem to know how to price a new homes in comparision to similar
resale homes. By the time you add HOA/Mello etc it all still comes to be equal with resale homes.

Someone complained about higher HOA/mello in portola. Why do you think per sqft price is favourable
compared to say 2010 collection.

That being said I was and will be bearish on housing for a while. (eventhough) i bought in the 2010 collection
as other factors in life play role in this decision as well.


iacrenter said:
I don't expect Irvine to hit fundamental levels but at least move "closer."

You are right--special is a relative term. Irvine certainly is in demand by many demographics for various reasons but like any product, there is always some substitution effect. If prices rise too high, buyers will and do look elsewhere.

As a renter & tax payer what frustrates me the most, is all the billions of dollars used to bail out a sinking ship called the US housing market. All the government programs have failed and all we have done is kicked the can down the road. Instead of a painful couple of years we now might look forward to a decade of RE stagnation.
 
Good point that life factors also play a part.  We have one kid, and working on a 2nd.  We can wait... but we don't like having such a high level of uncertainty.  When #2 comes, we'll need to find a place.  I don't want to be "forced" to find a place.  Also, Kid 1 goes to school in 4 years.  So we do want to find a place w/in 4 yrs so that we don't have to switch schools.  Between now and 4-5 yrs from now, I don't know what is going to happen.  So am I willing to overpay?  I suppose for that piece of mind, yes. 

Based on the demand for Irvine housing, it's something that will generally always sell at a premium.  Its funny it was brought up.  My boss has owned a home in Irvine since 1993.  Interesting insight.  "Since '93, people have always said Irvine was overpriced relative to other areas of OC"...  1995,  1997, 2003...  2010.    Always the same thing.  But what has persisted over the past 18 years (perhaps longer) you all of a sudden believe won't exist in the future?"
 
Even though I know Irvine will sell at a premium... TIC is pulling something...  such weird, disjointed pricing in certain market segments.  I think they are really keeing in on what younger families are looking for.    Obviously, they aren't designing Irvine for retiring baby boomer, they want to find young professional families. 

To: the big Donald - spend some of that $12 billion you have and help a brother out!  The Donad Irvine Housing Subsidiy Program woudl be great!
 
akim997 said:
Even though I know Irvine will sell at a premium... TIC is pulling something...  such weird, disjointed pricing in certain market segments.  I think they are really keeing in on what younger families are looking for.    Obviously, they aren't designing Irvine for retiring baby boomer, they want to find young professional families. 

To: the big Donald - spend some of that $12 billion you have and help a brother out!  The Donad Irvine Housing Subsidiy Program woudl be great!
Don't hold your breathe on that Donald part.  I'll venture to say it's gonna get worse after he passes on.  I still believe if buyers stood up and demanded more for their money, they'd get it.  But since they don't, TIC will keep copying and pasting homes on tiny lots on motorcourts.
 
USCTrojanCPA said:
TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now. :)
 
IndieDev said:
USCTrojanCPA said:
TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now. :)
Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion. 
 
While I understand people love to rent and it has financial benefits... some people just prefer to own... even at a loss.

We thought we could rent... and we may end up doing so again if we can't find something good enough to buy... but being an owner is easier for us... it feels less transitory.
 
USCTrojanCPA said:
IndieDev said:
USCTrojanCPA said:
TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now. :)
Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion. 

What about $830K for 2300 sq ft for detached with driveway?  That's where I am today, opening escrow. 
 
akim997 said:
USCTrojanCPA said:
IndieDev said:
USCTrojanCPA said:
TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now. :)
Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion. 

What about $830K for 2300 sq ft for detached with driveway?  That's where I am today, opening escrow.


@akim

Thanks for the post. I went through the same difficult thought process for 2.5 years before pulling the trigger last year. I wish you the best.

I am still bearish on the housing market and but as others have mentioned there a lot of other factors in the decision making process. Money is not the only consideration.
After being in IAC apartments for 8 years and saving money, I was ready to buy. The birth of my son last year gave me the extra push i needed to finally take the plunge. Of course living in a 2 bed apt vs. a 2500sqft SFR is a big difference financially but I am really at peace now.

My son just started to walk and enjoys the space a lot (both the yard and the interior space), I organize more meetups with friends now at my place and there are more options as to what we can do. There is a lot more room now when parents/relatives come over for longer stay's. I can customize the place exactly the way i want it.

So are all the things I mentioned above worth ~780K? For some yes, for some no I guess. I do expect the market to drift lower (and I hope it does for  sake of the health of Irvine RE in the long term ) but I am not going to lose sleep over it. I hope to enjoy my place for many years hopefully watching my kids grow up and making good memories.  Good Luck!!

 
When everyone is bearish, that is the time to buy.  When everyone is bullish, that is the time to sell.
 
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