Are Higher Gas Prices Supportive for Irvine Housing?

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CapitalismWorks_IHB

CapitalismWorks_IHB

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One of the central tenants of the further decline in Irvine R/E is based on the substitution effect of near-free units in the Inland Empire is effectively dragging down prices in more ideally located places. For example, "If they are giving away houses in Corona, would you live there?". The corrolary is that there is some price differential that is reasonable between Irvine and the IE. Well, with gas prices through the roof the relative attractives of the IE (or has been discussed Ladera, Talega, etc.) is diminished, raising the premium buyers will be willing to pay for premium locations.



How supportive are higher gas prices for Irvine in the short run? How about the long run? Does the increase in value for better locations based on gas savings offset the overall decrease in funds available to service housing debt due to increased energy costs?
 
If you did an analysis of what the actual spend on gasoline is for a 5 mile commute in Irvine vs. a 30 mile commute from Corona, the $$ spent on gasoline (even with the elevated prices) would not come close to justifying the price differential between Irvine and Corona. But from a psychological standpoint, the gas prices will be just one more factor thrown on the on the woodpile to make Irvine seem so far superior to the IE, and continue to drive the price premium.



I won't speak for anyone else, but my family certainly considered the IE in the last few years as prices spiraled out of control. For what we pay for an IAC apartment we could probably land a 3,000 sq ft McMansion in commutable Corona. But if we lived there....



1) We can't go outside because its 100 degrees

2) We can't go outside because it smells like cow sh*t

3) We can't go outside because there are flies everywhere

4) We can't go outside because there are creeps buying meth next door

5) We don't even want to go outside because there is nothing to do, and it probably takes 2 hours to get to Disneyland on the weekend, and 3 to get to the beach.

6) We wouldn't send our dog to the neighborhood school



So yep, all things considered --- the IAC apartment for the same price as a palacial estate in Corona seems like a bargain to us. JMHO.
 
I don't know if it drives the price premium as much as Corona is getting crushed.



BTW, I think all the cows are gone. If you smell shit, it's probablly from horses in Norco.
 
[quote author="CapitalismWorks" date=1215491771]

How supportive are higher gas prices for Irvine in the short run? How about the long run? Does the increase in value for better locations based on gas savings offset the overall decrease in funds available to service housing debt due to increased energy costs?</blockquote>


In the short run, it's a positive, roughly a $50,000 mortgage equivalent at normal vehicle mileage and a net +60 miles/day commute and $5/gal gas.



In the long run, it's a much greater negative as $5/gal gas will drive greater telecommuting options making Irvine residency irrelevant.
 
NSR,

While I agree with you, and have done the mega-all-massive-160-mile commute, to some extent, telecommuting isn't the end all. You NEED to be there sometime, being absent doesn't get the job done fast enough and works well in only a few fields.



Plus gas IS going to go above $5/gal. I say its going to hit something like $7/gal.



I think another factor to look at is location for the work place. When I worked for Raytheon Missle Systems, I HAD to move out to Tucson AZ. The company had chosen that place because several sites in CA were MUCH to expensive to maintain as well as maintaining the people.... While this was a good idea, they could not get ENOUGH people to go out there because so many people were enamored with the SoCal life.



I think it a more specific problem than a generic problem.

-bix
 
Nope the cows are still there and smelling the place up in Eastvale (North Corona) every day. Even worse during the winter as it really stinks due to the wet. I worked selling new homes there for about a year recently and all the complaints are true. To add to the list would be as follows.



1. Gangs and graffiti are everywhere. Our signage was always tagged at least once a month.

2. Lots of brown lawns which will only grow as the alt-a and option arms reset till 2012. You have seen nothing yet!

3.Why would you buy something that continues to loose 5k in value every month?

4. Builders who own land in the inland empire now find the land is worthless and no one is buying.

5. Lots of people related to the people who are giving the summer Olympics are buying up the whole area (at least someone is and good for them!), but expect nothing but a sea of rentals. Renters do not care as much about a home as a renter.

6. And there is great law in Eastvale that if you are disturbing the peace (Having a party) a police officer can give you ticket with no warning that will cost you a cool $1,000. That one floored me...



Oh, and talking about Meth. A lot of those sign spinners for new homes are your Meth heads at work. Kind of sad but at least they are working for it rather than stealing most of the time. It is sad but true...



The only positive thing i have to say is that the people in the IE are laid back and real nice to work with vs selling in the OC.
 
[quote author="OCCOBRA" date=1215496703]



The only positive thing i have to say is that the people in the IE are laid back and real nice to work with vs selling in the OC.</blockquote>


ha ha, yep, nice to see i'm not the only one that notices this.

Good luck

-bix
 
I think higher gas prices do affect the buyers mind. Just like those who trade in their gas guzzling SUV to buy a new fuel efficient car all while taking the hit on reduced trade-in value of the SUV, deprecation hit on the new car, the cost for the new car, and interest. Problem is people don?t pay attention to the long term cost of any financial decision.



I?m thinking gas prices will only offer another plus for living close to work but not enough to affect the market. We need to keep in mind that higher energy costs will start affecting other markets as well which should bring down the market. I?m sure we all noticed food in our local grocery going up. The most shocking one I witnessed this past month was Breyers ice cream shrinking to 75% of its original half gallon size!!!
 
CapitalismWorks original point that higher gas prices will enhance locational premiums is valid. But effects like this one are a couple orders of magnitude less important to prices than the recent economic bubble and how the deflation of said plays out.



There are about 850,000 owner-occupied homes in Riverside/San Bernardino. The median home price in each of these areas fell about $110,000 just in the last 12 months. With just one month's worth of those declines you could buy about 675,000 Toyota Yaris's with a 35 hwy mpg and probably cancel out the effect of high gas prices for every OC commuter. There's nothing about high gas prices and remote suburbs that a few marginal lifestyle adjustments can't fix. When price differentials become as big as they are now a lot of people are going to be OK with those adjustments.
 
Forget about gas prices. Even if it drops back to $2/gallon, there's no way I can sit in traffic for 2 hours. I posted before: there's this one guy who drives from Perris to Santa Ana for work. What the?!



And another fellow works in Irvine but lives in the IE. He says he would find beer cans on his porch after the long drive home. And every now and then his neighbors would set off his home alarm system. The poor guy had to drive home to check up on his house.
 
We live in Riverside and my husband commutes to Irvine (35 miles). It takes him an hour or less usually. I missed my commute when I found a job out here. Turns out that with a boss at work and a toddler at home, that drive was the only break I got.



Now that the kids are out of high school and off to college, I want to move to Woodbridge. My husband says no way, the commutes not that bad. He has been driving to Irvine for 23 years.
 
[quote author="brea" date=1215604464]We live in Riverside and my husband commutes to Irvine (35 miles). It takes him an hour or less usually. I missed my commute when I found a job out here. Turns out that with a boss at work and a toddler at home, that drive was the only break I got.



Now that the kids are out of high school and off to college, I want to move to Woodbridge. My husband says no way, the commutes not that bad. He has been driving to Irvine for 23 years.</blockquote>


Really? Less than an hour commute from Riverside to Irvine? And he's been driving to Irvine for 23 yrs? I truly commend him. My weak back and neck wouldn't be able to endure that.
 
Before the 241/261, the commute was about 1 1/2 hours one way. We live off La Sierra Ave. in Riverside and he drives to Jamborree and Walnut. I have drove him in enough times that I can see the improvement in traffic since the high gas prices. Now, I like Corona and the west end of Riverside, but I would never consider Moreno Valley. It is just too far out and the freeways have been under construction for years.



What makes it worth it, is that of 23 years here, we have not had a mortgage for the last ten of them. We did not have to stretch ourselves to purchase here, so we could then use any extra money available to prepay the mortgage.



Still I do wonder what life would be like living in Woodbridge.
 
[quote author="biscuitninja" date=1215496089]NSR,

While I agree with you, and have done the mega-all-massive-160-mile commute, to some extent, telecommuting isn't the end all. You NEED to be there sometime, being absent doesn't get the job done fast enough and works well in only a few fields.



-bix</blockquote>


Plus, if they can send the work to your House they can probably send it to someone elses too...overseas.
 
[quote author="brea" date=1215607472]Before the 241/261, the commute was about 1 1/2 hours one way. We live off La Sierra Ave. in Riverside and he drives to Jamborree and Walnut. I have drove him in enough times that I can see the improvement in traffic since the high gas prices. Now, I like Corona and the west end of Riverside, but I would never consider Moreno Valley. It is just too far out and the freeways have been under construction for years.



What makes it worth it, is that of 23 years here, we have not had a mortgage for the last ten of them. We did not have to stretch ourselves to purchase here, so we could then use any extra money available to prepay the mortgage.



Still I do wonder what life would be like living in Woodbridge.</blockquote>


whoa..he's spent a full 16 months in a Car! :bug:
 
I can't help but think of that fellow who owns a huge 5000 sq. ft home in Perris. He's been driving for nearly 3 years now to Santa Ana. His car is not exactly comfortable either. He shared that he doesn't get home till 9 PM when his kids are already asleep. Then he gets up around 4 AM to ready himself for the morning commute. Again, while his kids are asleep. I suppose it's a sacrifice that some are willing to make.



I am not kidding my commute is about 15 minutes @ 65 mph. Yet, I get cranky and hungry by the time I get home. So I am reallly impress that certain individuals can handle those long commutes and keep their sanity. I guess I am just a wimp.
 
Gas prices also have second and third-order effects on lower-density areas like much of the IE. The expense of getting around will make it more difficult for lower-class people who want to work and otherwise have lives to live there. That plus the transportation costs will drive up the costs of doing business at the same time as gas prices but disposable income. So there's going to be a lot of economic pain.
 
[quote author="PeterUK" date=1215608522]

Plus, if they can send the work to your House they can probably send it to someone elses too...overseas.</blockquote>


What's nice about government contracting is the rules don't allow much outsourcing. :)
 
I think everyone has contemplated the idea of the IE, whether they admit or not. So, lets take a look at the numbers from a financial perspective. Lets just say your mortgage payment is $3k to live in OC, and $2k to live in the IE, and below will use a very rough estimate of a 25% reduction for tax purposes on an annual basis. Now, I assume about $2k for car maintenance per year, and if I am driving three times as many miles it would be $6k. Next, is gas, and I figure $1560 a year in OC, and 4680 for the IE. I would expect gas to be even higher for the IE, since I would get my passport to visit OC, but lets go with the 3 times calculation. I don't care what people make, but for the ease of the math, lets say you value your time at $100 a hour for commute times.



OC



$27,000 mortgage

$2000 car maintenance

$1560 gas

Total $30,650



With adding your time value of $17,300, the total would be $47,860.



IE



$18,000 mortgage

$6000 car maintenance

$4680 gas

Total $28,650, a $2k difference, or $5.50 a day.



With adding your time value of $26,000, the total would be $54,650.



Mmmm... it looks like OC wins, if you value your time. That equates to 87 more hours a year that you could spend with you family, friends, working, or on IHB.



Now. are gas prices going to make people move to OC to save on commute time? Heh, it didn't make a difference before when the traffic was worse, because they didn't and don't teach basic financial sense or common sense in school, so why would it now? Maybe the extremely amazing prices drops in the IE will contribute to the migration to OC, since the price drops are not falling as fast and hard in OC as they are in the IE. But, I doubt anyone who bought in the IE would know this, let alone understand why prices are dropping faster than their IQ from all the Natural Light beer compared to OC prices.
 
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