Expectation & Predictions going forward

For all the people who are uncomfortable with todays pricing and what one gets for their money, what is the price range that would interest everyone into these homes. If all these homes (new 2010 collection homes) go to 250-270 per sq ft instead of 300-320 range that they are at presently would that be enticing enough.

What is prediction on when this might happen?


I believe the pricing in 2002 middle was about 210-215 per sq ft for condo's and townhomes. Is the expectation that prices will revert back to those levels or to an [+2.5% to +3% per year] adjust level from 2002. A 210/sq ft at 2.5% adjustment is about 255/sq ft today. I think TIC is pricing there products just 15-20% premium right now to that value. If it take 2-3 years more then it will be more like 275/sq ft.

Actually the SFRs in the 2010 HK Collection are $330+, so even if they were at $300, people would be happier.

There have been predictions by IR on the IHB that the bottom for Irvine will be $275/sft. I'm not even sure if that is attainable based on the recent going-ons.

[quote author="waitin4ever"]For all the people who are uncomfortable with todays pricing and what one gets for their money, what is the price range that would interest everyone into these homes. If all these homes (new 2010 collection homes) go to 250-270 per sq ft instead of 300-320 range that they are at presently would that be enticing enough.

[/quote]

$499,999 for a Monterey Plan 2 would probably get us thinking a little more. Although I am not a huge of Woodbury, I can't deny it is 5 minutes from my office and just about everything else our lives are centered around --- many friends and things like our family doctor and all the kid activities we are involved with are within minutes of this location. I talk about leaving Irvine, but then I start to backpedal when I think about how much of our lives are really centered here. Picking up and moving to another entire area of So California is nothing to be taken lightly, after spending the last half decade establishing ourselves here. I'm too old and slow for too much change.

Monterey would certainly work fine for our small family. And it may be nice around there someday, once the Great Park is done. The current price (~$300 sq ft now) is not totally out of line in and of itself --- but once you factor in 1.6% tax rate and $341 HOA, a price that started with a 4 would be a nice gesture from TIC....

We'll probably ride out our lease through the end of the year and see what they are building (and pricing) in Stonegate before we make a final decision on what to do about Irvine. Maybe by then the resale market will have cooled a bit as well, so that opens up other options.

I think you like the word Monterey. Monterey= red bean dessert

[quote author="graceomalley"]I think you like the word Monterey. Monterey= red bean dessert[/quote]

...you should see our list of pros and cons about leaving or staying in Irvine. Everything but 'house' says just stay here. Yet the house is weighted so heavily I'd say we are 50/50. I really can't say today where the heck I'll live next year.

I suppose it was much easier for Panda to say "I'm outta Irvine" --- since he wasn't here in the first place. Not so easy for CK to cut ties that quickly...

Consider how peoples' answers might change if interest rates return to a more reasonable, free market level. FCBs notwithstanding, of course. Try running the numbers while assuming an 8% mortgage rate. Take your $330/sq ft and then consider buying power reduced by 27%... Anything can happen, and at any time. But it seems the fed at least is poised to take their quantitative easing off the table.

This is such a hard question because every Village and/or floor plan and/or location within the tract trades at a diferent price per sf. I have no idea where prices are going in the next few years because there are so many wildcards out there. That being said, I don't see more than 5-10% downside in prices because I think the gov't/feds will step in again to manipulate the market if they see prices sliding again. The real estate market is a rigged game today. I'm of the opinion that if you are buying today, you better have a longer term hold period 7-10+ years.

As I've said previously... I'm not sure interest rates will affect Irvine pricing proportionately. For the older homes, maybe... but for anything newer... owners (and TIC) will be stubborn.

In addition, I really can't see rates rising that much in the next 2 years... and even if they do... you will just see buyers move towards 5/1 or variable rate loans to ease the burden placed by fixed rate mortgages.

And like CK... it's just very hard to move away from Irvine having already established ourselves here.

What I find interesting about the 2010 HK Collection is it seems there are a good amount of first time buyers or buyers who have been renting... I wonder what percentage are move-up buyers from Irvine.

[quote author="daedalus"]Consider how peoples' answers might change if interest rates return to a more reasonable, free market level. FCBs notwithstanding, of course. Try running the numbers while assuming an 8% mortgage rate. Take your $330/sq ft and then consider buying power reduced by 27%... Anything can happen, and at any time. But it seems the fed at least is poised to take their quantitative easing off the table.[/quote]

This is the biggest problem with buying right now and like trojan said you better be prepared to hold your property 7-10 years. Trojan is helping is with a potential purchase right now, and i was showing my wife a quick schedule i put together the other day just so she understands the risks with buying right now. If we assumed a purchase price of 750K + 30K for fixing it up + 40K for future closing costs, our total investment/cost would be 820K. Assuming 7% interest rates in two years, which would reduce the price we paid for it by about 100K out in 2012 and assuming 3% appreciation from the expected bottom in 2012, it would not be until about 2020 that home would be worth 820K. That is in nominal dollars, not in real dollars so we would still be a losing money. Like most women, the thought of losing 100K didnt seem to phase her very much.

[quote author="qwerty"]
[quote author="daedalus"]Consider how peoples' answers might change if interest rates return to a more reasonable, free market level. FCBs notwithstanding, of course. Try running the numbers while assuming an 8% mortgage rate. Take your $330/sq ft and then consider buying power reduced by 27%... Anything can happen, and at any time. But it seems the fed at least is poised to take their quantitative easing off the table.[/quote]

This is the biggest problem with buying right now and like trojan said you better be prepared to hold your property 7-10 years. Trojan is helping is with a potential purchase right now, and i was showing my wife a quick schedule i put together the other day just so she understands the risks with buying right now. If we assumed a purchase price of 750K + 30K for fixing it up + 40K for future closing costs, our total investment/cost would be 820K. Assuming 7% interest rates in two years, which would reduce the price we paid for it by about 100K out in 2012 and assuming 3% appreciation from the expected bottom in 2012, it would not be until about 2020 that home would be worth 820K. That is in nominal dollars, not in real dollars so we would still be a losing money. Like most women, the thought of losing 100K didnt seem to phase her very much.[/quote]
Believe me, your wife is probably the toughest of the wives when it comes to both picking AND pricing out homes that I show homes to (be thankful for that negotiator hat she puts on). Most of the wives that I show homes to are more focused on finding the home in terms of fit and less concerned about the financial aspect. The emotional aspect takes over then they see a home they love and that's when I step in to help the husbands out with the analytics of the home purchase. All that being said, remember the famous phrase...."a happy wife is a happy life." <!-- s --><!-- s -->

[quote author="USCTrojanCPA"]
[quote author="qwerty"]

This is the biggest problem with buying right now and like trojan said you better be prepared to hold your property 7-10 years. Trojan is helping is with a potential purchase right now, and i was showing my wife a quick schedule i put together the other day just so she understands the risks with buying right now. If we assumed a purchase price of 750K + 30K for fixing it up + 40K for future closing costs, our total investment/cost would be 820K. Assuming 7% interest rates in two years, which would reduce the price we paid for it by about 100K out in 2012 and assuming 3% appreciation from the expected bottom in 2012, it would not be until about 2020 that home would be worth 820K. That is in nominal dollars, not in real dollars so we would still be a losing money. Like most women, the thought of losing 100K didnt seem to phase her very much.[/quote]
Believe me, your wife is probably the toughest of the wives when it comes to both picking AND pricing out homes that I show homes to (be thankful for that negotiator hat she puts on). Most of the wives that I show homes to are more focused on finding the home in terms of fit and less concerned about the financial aspect. The emotional aspect takes over then they see a home they love and that's when I step in to help the husbands out with the analytics of the home purchase. All that being said, remember the famous phrase...."a happy wife is a happy life." <!-- s --><!-- s -->[/quote]

this is the main reason we are looking to buy right now.

a lot of institutional money is underweight MBS right now as well as lowering portfolio duration. expectation is higher mortgage rates to come. no matter what you say, it's hard to argue that a city can be immune to larger macroeconomic effects. higher mortgage rates means housing is less affordable which means downward pricing pressure...

the last time someone argued to me that "this is different" was back in 2000. i made a comment that i couldnt understand how the rising cost of capital did not phase tech companies' appetite for funding. people argued that with 300% growth rates it didnt matter, and that we were in a new economy where huge productivity games would trump traditional notions of finance and investments... we all saw what happened shortly thereafter...

[quote author="akim997"]a lot of institutional money is underweight MBS right now as well as lowering portfolio duration. expectation is higher mortgage rates to come. no matter what you say, it's hard to argue that a city can be immune to larger macroeconomic effects. higher mortgage rates means housing is less affordable which means downward pricing pressure...
[/quote]
I don't think anyone has argued that rising rates won't cause downward pressure, what is questionable here is how much pressure actually affects prices in Irvine.

Remember, everyone said lack of easy credit and liar loans should affect prices and for the most part, it has... however places where credit isn't an issue because of high cash transactions are less affected (such as Irvine).

Rates should rise... but will they get up to 8-9% in the next 2 years? I'm doubtful only because that would be in the same time frame of an election and we would need some other factors to kick in (rate of inflation etc etc).

However, will prices on newer homes in Irvine decrease proportionately? I doubt it. You'll find a bargain in a few distressed homes but inventory like that will get flipped quickly and I've seen that even when a low comp exists, subsequent listings will all but ignore it because the Kool-Aid still flows freely with the FCBs.

the last time someone argued to me that "this is different" was back in 2000. i made a comment that i couldnt understand how the rising cost of capital did not phase tech companies' appetite for funding. people argued that with 300% growth rates it didnt matter, and that we were in a new economy where huge productivity games would trump traditional notions of finance and investments... we all saw what happened shortly thereafter...

Click to expand...

What you are arguing is fundamentals... but real estate purchases often eschew fundamentals. For those who like to point to history, I can back this up with the whole RE bubble itself. It happened because of non-fundamentals... so for the same reason, non-fundamental factors are keeping per sf prices in Irvine non-fundamentally high. The current low interest rates help... but in an all-cash transaction... higher rates gives the FCBs more buying power in a sense.

Now don't get me wrong... I don't think every single buyer in Irvine is FCB... but I do think there is enough of a percentage to skew Irvine (and other highly sought after areas) "differently".

In south OC, you can purchase a huge house... it's almost 5000sft on a 1/3 acre lot and guess how much for? About $1m. What does $1m buy you in Irvine?

Add to the list of woulda shoulda couldas about lowering prices:

1. Option Arm Reset/Recasts

2. Foreclosures

3. Shadow Inventory

Are they are aren't they affecting current Irvine pricing? Are they or aren't they affecting other area pricing?

[quote author="irvinehomeowner"]Add to the list of woulda shoulda couldas about lowering prices:

1. Option Arm Reset/Recasts

2. Foreclosures

3. Shadow Inventory

Are they are aren't they affecting current Irvine pricing? Are they or aren't they affecting other area pricing?[/quote]

IHO - you gotta give it time man. You are going to drive yourself crazy trying to figure out why irvine pricing is not coming down the same as other places in OC. I saw somewhere that bubbles tend to be symmetrical. The bubble took 6-7 years to form and in theory should take 6-7 years to pop. If 2006 was the peak, the trough will be 2012/13. You have to let everything play out. Higher rates will happen and they will have additional downward pressure on prices. Not sure how much of an impact, but they will have an impact.

Irvine Median Home Price:

1988 $216,464
1989 $237,410
1990 $239,024
1991 $242,877
1992 $237,451
1993 $230,598
1994 $228,529
1995 $229,959
1996 $246,865
1997 $245,437
1998 $263,172
1999 $278,148
2000 $308,089
2001 $334,741
2002 $379,852
2003 $461,888
2004 $609,397
2005 $635,675
2006 $722,928
2007 $665,807
2009 672,700 - March 2009.

IHO. I know you've been waiting patiently for such a long time. I think you will know when it is time, and I've really enjoyed reading your long journey since you sold your 2005 Irvine home. I've realized that sometime history does not repeat itself. I know of some Asian citiies that appreciated 400% within 10 years, but has only corrected 10% today, while many expected a correction of 30-40%. Housing to income ratio is still way out of wack in these Asian cities, much much worse than it is in Irvine.

If our country does go into a deep deflationary depression, you don't have to worry too much about the cash rich asians buying up Irvine inventory as overseas buying and immigration will also slow down significantly. Remember one thing. "IF" we go into a massive deflationary depression like the 1930s, cash will be king, not gold. In this scenario.. all asset classes around you should fall for you to pick them up at bargain prices.

Panda,

Housing to income ratio totally make sense in Irvine. Many Asians cheat on taxes and there is a high percentages of Asians in Irvine to skew the average income data. Asians are still the majority making home purchases. Some bags of cash may come from oversea the others may be from Uncle Sam's oversight. No one can save $388k by skipping lunch everyday.

BK - I don't know where you get your data from. Perhaps many cash only Asian businesses cheat on tax, but most Asians I know are your typical salary earner with all income reported on W2. The biggest tax cheater in this country has to be the rich and powerful, and that is mostly white people (remember Leona?)

Sure, you can't save 300k by skipping lunches, but how about skipping luxury vacations, buying new car every 2-3 years, upgrading wardrobe every seasonal changes, dining out every weekend, paying mortgage to the bank (living at home with parent past college), and I can go on for awhile?Bottom line is that your preconceived idea of Asians is a gross generalization and it seems that somehow you like to put a negative light on your own race for what ever reason. Perhaps in your own youth, you were mistreated by Asian and that by moving to this country, you were able to pull yourself up socially by associating with non-Asian race. I don't know?Just my attempt to take a wild guess about you just like what you did to all the other people on this and other blogs.

[quote author="qwerty"]
[quote author="irvinehomeowner"]Add to the list of woulda shoulda couldas about lowering prices:

1. Option Arm Reset/Recasts

2. Foreclosures

3. Shadow Inventory

Are they are aren't they affecting current Irvine pricing? Are they or aren't they affecting other area pricing?[/quote]

IHO - you gotta give it time man. You are going to drive yourself crazy trying to figure out why irvine pricing is not coming down the same as other places in OC. I saw somewhere that bubbles tend to be symmetrical. The bubble took 6-7 years to form and in theory should take 6-7 years to pop. If 2006 was the peak, the trough will be 2012/13. You have to let everything play out. Higher rates will happen and they will have additional downward pressure on prices. Not sure how much of an impact, but they will have an impact.[/quote]

IHO,

I have to agree with Qwerty. As much as I love Irvine, I don't think it is so special to be immune from larger market forces. It may always carry a premium to surrounding OC cities (i.e. TIC branding), but in the long run fundamentals of the market will affect Irvine prices.

Due to the larger % of cash buyers, low inventory, and new TIC price floor, Irvine RE has stabilized temporarily. But just like those stubborn/special beach communities, Irvine may trail the overall SoCal RE market for price reductions.

How much of a reduction and over what period of time are the interesting questions.

[quote author="IACRenter"]
IHO,

I have to agree with Qwerty. As much as I love Irvine, I don't think it is so special to be immune from larger market forces. It may always carry a premium to surrounding OC cities (i.e. TIC branding), but in the long run fundamentals of the market will affect Irvine prices.

Due to the larger % of cash buyers, low inventory, and new TIC price floor, Irvine RE has stabilized temporarily. But just like those stubborn/special beach communities, Irvine may trail the overall SoCal RE market for price reductions.
[/quote]
I don't think Irvine is TOTALLY immune... just more immune than the perma-bears thought at the IHB. Even now, just for all of OC generally, there is a bit of backtracking on how much of an effect OARMs and foreclosures are really going to have.

How much of a reduction and over what period of time are the interesting questions.

Click to expand...

And that is my point.

Granted bubbles are symmetrical, but at this point in time I'm not seeing much of a symmetry at certain prices points. Like the last bubble, there was a slight run-up midway through, but this looks more like a plateau that may not dip any lower. Even if it were to drop 10 percent from here... that's still higher than everyone (including myself) were predicting.

It's easy to say that 2013 will be where it bottoms out at... I say that all the time... but the hard part is what exactly will it bottom out at? If an across the board 40% correction should occur, than that would mean a $1mil house in 2006 should settle at $600k in 2013 (adjusting for inflation over 7 years puts that at about $720k).

How many of us think that we'll be buying houses that sold *new* in 2006 for $1mil for $720k in 3 years? I'm all for that... but that math just doesn't seem to work. I do hope my math is wrong.

EDIT: Typos.