Bowing Out Gracefully from the Irvine Housing Market

Q

quattroporte

New member
With the interest rates going through the roof, i.e. from 3.5% on May 2, 2013 to 4.625% today (June 21, 2013), I HIGHLY doubt that home prices are going to go up from this point. I seriously think they are headed down (how much, I dont know). That is a 1.125% or 32% increase in rates over just a FEW weeks, and it is HUGE! For example, a $600,000 loan with 3.5% for 30 years has a monthly payment of $2,700. At 4.625% with the same monthly payment of $2,700, the purchasing power has dropped to $525,000. That is a huge $75,000 difference. This does not even consider that fact of what the interest rates are going to be by the time you close on a new construction 4 to 6 months later. That could be HUGE payment shock!

But the pain does not stop here. It is a double whammy. The home prices are up 25% from a year ago. So add another $100,000 (based on a initial price of $500,000) to the $75,000. Oh yeah, one more thing... the property tax is an additional $1,800 per year (Effective 1.8% rate to the $100,000 increase).

When I first got on the priority lists my monthly was GOING to be about $2,250 ($500,000 @ 3.5% for 30 yrs). By the time I close, IF I close, it would be about $3,100 ($600,000 @ 4.625% for 30 yrs). That is an increase of $850 per month or 38% over the initial $2,250. And this does not EVEN include the higher property tax numbers. Even though I could still afford this house, it doesn't make financial sense to buy it any more. Renting is cheaper at this point and provides flexibility. I would love to buy a new house, but at the same time I am not desperate to get one. Based on MY opinion, these rates and prices are not sustainable. One or the other has to come down, and in my opinion, it is going to be the home prices.

The economy is still FAR from good, the unemployment is still high, wages are not raising as fast as the the home prices, the stock market nose dived yesterday (down almost 5% in the past two days), bonds plummeted yesterday (and today), gold is in the dumps. You cannot print trillions of dollars out of thin air and not have any consequences. I really do hope that I am wrong, but my gut says that I am not. The numbers and data do not make sense any more.

I rather buy a cheaper house with an higher interest rate than an expensive house with a lower rate for the same monthly payment. At least with the cheaper house I have a better chance of selling it and getting out if things get bad. With the more expensive house, I will be stuck with it, unless I want to ding my credit. Buying an expensive house for an higher interest rate is a big no no. Buying a cheap house for a low interest rate would be ideal.

I think its time for me to bow out gracefully out of the Irvine housing market (or any housing market for the fact). Until things change or the numbers make sense (to me), Ill be on the sidelines waiting for the right time (not the perfect time, since no one can time the market) to buy my house.
 
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
 
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
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It's relative, but the problem is when the mortgage rates declined from 6% to 3%, it also increased the home prices higher, which means higher mortgage/loan (when the wages were flat adjusted for inflation).  We went from $6,000 pmt (6%) on $100,000 loan to $6,000 pmt (3%) on $200,000 loan.  So we are now stuck with higher home prices and higher rates for now until they balance out.  What we need now is either two things: 1.  REAL wage growth (higher growth and employment) 2.  Lower home prices.

10 year treasury went up again by 4% to 2.51%! damn. Hopefully, it will stay between 2% and 2.5% until the end of the year or I will be screwed too in Oct/Nov.

Anyone get a quote on 10/1 ARM these days?  Are they 50 bp lower then 30 year fixed?
 
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
Click to expand...

I understand they were 6.25% or so before the housing crash. But back then, 9 out of 10 people I know, had interest only or ARM loans, that is why they were able to pay more for a house. Look what happened when the loans reset to higher interest rates and/or the principal payments kicked in, the home prices feel off a cliff.

EDIT: Also, 8 out of those 9 people who got interest only or ARMS loans either foreclosed or sold their homes short. 6 of those 8 defaults were "strategic defaults".

"From Wikipedia: A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt despite having the financial ability to make the payments."
 
It's relative, but in a little over a month and half, that relative took a $800K Irvine home, that you put $200K down payment on and finance with PITI payments of $42K year to an $800K home with $200K down and PITI payments of $47,500/yr.

Now, how many $5000 yearly payments chunks can people afford?
 
H        O        M        E        R said:
Quattroporte - I think you are making a wise decision!  Congrats on not giving in to this bubble!
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Thanks Homer. I am so tempted to just go buy a house right now, and believe me, its hard stopping myself. But I cant make a decision based on my emotions that I will regret later. Is there a thing called "Being priced out by choice"?
 
quattroporte said:
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
Click to expand...

I understand they were 6.25% or so before the housing crash. But back then, 9 out of 10 people I know, had interest only or ARM loans, that is why they were able to pay more for a house. Look what happened when the loans reset to higher interest rates and/or the principal payments kicked in, the home prices feel off a cliff.

EDIT: Also, 8 out of those 9 people who got interest only or ARMS loans either foreclosed or sold their homes short.
Click to expand...

But there were also a lot of people who had fixed rate loans that refinanced later.  Yes the interest jump is bad but you're still buying at a 15-20% discount from a normal market of 6-7% interest. 

Yes prices are high but they're not going to come down.  The buyers of homes now are mostly cash buyers or solid financiers...you are not going to have the glut of foreclosures that resulted in the deep drop in price.  I think that the market will just slow down and you have few transactions because the prices are too high to buy and sellers will just stay put.  You'll have a lot of renters as well. 

For my purposes, I know that I am buying high but it is unlikely that I will get into Irvine in the next 5-10 years especially if the rates get up to 6-7%.  Bite the bullet now...get a low rate and stay in the house for 20 years.
 
Thanks Homer. I am so tempted to just go buy a house right now, and believe me, its hard stopping myself. But I cant make a decision based on my emotions that I will regret later. Is there a thing called "Being priced out by choice the Chinese"?
Click to expand...

Fixed it for ya.

LAX new international terminal is being designed to appeal the Chinese, and they are expecting more Chinese visitors (some are home buyers). Even the ex mayor just recently went to China to promote business.
 
I feel for all those who have a hard time finding the"perfect" home or the "right time" or simply can't pull the trigger until it's too late. I'm sure the "right time" was available to you over the past year or two you just didn't realize it. That's real estate for you. Rates have been under 4% for the past year and prices have been low since 2009. What have you been waiting for? You didn't think the rates/low prices could go on forever did you? Now you and I'm sure others feel defeated. I personally don't think prices will be going down significantly anytime soon because we have more qualified buyers now than during the peak. I also don't think investors buying up all the properties right now are planning on selling for a loss in a couple years so get used to the new reality of sustained prices and higher rates. But again who knows what the future holds. My point is stop thinking so hard about real estate and do what's right for your own situation. Maybe in the meantime you can save some more cash and in 5-10 years buy something you really can afford with cash. Best of luck.
 
Irvinecommuter said:
quattroporte said:
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
Click to expand...

I understand they were 6.25% or so before the housing crash. But back then, 9 out of 10 people I know, had interest only or ARM loans, that is why they were able to pay more for a house. Look what happened when the loans reset to higher interest rates and/or the principal payments kicked in, the home prices feel off a cliff.

EDIT: Also, 8 out of those 9 people who got interest only or ARMS loans either foreclosed or sold their homes short.
Click to expand...

But there were also a lot of people who had fixed rate loans that refinanced later.  Yes the interest jump is bad but you're still buying at a 15-20% discount from a normal market of 6-7% interest. 

Yes prices are high but they're not going to come down.  The buyers of homes now are mostly cash buyers or solid financiers...you are not going to have the glut of foreclosures that resulted in the deep drop in price.  I think that the market will just slow down and you have few transactions because the prices are too high to buy and sellers will just stay put.  You'll have a lot of renters as well. 

For my purposes, I know that I am buying high but it is unlikely that I will get into Irvine in the next 5-10 years especially if the rates get up to 6-7%.  Bite the bullet now...get a low rate and stay in the house for 20 years.
Click to expand...

I agree with Homer, if you gonna stay put in your house for 10+ years, press the trigger.  I did it.  Higher rates can also mean signs of stronger economy and better employment picture = higher growth = support housing prices.  Especially in Irvine where job market is very very good.  But, this is assuming best case scenario ;)

btw, China is starting to implode.  Their inter-borrowing rate sky-rocketed and stock market plummeted.  Let's hope/pray that Chinese economy/market stays afloat so those FCBs can continue to support the housing market in Irvine and rest of the country.
 
Goriot said:
Irvinecommuter said:
quattroporte said:
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
Click to expand...

I understand they were 6.25% or so before the housing crash. But back then, 9 out of 10 people I know, had interest only or ARM loans, that is why they were able to pay more for a house. Look what happened when the loans reset to higher interest rates and/or the principal payments kicked in, the home prices feel off a cliff.

EDIT: Also, 8 out of those 9 people who got interest only or ARMS loans either foreclosed or sold their homes short.
Click to expand...

But there were also a lot of people who had fixed rate loans that refinanced later.  Yes the interest jump is bad but you're still buying at a 15-20% discount from a normal market of 6-7% interest. 

Yes prices are high but they're not going to come down.  The buyers of homes now are mostly cash buyers or solid financiers...you are not going to have the glut of foreclosures that resulted in the deep drop in price.  I think that the market will just slow down and you have few transactions because the prices are too high to buy and sellers will just stay put.  You'll have a lot of renters as well. 

For my purposes, I know that I am buying high but it is unlikely that I will get into Irvine in the next 5-10 years especially if the rates get up to 6-7%.  Bite the bullet now...get a low rate and stay in the house for 20 years.
Click to expand...

I agree with Homer, if you gonna stay put in your house for 10+ years, press the trigger.  I did it.  Higher rates can also mean signs of stronger economy and better employment picture = higher growth = support housing prices.  Especially in Irvine where job market is very very good.  But, this is assuming best case scenario ;)

btw, China is starting to implode.  Their inter-borrowing rate sky-rocketed and stock market plummeted.  Let's hope/pray that Chinese economy/market stays afloat so those FCBs can continue to support the housing market in Irvine and rest of the country.
Click to expand...

Most of the Chinese who are buying have cash in hand.  Lending in China really affect large corporations.  Most individuals in China already stored away their savings, although the collapse of gold/metal probably hurts a lot.  I don't expect the FCB to continue to buy but I don't expect them to dump their homes either.
 
Quattroporte, I am in the exact same boat as you. I sleep better at night knowing that my net worth is liquid and not completely in my house. I also think we are in for a correction in the stock market and I want to be ready to pounce when it happens.

I rent a home in Irvine and my family is perfectly happy.
 
Quattroporte - IHO says increasing rates wont have any price impact on irvine and home prices wont come down.

for what its worth, i think you made a great choice and did not succumb to the thought that buying in irvine is the greatest thing since sliced bread. You can rent and get all the benefits of living in irvine just the same. 

 
zubs said:
I just went on redfin.com and checked out zipcode 92620 for sold $ per sq foot.

JUL 2012 - $306 / SQ FT
JUN 2013 - $382 / SQ FT

That is a $76 swing upwards which = 24.8% increase in price within 1 year.
http://www.redfin.com/zipcode/92620
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I have been actively hunting for homes since January.  That 20% to 25% looks about right for existing homes in the past 12 months.  For new construction homes, it's more like 10% to 15%. 
 
qwerty said:
Quattroporte - IHO says increasing rates wont have any price impact on irvine and home prices wont come down.
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If you're going to attach my name to something, at least be more accurate about it.

What I said was that prices won't come down proportionately, the rise in interest rates won't equal the same savings in a reduction of sales price, sellers don't set prices just based on that, there are many other factors involved.

Additionally, last week I posted information from Lasner on OC Register where he did some data analysis and history does not support the notion that prices always go down when rates go up. Most of the time, prices went up... that's based on data not "that's what I think will happen" logic.

Just look at 2008 to 2012, interest rates halved yet prices also fell. Prices would have fell even farther if not for constriction of inventory starting in 2010.
quattroporte said:
I understand they were 6.25% or so before the housing crash. But back then, 9 out of 10 people I know, had interest only or ARM loans, that is why they were able to pay more for a house. Look what happened when the loans reset to higher interest rates and/or the principal payments kicked in, the home prices feel off a cliff.
Click to expand...
I'm not sure about your timing here. When people were buying with ARMs in 2005-2007, those loans would not have recast/reset until 2010-2012 (Option ARMs had a 5-year recast), by then, rates were actually at or near their teaser rates. The only issue would be the deferred interest that would get recalculated into the recast but at low rates, if they were earning more after 5 years, they should be able to handle it.
EDIT: Also, 8 out of those 9 people who got interest only or ARMS loans either foreclosed or sold their homes short. 6 of those 8 defaults were "strategic defaults".
Click to expand...
Where are you getting these stats from? This doesn't take into account how many either held out, refinanced, or took advantage of TARP/HARP/CRAP(!).
 
paperboyNC said:
High interest rates are relative. We were at 6.25% or so before the housing crash. If we project that we will eventually get there then it might make sense to lock in a 4.25% rate now.

I personally bought with an 7yr ARM since most people don't stay in their houses that long anyways. You can still get 3% on a 5/1 ARM for instance.
Click to expand...

Getting an ARM right now with the bond market imploding is a risk I am not going to take. What if my house price drops and the interest rate shots up? I am screwed. On the other hand, there is a chance the home price goes up and and interest rates go lower. But financially, I factor in the worst case scenarios for my decisions.

Also, it didnt make a lot of sense to me a few weeks ago to get an ARM when the interest rates were still so low (3.5%).
 
nosuchreality said:
It's relative, but in a little over a month and half, that relative took a $800K Irvine home, that you put $200K down payment on and finance with PITI payments of $42K year to an $800K home with $200K down and PITI payments of $47,500/yr.

Now, how many $5000 yearly payments chunks can people afford?
Click to expand...


I agree. And the extra $5,000 is AFTER taxes. You need to make about $7,500 before taxes to get to the $5,000.

Now, how many $5000 $7,500 yearly payments chunks can people afford?
 
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