Author Topic: Observations from the front lines of the Irvine housing market…  (Read 153099 times)

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Offline Dr. CA Real Estate

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Re: Observations from the front lines of the Irvine housing market…
« Reply #585 on: April 28, 2020, 08:36:41 pm »
Does anybody have any insight into the rental rates the past month?  Have they gone down?   My out-of-state investment property is up for a lease renewal and my property manager is recommending I RAISE my tenant's rate by ~10%.  I'm feeling a bit queezy about raising rates in this environment, but if that's what the rental comps are saying...

Is your property manager a descendant of  Hermann von Siemens ??
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Offline Irvinehomeseeker

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Re: Observations from the front lines of the Irvine housing market…
« Reply #586 on: May 01, 2020, 06:59:54 pm »
Does anybody have any insight into the rental rates the past month?  Have they gone down?   My out-of-state investment property is up for a lease renewal and my property manager is recommending I RAISE my tenant's rate by ~10%.  I'm feeling a bit queezy about raising rates in this environment, but if that's what the rental comps are saying...

Depends on the amount of rental properties on the market. Here in Irvine, I rented 3 rental listings within 2-4 weeks at comps to $100 off comps (rental prices ranged from $3,000 to $3,800).  I would recommend that you run rental comps and see how many other comparable rental units are listed for rent in your area.

A bit to tough to find qualified tenants as ppl are not moving much. I have got some interest after I reduced rental by 200$...

Offline USCTrojanCPA

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Re: Observations from the front lines of the Irvine housing market…
« Reply #587 on: May 12, 2020, 09:24:52 pm »
Attached is the data for both March and April 2020, I also included data for the number of homes that closed for $1m and less and what % of the total sales that represented from Jan 2018 through April 2020. I really wanted to wait until I got and analyzed the April 2020 data as the March data was all over the board with the stay-at-home order happening in the middle of March.

Sales in March 2020 were 232 or 18% higher than March 2019 but keep in mind that most all of those escrows were opened in Jan/Feb. The March 2020 median price per SF increased to $484/sf or about 4% from March 2019 to March 2020 but I'd venture to say that it was an outlier month with a greater mix of homes above $1m closing in the month (38% vs. 34% using the 12-month trailing average) and without this blip we would have probably seen the March 2020 median price per SF closer to being flat with March 2019. The real action happened on the inventory side in March. Around the middle of the month we had over 700 listed homes on the market with about 250 homes in escrow as we were entering the Spring selling season. Then the stay-at-home order happened the number of active listings decreased by about 150 homes by the end of the home to 589 (28% lower than at the end of March 2019) which was slightly up from the end of Feb as many sellers pulled their listing off the market (some converted them to rentals). At the same time, I saw the number of homes in escrows fall to around 150 by early April as there were many escrow cancellations (happened to me with my 56 Snowdrop Tree listing as the buyer got furloughed after the stay-at-home order).

Sales in April 2020 were 128 or 46% lower than April 2019 and these figures definitely reflect COVID issues as buyers started pulling back and cancelling escrows. The April 2020 median price per SF was basically flat with April 2020 at $476/sf and more inline with the trend that we've been seeing for the past 6 months. The number of homes in escrow hit a low of around 140 home in the middle of April and as of today (May 12th) that number has increased to 172 homes so activity has definitely picked up and coincides with what I've experienced with a few buyers (more details below). Inventory homes on the market for sale at the end of April 2020 increased to 638 from March 2020 by 8% but decreased by 287 homes or 31% from the end of April 2020 and as of today (May 12th) the number of homes for sale is 609 which explains why there is an increase of homes in escrow. Of the 609 of homes on the market, 315 of them are priced at or under $1m (52% of all inventory) while April 2020 of homes at or under $1m were 84 or 66% which is slightly higher than the March 2019 to Oct 2019 average of 65% (Nov 2019 to Feb 2020 average was 68%).

So what does all this mean?  Well, it's a tale of 2 markets with the sub $1m market holding up fairly well with good buyer demand and a lack of inventory with 3.75 months of inventory (based upon April data) while the $1m+ market continues to bleed lower with a lot of supply and lower buyer demand (6.68 months of inventory). I've had experiences that support that data. Only one of my buyers who is looking for a home over $1m came off the sidelines in the past month to re-start their home search while I've had 2 previous buyers and 3 new buyers in the $600k to $900k price range who have contacted to start actively looking to buy. With 3 of those buyers, I've been outbid on purchase offers in the past few weeks and the other 2 buyers are waiting for a particular floor plan/lot on the new home side. I'm making semi-low ball offers for my $1m+ buyer but there are MANY stubborn sellers, especially foreign cash purchased homes that are sitting vacant (these sellers are in dream land thinking they can get above pre-COVID prices so we just let them sit and move on quickly). Home builders of sub $1m homes seem to be doing fairly well with sales, including Montara and Celeste, as they are selling most all of their currently released lots (probably due to the lack of resale inventory on the market). I went to register a buyer at Rise with Lennar at the end of April and she claimed that they put 18 homes into contract in the past week at their Great Park neighborhoods (most likely their sub $1m homes is my guess). On the listing side, I listed 2 homes (120 Holly Springs in Irvine and 28472 Porsena Way in Lake Forest) after the stay-at-home and sold both with multiple offers above the list price. So I'm seeing good demand and low supply on the lower end of the market, along with low interest rates, which seems to be keeping prices from declining while the inventory in the higher end continues to pile up with stubborn resale sellers and "quick move-in" unsold new homes. Premium higher end homes (larger lot, view lots, and/or highly upgraded) continue to sell at strong prices as well. My sellers who were looking to list in March-May delayed their listings until further notice based upon my discussions with them. See the interesting WSJ articles of how prices are prices during the pandemic:

https://www.wsj.com/articles/why-home-prices-are-rising-during-the-pandemic-11588671002

We also have seen some action interesting action in the mortgage market in the past 2 months as well. When the stock and bond market stopped functioning poorly we actually saw the 30-year fixed rate blip up as high as 3.75% in the middle of March from about 3.25% in late Feb/early March. Then the Fed stepped and started buying mortgage bonds which brought rates back down to 3.25% by the end of April but this created problems for lenders who hedged their locked rate and created many margin calls for lenders. There was also news that many non-direct lender jumbo loans began to dry up and several lenders started tightening up their lending standards (higher down payment %, higher FICO, etc). As of mid-May, I'm hearing/seeing 30-year jumbo purchase rates at 3% with 0pts and with the Fed continuing to buy mortgage bonds we may very well get into the high 2% range soon.

So where do we go from here?  That is a tough question to answer but one that I get asked by both my buyers and sellers. That answer will be dependent on several variables including...1) inventory levels, 2) timing of good vaccines/treatments, 3) how effective the re-opening will be, 4) will the gov't keep providing stimulus to main street and small businesses, 5) where rates will be, and 6) how many of the lost/furloughed jobs come up. I think with the absolute best case scenario home prices will be flattish but my base case is that we'll probably see price small declines of anywhere between 2-5% in the next 9-12 months as I think rates continue to go lower which will cap price declines, especially in the sub $1m market.
Martin Mania, CPA
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Offline USCTrojanCPA

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Re: Observations from the front lines of the Irvine housing market…
« Reply #588 on: May 12, 2020, 09:30:22 pm »
Here are the 5-year charts for active listings, closed sales, median per SF, and Days On Market (DOM) through April 2020.
Martin Mania, CPA
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Offline paydawg

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Re: Observations from the front lines of the Irvine housing market…
« Reply #589 on: May 12, 2020, 10:13:06 pm »
Does anybody have any insight into the rental rates the past month?  Have they gone down?   My out-of-state investment property is up for a lease renewal and my property manager is recommending I RAISE my tenant's rate by ~10%.  I'm feeling a bit queezy about raising rates in this environment, but if that's what the rental comps are saying...

Depends on the amount of rental properties on the market. Here in Irvine, I rented 3 rental listings within 2-4 weeks at comps to $100 off comps (rental prices ranged from $3,000 to $3,800).  I would recommend that you run rental comps and see how many other comparable rental units are listed for rent in your area.

A bit to tough to find qualified tenants as ppl are not moving much. I have got some interest after I reduced rental by 200$...

So I tried raising my rent by $100/month and my tenant freaked out.  I immediately went back to the same rent and they signed the renewal. 
Thanks in advance for the 'thanks'!!

Offline daedalus

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Re: Observations from the front lines of the Irvine housing market…
« Reply #590 on: May 13, 2020, 01:52:18 pm »
So curious.  Need more info.  What did their freak out look like to you?

Offline akkord

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Re: Observations from the front lines of the Irvine housing market…
« Reply #591 on: May 13, 2020, 02:00:13 pm »
Does anybody have any insight into the rental rates the past month?  Have they gone down?   My out-of-state investment property is up for a lease renewal and my property manager is recommending I RAISE my tenant's rate by ~10%.  I'm feeling a bit queezy about raising rates in this environment, but if that's what the rental comps are saying...

Depends on the amount of rental properties on the market. Here in Irvine, I rented 3 rental listings within 2-4 weeks at comps to $100 off comps (rental prices ranged from $3,000 to $3,800).  I would recommend that you run rental comps and see how many other comparable rental units are listed for rent in your area.

A bit to tough to find qualified tenants as ppl are not moving much. I have got some interest after I reduced rental by 200$...

So I tried raising my rent by $100/month and my tenant freaked out.  I immediately went back to the same rent and they signed the renewal.

I haven't raised my tenants rent for 4 years now, I see the deposits into my account on the 1st of every month without fail.  I haven't gotten a call since we had the slab leak we had to take of last spring.

Offline USCTrojanCPA

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Re: Observations from the front lines of the Irvine housing market…
« Reply #592 on: May 13, 2020, 02:07:48 pm »
Does anybody have any insight into the rental rates the past month?  Have they gone down?   My out-of-state investment property is up for a lease renewal and my property manager is recommending I RAISE my tenant's rate by ~10%.  I'm feeling a bit queezy about raising rates in this environment, but if that's what the rental comps are saying...

Depends on the amount of rental properties on the market. Here in Irvine, I rented 3 rental listings within 2-4 weeks at comps to $100 off comps (rental prices ranged from $3,000 to $3,800).  I would recommend that you run rental comps and see how many other comparable rental units are listed for rent in your area.

A bit to tough to find qualified tenants as ppl are not moving much. I have got some interest after I reduced rental by 200$...

So I tried raising my rent by $100/month and my tenant freaked out.  I immediately went back to the same rent and they signed the renewal.

I haven't raised my tenants rent for 4 years now, I see the deposits into my account on the 1st of every month without fail.  I haven't gotten a call since we had the slab leak we had to take of last spring.

As the saying goes, good tenants are worth their weight in gold and not worth trying to extract some nominal rent increase from them.
Martin Mania, CPA
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Offline DBtoOC

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Re: Observations from the front lines of the Irvine housing market…
« Reply #593 on: May 13, 2020, 02:31:47 pm »
.

Offline Liar Loan

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Re: Observations from the front lines of the Irvine housing market…
« Reply #594 on: May 14, 2020, 07:59:25 pm »
My sellers who were looking to list in March-May delayed their listings until further notice based upon my discussions with them.

I'm curious about this statement.  Since you've had a couple of recent listings with multiple offers above asking, and are expecting a base line scenario of 2-5% price declines in the next 9-12 months, what do you think made them delay their listings? 

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Offline USCTrojanCPA

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Re: Observations from the front lines of the Irvine housing market…
« Reply #595 on: May 15, 2020, 01:43:11 pm »
My sellers who were looking to list in March-May delayed their listings until further notice based upon my discussions with them.

I'm curious about this statement.  Since you've had a couple of recent listings with multiple offers above asking, and are expecting a base line scenario of 2-5% price declines in the next 9-12 months, what do you think made them delay their listings? 

The 2 most recent listings that got multiple offers were different from the listings that I've delayed with my other sellers. Holly Springs was a job relocation sale and since I got multiple offers on the Copeland listing, I funneled over those back-up buyers to Holly Springs with private viewings for all 3 of them which resulted in multiple offers. Porsena Way was a former rental property where the tenant moved out at the end of Feb and the seller needed to sell before the end of June to capture the tax gain exemption since they moved out at the end of June 2017. So we painted, did some minor upgrades, staged, and cleaned the condo before listing slightly below closed comps to generate a quick sale considering what was going on with the virus which resulted in multiple offers going over even the highest model match closed comp before the virus broke out. The sellers that have delayed their listings don't have an urgency to sell so I'll list their homes when we think it's the right time.

In terms of my prediction of the price drop, that's an average guestimate for the entire Irvine market as a whole. I think the lower end prices will probably be flattish while the higher end will most likely see price drops above 5%. Obviously if we start seeing big layoffs and more inventory begins to flood the market, home prices will fall further. If there are going to be any foreclosures or short sales (mostly people who bought very recently with minimal down payments), those will most likely happen in 2021 as the mortgage forbearance will give those folks some time.
« Last Edit: May 15, 2020, 10:06:19 pm by USCTrojanCPA »
Martin Mania, CPA
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