Major misconception of the average Irvine home buyer

There's been a lot of talk about how Irvine home buyer incomes have to be $200k/yr+ to be able to buy an average home in Irvine and where they get their down payment funds.  The reality is that most Irvine home buyers are NOT FCBs and don't have household incomes of $200/yr+.  The demand for 4+ bedroom and 3+ bath homes in Irvine is high and is outstripping demand, so much so that prices are up 10%+ year-over-year.  First off, you don't need a household income of $200k/yr+ if you are putting 50-100% down.  When you loan amount is $1 - $400,000, you don't even need a $100k/yr income to qualify for the loan let alone a $200/yr income (remember that for every $100k borrowed is only worth a $537 monthly mortgage payment assuming a 5% interest rate).  I currently have 6 Irvine buyers who fall into this category (looking to buy 4bed/3bath homes up to $900k) and none of them are FCBs.  So the question that many will ask...where the heck do they get such huge down payment funds?  Well, it comes from various places....mainly from the equity of the homes they sold near the peak, some from wise savings/investing, and some from assistance of their families (i.e. gift funds).  That should help to explain by the median home price is out of wack from the median household income in Irvine and how buyers are able to afford them without the high incomes.

I wonder too, but for my case my new home neighbors are mainly Asian .....  Frankly speaking, I hope the numbers will be 50/50 rather than 80/20.

Most of those home are around 870k and add upgrades it will be around 950k. ... with 500k down you still need to loan 450k and monthly will be around $2500 + others cost will bring it around $3500..... after tax reduction maybe around $2500 a month .... which is not bad compare to renting but you need to have half a million cash upfront. You need to save 50k for 10yrs to get 500k and you need to make around 200k at least to save 50k if you have a family of 3 to feed. So for a young family that it very hard to get that kinda money .......

With the way we spend in America most middle class family don't have 200k in saving, more like 20k under water in credit card. But I think it is common for Irvine middle class to make around 150k but that will be impossible to get a 900k home without help.

I don't necessarily agree with USC. Just because his 6 buyers don't fit the FCB profile, doesn't mean a majority of the Irvine buyers aren't (although I believe somewhere else you posted that they are Asian, F, and if you add the gift fund as part of the down, C, that actually is an FCB).

Most of the people I see at open houses and the 2010 models seem like FCBs to me and I will bet you another $1mil iDollars that if you look at the last names and down payments of most of the buyers in WB/WBE... many of them will probably be FCB transactions (remember you still owe me another $1mil for taking the line on the Duke/Butler game).

But that's the make up of Irvine, it's the same thing if I say go look at south county homes and I bet many of the buyers will be NFCBs (Non Foreign CREDIT Buyers).

I don't think there is a lot of talk of buyers in Irvine needing to make $200k+... just that the prices for these homes with a 20% loan requires that type of income.

irvinehomeowner said:

I don't necessarily agree with USC. Just because his 6 buyers don't fit the FCB profile, doesn't mean a majority of the Irvine buyers aren't (although I believe somewhere else you posted that they are Asian, F, and if you add the gift fund as part of the down, C, that actually is an FCB).

Most of the people I see at open houses and the 2010 models seem like FCBs to me and I will bet you another $1mil iDollars that if you look at the last names and down payments of most of the buyers in WB/WBE... many of them will probably be FCB transactions (remember you still owe me another $1mil for taking the line on the Duke/Butler game).

But that's the make up of Irvine, it's the same thing if I say go look at south county homes and I bet many of the buyers will be NFCBs (Non Foreign CREDIT Buyers).

I don't think there is a lot of talk of buyers in Irvine needing to make $200k+... just that the prices for these homes with a 20% loan requires that type of income.

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Not all of my Irvine buyers are foreign.  Two are Indian, one is white, and the remaining 3 are Asian.  The ones that are Asian, only 1 is foreign born with the 2 other ones being American born (2nd+ generation).  Also, just because they get assistance from the parents (the younger ones) doesn't make them FCBs.  I'm sure there are several FCBs out there, but just not as many as some of you think (even though I'm working with a very small buyer population relative to the entire pool).  And yes, all the bears keep saying that the income to price levels are out of wack to support their theory of future price drops in Irvine because there are only so many people who have household incomes of $200/yr+.  That whole argument loses the legs it's standing on when people are putting down 50%+ when purchasing their home and need loan of less than $400k to complete the purchase.  It's not the FBCs that are driving prices up in Irvine, it is the fact that the demand of the buyers (a lot more non-FCBs than FCBs) is outpacing the supply of homes....ECON 101 at its finest.  TIC has fueled that demand by their great branding and marketing efforts (central location and good schools definitely help the cause).  I said it before, but I'll say it again...until inventory levels increase by 2-3x today's figure and/or interest rates go through the roof the desirable areas will continue to sell at $350/sf+. 

mikeirvine said:

I wonder too, but for my case my new home neighbors are mainly Asian .....  Frankly speaking, I hope the numbers will be 50/50 rather than 80/20.

Most of those home are around 870k and add upgrades it will be around 950k. ... with 500k down you still need to loan 450k and monthly will be around $2500 + others cost will bring it around $3500..... after tax reduction maybe around $2500 a month .... which is not bad compare to renting but you need to have half a million cash upfront. You need to save 50k for 10yrs to get 500k and you need to make around 200k at least to save 50k if you have a family of 3 to feed. So for a young family that it very hard to get that kinda money .......

With the way we spend in America most middle class family don't have 200k in saving, more like 20k under water in credit card. But I think it is common for Irvine middle class to make around 150k but that will be impossible to get a 900k home without help.

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All of my buyers will have loans of less than $400k even when buying a $900k home because of their significant savings.  Two are cash buyers and the remaining ones will have loans of $200k-$350k.  All of those buyers are staying away from higher Mello Roos locations like Woodbury, Columbus Grove, and Portola Springs because they don't want to deal with that additional monthly cost.  You underestimate the fact that many buyers are older (40+) who are not first time home buyers.  They bought their first home in the 80s and 90s and cashed out a lot of equity near the peak.  Hell, if I was 5 years older I would have bought 2 more properties earlier in the late 90s and I'd have over a $1m+ in equity on those homes.  It's all about timing. 

usctrojancpa said:

Not all of my Irvine buyers are foreign.  Two are Indian, one is white, and the remaining 3 are Asian.  The ones that are Asian, only 1 is foreign born with the 2 other ones being American born (2nd+ generation).

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Uh... remember my definition for FCB is very loose... to the point of humorous. F = ethnic... they don't have to even be foreign-born... so 5 of your 6 qualify.

Also, just because they get assistance from the parents (the younger ones) doesn't make them FCBs.

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C = cash... or in other words... large down payments (the F and the C do not need to be related). Where it comes from does not matter (equity or gift)... the point is the large down makes them more immune to economic downturns thus keeping the value of the property high since the risk of going upside down is lower and they can hold longer.

I'm sure there are several FCBs out there, but just not as many as some of you think (even though I'm working with a very small buyer population relative to the entire pool).

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Now that you understand my definition of FCB, maybe you'll change your opinion here.

And yes, all the bears keep saying that the income to price levels are out of wack to support their theory of future price drops in Irvine because there are only so many people who have household incomes of $200/yr+.  That whole argument loses the legs it's standing on when people are putting down 50%+ when purchasing their home and need loan of less than $400k to complete the purchase.  It's not the FBCs that are driving prices up in Irvine, it is the fact that the demand of the buyers (a lot more non-FCBs than FCBs) is outpacing the supply of homes....ECON 101 at its finest.  TIC has fueled that demand by their great branding and marketing efforts (central location and good schools definitely help the cause).  I said it before, but I'll say it again...until inventory levels increase by 2-3x today's figure and/or interest rates go through the roof the desirable areas will continue to sell at $350/sf+. 

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This is exactly why the C of my FCB theory is important. Average down in 2009 was 40% in Irvine... so even if there is this huge foreclosure wave on the horizon... how much of that is going to affect Irvine? Compare that to Ladera or any of the other south county communities that built out at the same time... the crunch seems to have more affect on their pricing than Irvine.

And I don't think interest rates will affect pricing proportionately. People don't lower their prices based on what people can finance... they price their homes on perception. Look at TIC, the prices for their houses are insane compared to income, credit availability and even low interest rates, yet they raise them every phase. That's NOT Econ 101... that's Profit 101.

T-man... thanks for sharing what you see.. but isn't the median age of Irvine somewhere in the mid 30s?  Do you have any clients in this age catagory?  Say families with young kids?  Possible first-time home buyers?  Do you see some multi-generational living arrangements?  Cause, in my circle of friends, that is the majority..

Just a question i want to throw out there. Looking at the Case Shiller, home prices have dropped 41.8% in OC/LA from July 2006 (peak) to May 2009 (interim bottom) and has risen 8.5% since then. The Peak of Irvine home prices were at $722,928 in May 2006. What is the median home price in Irvine today? Zillow gives me a median home price of $610,100, but it seems a bit high? Does anybody know? Has Irvine only dropped 15% from the peak?

Which OC cities have actually dropped 40% from July 2006 to May 2009? I've had my eye only on the Irvine market, therefore I was not paying attention to the other OC cities.

Panda said:

Which OC cities have actually dropped 40% from July 2006 to May 2009? I've had my eye only on the Irvine market, therefore I was not paying attention to the other OC cities.

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Santa Ana, which is the largest city in OC.

I think you can add some south county cities to that list... they rose fast and have fell hard. I recall looking at some homes that sold for $1m in 2000, sold for $2m in 2005 and are now on the market for $1m again.

What is interesting according to Case Shiller is that San Franciso/Bay Area home prices has retraced back to May 2002 price levels while OC/LA has retraced back to Nov 2003 levels. It appears that homes in northern Cal has corrected more than SoCal.

Could April 2009 be the ulimate real estate bottom that we were waiting for? Is the bottom now behind us?

Panda said:

Could April 2009 be the ulimate real estate bottom that we were waiting for? Is the bottom now behind us?

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Blasphemy!!!!

If that was the bottom... that was the shortest real estate cycle ever.

Actually, Lane on the other forum has stated that this is similar to the last bubble where in 1993, prices spiked for a bit... then continued back down.

So supposedly, 2010 is year of the cat... dead rubber cat.

I agree with IHOs definition of FCB.

usctrojancpa said:

  I currently have 6 Irvine buyers.

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Congratulation ! You currently have 6 Irvine buyers. Plus out of area buyers.

You must be doing good.

Hope you convert the potential buyers into closed sales in near future.

zubs said:

I agree with IHOs definition of FCB.

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So then I would also be a FCB once I save up enough money?  After all, I was born in Europe and immigrated here with my parents when I was 5.  Or are FCB only of Asian and Persian decent?  For me, a FCB is anyone who is 1st generation American whether naturalized or a legal alien.  I do not consider folks that are 2nd generation American as being foreign...so they are just CBs. 

guava said:

usctrojancpa said:

  I currently have 6 Irvine buyers.

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Congratulation ! You currently have 6 Irvine buyers. Plus out of area buyers.

You must be doing good.

Hope you convert the potential buyers into closed sales in near future.

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Thank you.  I have been very fortunate to have as many buyers as I do.  Some are very frustrated with the lack of inventory and getting outbid left and right, but everyone's time will come.  I will keep continuing to work hard to find them the right home at the right price.  Some of my buyers have thrown in the towel on looking in Irvine and have ventured into other nice areas such as Aliso Viejo, Laguna Niguel, Serrano Heights, Anaheim Hills, Yorba Linda, and Fullerton with a lot more luck.  Good things comes to those who are patient.

usctrojancpa said:

zubs said:

I agree with IHOs definition of FCB.

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So then I would also be a FCB once I save up enough money?  After all, I was born in Europe and immigrated here with my parents when I was 5.  Or are FCB only of Asian and Persian decent?  For me, a FCB is anyone who is 1st generation American whether naturalized or a legal alien.  I do not consider folks that are 2nd generation American as being foreign...so they are just CBs. 

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Sure... you would be an FCB too if you had a large cash down... but I think the common observation is F is considered non-white decent (at least in SoCal).

I know the other site regards C as all cash but I consider C as greater than 20% cash because as a seller, I would take the buyer who has a better chance of closing escrow which favors larger downs.

You mentioned looking at title/loan information for recent closings, of the ones you saw in Irvine... how many do you think were ethnic last names and what were the average downs?

irvinehomeowner said:

usctrojancpa said:

zubs said:

I agree with IHOs definition of FCB.

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So then I would also be a FCB once I save up enough money?  After all, I was born in Europe and immigrated here with my parents when I was 5.  Or are FCB only of Asian and Persian decent?  For me, a FCB is anyone who is 1st generation American whether naturalized or a legal alien.  I do not consider folks that are 2nd generation American as being foreign...so they are just CBs. 

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Sure... you would be an FCB too if you had a large cash down... but I think the common observation is F is considered non-white decent (at least in SoCal).

I know the other site regards C as all cash but I consider C as greater than 20% cash because as a seller, I would take the buyer who has a better chance of closing escrow which favors larger downs.

You mentioned looking at title/loan information for recent closings, of the ones you saw in Irvine... how many do you think were ethnic last names and what were the average downs?

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Sweet, all I have to do is quadruple my savings and I can be a FCB.  haha  I still consider cash buyers as buyers who do not need any financing.  Although I can understand if some people want to call cash buyers anyone who puts 50% or more down.  The problem is that there is a real advantage that all cash buyers have on short sales and REOs.  Remember, how one of my Asian buyers who were putting over 40% down with the highest bid on a detached Arden condo REO in Northwood Pointe got screwed because the bank took a $40k lower all cash offer? 

I'm not going to lie....I'd say about 70% of the buyer sur-names othat I saw in the property details were either Chinese or Korean.  I'd say the average downpayment was 30-50% and it seems like the magic number for the loan was $400k-$417k.  I'd say that 15% of the buyers were all cash buyers.  Keep in mind that I was primarily looking at 3+ bedroom 2+ bath detached condos and SFRs and I probably only looked at about 25% of the total population.