Are high-end homes immune or less affected from housing decline?

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michelle_IHB

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Hi all,



I just joined Irvine Housing blog today. First of all, I would like to thank you IrvineRenter for his excellent analysis posts.



House prices has dropped around 20% or more in less desirable cities (i.e. Santa Ana...). High-end homes build within 15 years in Irvine, Huntington Beach (close to the beach) seems to maintain their values... Many houses (built in 1998) are listed at the price identical to the price in late 2005 or early 2006.



I just wonder if high-end homes in Irvine, Huntington Beach are immune or less affected from housing decline. Shall the high-end homes be affected later? Is there anyone knows what happened to high-end homes/cites in the last bust 1990-1997? Were they affected too? Will the house price in high-end cities be slashed at the same percentage as other less-desirable cities eventually?



Your reply is really appreciated.



Seektruth
 
[quote author="seektruth" date=1208514768]Hi all,



I just joined Irvine Housing blog today. First of all, I would like to thank you IrvineRenter for his excellent analysis posts.



House prices has dropped around 20% or more in less desirable cities (i.e. Santa Ana...). High-end homes build within 15 years in Irvine, Huntington Beach (close to the beach) seems to maintain their values... Many houses (built in 1998) are listed at the price identical to the price in late 2005 or early 2006.



I just wonder if high-end homes in Irvine, Huntington Beach are immune or less affected from housing decline. Shall the high-end homes be affected later? Is there anyone knows what happened to high-end homes/cites in the last bust 1990-1997? Were they affected too? Will the house price in high-end cities be slashed at the same percentage as other less-desirable cities eventually?



Your reply is really appreciated.



Seektruth</blockquote>


You might want to <a href="http://www.ipoplaya.com/iposhiller.pdf">check this out</a> seekt. You will find that there are a number of high-end Irvine homes that have rolled back to 2004 prices much like condos. If you see a value of 217 or below, it means its equivalent to a 2004 price...
 
They definitely are not. The high-end homes (by that I mean coastal area more than property) have greater wtf prices than any other. What is the number one creed of realtors? Location, location, location. The better the area the more likely it is to be way overpriced.



I suggested this many times but go to www.redfin.com and search for homes in the (multi)million dollar range. Check out the previous purchase prices and your jaw will hit the floor.



<a href="http://www.redfin.com">redfin</a>
 
[quote author="awgee" date=1208516071]If ya think the beach towns are immune ...





http://lansner.freedomblogging.com/2008/04/17/home-sales-tsunami-reaches-oc-beach-towns/</blockquote>
<a href="http://lansner.freedomblogging.com/2008/04/17/home-sales-tsunami-reaches-oc-beach-towns/">awgee's link</a>
 
<blockquote>I suggested this many times but go to www.redfin.com and search for homes in the (multi)million dollar range. </blockquote>




Here's a <a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1198009">Newport Beach house</a> that was purchased in 1999 for $558,000. The owners sold it to their company on 11/20/2007 for $1,635,000 (nice profit of $1,077,000 in 9 years). The company is now trying to sell it for $1.6 (941 sq ft) - ridiculous!

This is a 1700 sq. ft house, 3 bedrooms, 2 bath house - nothing spectacular.





If it was a normal market with a 7% appreciation each year, the house should sell for $1,025,856.
 
That'a a wishing price indeed esp since huge Port Ashley home sold in December for $1.76million. Zillow has the home info wrong- it's a brand new house (teardown) with probably over 3200 sq feet



http://www.zillow.com/HomeDetails.htm?zprop=25494903



Also, there's a Port Hemley home also 3200 sq feet that sold in mid March for 1.55M. The home next door is also in backup offers for $1.55M and it's 2700 sq feet.



Those people are dreaming!
 
[quote author="CalGal" date=1208562134]<blockquote>



If it was a normal market with a 7% appreciation each year, the house should sell for $1,025,856.</blockquote>




Since when is 7% a year "normal"?



I thought that all long term studies say that inflation + 0.4% (basically 3.5%) was "normal"?



Do you have more information?
 
[quote author="freedomCM" date=1208570100][quote author="CalGal" date=1208562134]<blockquote>



If it was a normal market with a 7% appreciation each year, the house should sell for $1,025,856.</blockquote>




Since when is 7% a year "normal"?



I thought that all long term studies say that inflation + 0.4% (basically 3.5%) was "normal"?



Do you have more information?</blockquote>


2-3% is normal. I think Shiller stated that or some other source.
 
Shiller has noted that house prices nationally have appreciated at 0.7% over the general rate of inflation since 1890. Yes that is 1890. National house prices have appreciated at 1.4% over the rate of inflation since 1984. Of course, interest rates have declined 40% during this time which explains why it has outpaced its historic average. Basically, house prices cannot rise faster than wages because the vast majority of people finance their purchases and these payments must come from their income. Inflation tracks wages because as people make more money, they bid up the cost of all goods and services. Nationally, house prices have matched the rate of wage growth for decades.



House prices have appreciated faster in California due to irrational exuberance. People believe house prices rise quickly here, so they buy real estate which makes house prices rise quickly. There is no logical or fundamental reason why house prices in California would appreciate faster than anywhere else. This is also why prices crash in California periodically because they become inflated relative to incomes and rents. 7% appreciation is not "normal," and it never will be. It may become common as we seem to like the upswings in the real estate cycle, but unless wages and rents start rising at 7% annually, house prices will not either.
 
[quote author="CalGal" date=1208572890]2-3% seems low - but Shiller certainly knows more than I do. :-)</blockquote>


Here you <a href="http://economistsview.typepad.com/economistsview/2006/03/shiller_longter.html">http://economistsview.typepad.com/economistsview/2006/03/shiller_longter.html</a>
 
No debate here - Shiller and IrvineRenter have far more knowledge than I do. I should have chosen my words more carefully. I've seen data where the stock market has historically appreciated 10% every year and real estate has appreciated 7% - I'll try and find it.
 
[quote author="CalGal" date=1208576313]No debate here - Shiller and IrvineRenter have far more knowledge than I do. I should have chosen my words more carefully. I've seen data where the stock market has historically appreciated 10% every year and real estate has appreciated 7% - I'll try and find it.</blockquote>


Stock Market is BS. 10% is big time marketing bull. It's based off the Ibotson chart (spelling).



Stock Market should be given a 6% rate of return TOPS in any retirement/pension model portfolio...not 10%!!



The reason for 10% is due the outsized returns since 1980...the S&P;500 is up 1100%+ or 2600% w/dividends.
 
<blockquote>Stock Market is BS. 10% is big time marketing bull. It?s based off the Ibotson chart (spelling).

Stock Market should be given a 6% rate of return TOPS in any retirement/pension model portfolio...not 10%!!

The reason for 10% is due the outsized returns since 1980...the S&P;500 is up 1100%+ or 2600% w/dividends. </blockquote>
For the record, I didn't say the Stock Market has seen a 10% appreciation every year - I just said I've seen the data. :coolsmirk: Tough crowd.
 
I'm not debating - I'm just asking - so don't jump all over me. Wouldn't the west coast and the east coast appreciate more than say the midwest. I believe (choosing my words) that some states like Michigan, Indiana, Texas, etc. hardly appreciate at all. Wouldn't these states skew the numbers for the national figures? Just curious how this works.
 
[quote author="CalGal" date=1208588121]I'm not debating - I'm just asking - so don't jump all over me. Wouldn't the west coast and the east coast appreciate more than say the midwest. I believe (choosing my words) that some states like Michigan, Indiana, Texas, etc. hardly appreciate at all. Wouldn't these states skew the numbers for the national figures? Just curious how this works.</blockquote>


Areas that experience above average wage growth experience above average appreciation, but the relationship between wages, rents and ultimately home prices is immutable. Home prices will deviate from these fundamentals due to irrational exuberance, but they always return. Think about what would happen if this were not so. After enough time, it would take all of someone's income just to support a housing payment. Japan tried to sustain artificially inflated asset prices, and it cost them a decade of economic growth.
 
Would it be that the more desirable places appreciated more for a period of time and now they just are slightly more expensive overall? I mean, there is obviously a difference in prices in some cities and states than in others. Perhaps the difference is found more in $/sq. ft. and we just get less for the same price here than there. I think the % of appreciation though for "regular" homes can't just keep going further up beyond wages. Of course, a time period has to referenced in any discussion of price change. Prices may appreciate a lot over one time period, but not over a longer one or over a separate one.
 
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