Current thoughts in 2011...

[IndieDev]

TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now.

Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion.

Do you see how that insane that is though?

If you have $700,000 to $800,000 it should be a given that you have a driveway, sidewalk, and actual frontyard. In 1998, you could buy homes in Corona Del Mar on the OCEAN side of PCH for that price range. You could buy detached homes in Oak Creek in Irvine for less than half of that, full driveway and everything.

 

[usctrojancpa]

TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now.

Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion. 

What about $830K for 2300 sq ft for detached with driveway?  That's where I am today, opening escrow. 

Congrats.  I can't afford $800k+ as I'm a single wage earner....I need to establish a dual income household to go over $700k-$750k+. 

 

[usctrojancpa]

TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now.

Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion.

Do you see how that insane that is though?

If you have $700,000 to $800,000 it should be a given that you have a driveway, sidewalk, and actual frontyard. In 1998, you could buy homes in Corona Del Mar on the OCEAN side of PCH for that price range. You could buy detached homes in Oak Creek in Irvine for less than half of that, full driveway and everything.

Let's see, I just graduated college in 1998 and started working as an auditor making $36k/yr.

 

[IndieDev]

Ouch, thanks for making me feel like a dinosaur.  8)

 

[usctrojancpa]

Ouch, thanks for making me feel like a dinosaur.  8)

You're only as old as you feel. 

 

[akim997]

TIC will keep copying and pasting homes on tiny lots on motorcourts.

That's exactly how I feel when I see Quail Hill, PS, or Woodbury, one big copy and paste. I can't imagine actually living in any of those communities, no disrespect to those who bought there.

Of course, the cheer leader crowd is probably offended, so I'll sit back and chuckle at the vitriol thrown my way now.

Honestly, I wouldn't mind paying the Irvine prices for a new home but if I can get a new home (detached condo or SFR) with a full driveway, not on a motorcourt, with an actual sidewalk in front of the home for less than $800k (I don't even ask for a big yard)....well, that's just plain wrong in my opinion. 

What about $830K for 2300 sq ft for detached with driveway?  That's where I am today, opening escrow. 

Congrats.  I can't afford $800k+ as I'm a single wage earner....I need to establish a dual income household to go over $700k-$750k+. 

haha... that's funny...  if only there was a pure economic view to the institution of marriage.  Reminds me of Gary Becker... really interesting on the thought of family decisions based on a utility curve.... 

 

[akim997]

west irvine loaner,

thank you for sharing your thoughts.  where you were is where i am now.  hmm.. did u move to west irvine.  if so curious if it was the willowhurst house, which was my friend's house.  i had the opportunity to speak with someone from the exec ranks of TIC...  he tended to agree that pricing does have "some" room to fall... his advice to me was if i found the right house, and if it was right for my situation, and if i was purchasing for a family and the long haul, to go ahead and purchase today.    family decisions tend to have a certain intrinsic value that supercede pure dollars and cents.

the important thing is to buy what you can afford today, not what you hope to afford tomorrow because life throws you a lot of curves...    he did not try to sell me a TIC new home as we were speaking about existing home sales. 
 

 

[Smashed]

I've been ready to purchase since 04-05 but fundamentals haven't made enough sense to me, especially the cost of the new product that TIC is pushing, once u factor in MR, landscaping, etc.  With some of the things on the horizon, like the jumbo conforming limit decrease and potentially higher rates, I have a feeling that prices will continue to trend flat to downward for the 4br sfrs that are ever so popular.  I looked at irvinerealtors closed data for January, and of the 8 houses in the 800-1m range, 4 relied on jumbo conforming loans larger than what the new limit will be.  3 were all cash deals.

 

[westirvine_loaner]

west irvine loaner,

thank you for sharing your thoughts.  where you were is where i am now.  hmm.. did u move to west irvine.  if so curious if it was the willowhurst house, which was my friend's house.  i had the opportunity to speak with someone from the exec ranks of TIC...  he tended to agree that pricing does have "some" room to fall... his advice to me was if i found the right house, and if it was right for my situation, and if i was purchasing for a family and the long haul, to go ahead and purchase today.    family decisions tend to have a certain intrinsic value that supercede pure dollars and cents.

the important thing is to buy what you can afford today, not what you hope to afford tomorrow because life throws you a lot of curves...    he did not try to sell me a TIC new home as we were speaking about existing home sales. 

akim

yes i did move to west irvine a few months back , i bought in the sheridan tract. My budget was strictly under $800K. West irvine was really the only place among the newer homes in irvine where i could buy a good sized/reasonable lot SFR at that price point. I agree ,  one should not stretch themselves too much...which is what got the whole market into this mess!!

 

[akim997]

in a drunken stupor last night, had a discussion with friends who came over...    interesting comments re: fundamental valuation.  i liken it to stock pricing.  One can analyze any company, and determine an enterprise valuation as what you determine the fMV of that stock to be.  market value > than ur fmv = don't buy or short.  market value < than ur fmv, buy the stock.      that's all in theory though.  Sometimes a stock will never drop to the fundamental value... built in goodwill?  what is it?  something different about future earnings?  who knows...    irvine seems to be a place that persistently trades above fundamental value...  it has and seems like it always will... 

 

[IndieDev]

  it has and seems like it always will...

Not true. In 1995, the disparity between incomes and home prices was close to "normal" affordability. Median household income was $60,000, and the average SFR cost $228,000 (3.8 LTI), only slightly higher than what pre-bubble lenders recommended (3.5 LTI). In 2010, the average Irvine home price was $546,500, the median household income was $110,000 ( a 5.0 LTI), much higher than lender recommendations, which are fairly loose in the first place.

What changed? Did Irvine Schools get better? Did Irvine become "more centrally located"?  What other "specialness" does Irvine have?

For those crying about prices, stop being emo, and just be patient.
For those that bought, the cheerleading squad has a somber thing to consider, Fundamentals. 

 

[irvinehomeowner]

Does the interest rate matter?

In 95, rates were just coming down from the 9s of 94. 2010 spent most of the year in the 4s.

 

[akim997]

irvine per sq ft reading are really weird.  it depends on the area.  you go old northwood and of course you can get a pretty good deal.  add in detached condos, or other cheaper priced areas like el camino, etc.  we are below $320 per foot. 

that being said you do provide a good case...  im starting to rethink my situation...  I'm paying about $360 per foot to live in Northpark Square, which I said in the past that I didn't even like that much.  Just call me the comp-buster...  ouch...  it's hard, but the + were:  house is only 3 yrs old and has Mellos of only $2K per year.  not everything we want in a house, but pretty turnkey.  we really dont have to anything but just move in and live.    $74 HOA is nice.  negatives are:  Northpark Sq - nothing special, and not very different than cheaper areas like west irvine.  same schools, same location, etc.    i just happen to really like the floorplan im buying (no living/dining, 4BR - 1 downstairs, great room concept)

 

[IndieDev]

Does the interest rate matter?

In 95, rates were just coming down from the 9s of 94. 2010 spent most of the year in the 4s.

Interest rates do have an effect on affordability, which in turn has an effect on demand.

Interest rates in 1995 were erratic in the beginning of 1995 because of Greenspan doubling short term rates in 1994, more of that magical government intervention, which explains the 9% spike at the end of 1994 to the beginning of 1995, they were in the high 6's before Greenspan mucked things up.

That being said once the shock ended, and the dump stopped on treasuries, and derivatives, you saw low 7's by the Fall of 1995. The normal rates offered by Freddie Mac were closer to 7% - 7.4% from 1995 to 1999, the recovery period of housing after the 90s crash, and right before the 2000s bubble. To be honest, you bring up a good point, because there are those who believe Bernanke is going to create inflationary forces/shocks that will push rates high like they were in the second half of 1994, and the beginning of 1995. I don't think he will, but even if he does, 1995-1999 showed us that things will eventually stabilize to the fundamentals, like they are now in rates & prices, once the government manipulation starts to taper off.

Here's the interesting part. Once you work the numbers, you actually don't get much of a difference in terms of affordability between 1995 and 2010 in just the raw median numbers:

1995 (7.3% rate):
Median housing payment:$1,238.11
Median Net Pay: $3835.00
Percentage of net pay:32%

2010 (4.5% rate):
Median housing payment: $2,215.23
Median Net Pay: $6663.00 
Percentage of net pay: 33%

According to the numbers, we should all be buying brand new homes right now, and calling it a day.

So what are we missing here? What's the difference between 1995-1999 and 2010?

The real difference is what our dollars could buy then, compared to now; what represented the median home in these two eras of Irvine housing?

In 1996, here's what you got when you talked about homes close to the median price:http://www.redfin.com/CA/Irvine/23-Straw-Flower-92620/home/4789395
- 4 bedrooms
- 2.5 bath
- 2,100 Square feet
- 4,081 Sq. Ft. Lot
- Full Driveway, sidewalk

In 2010, here's what you get for a home close to the median:http://www.redfin.com/CA/Irvine/59-Keepsake-92618/home/35634828
- 3 bathrooms
- 2.5 bath
- 1,739
- 0 Sq.Ft. Lot (Detached Condo)
- No driveway, motorcourt setup.

To get a brand new Irvine home close to the 1996 home above in 2010, here's what you'd pay:http://www.redfin.com/CA/Irvine/35-White-Sage-92618/home/28681319
$705,000, about $160,000 above the median home price.

What are some the Santa Cruz models selling for?  ???

Smaller condos, and lower end sales were a large part of Irvine's 2010 sales which had an effect on the 2010 "median" price by shifting the mix towards smaller attached/detached condos instead of larger detached products. Basically, in 1996, if you were buying near the median, you would buy an actual detached home of 2,100 square feet, and in 2010, you're buying a 1,700 foot condo on a motorcourt. For you Redfin and Zillow addicts, go back and calculate the price per square foot for homes sold 1995-1999, and compare them to 2010 sold prices, it's eye opening.

In Summary, be patient, home prices in Irvine are still correcting, Bernanke won't be able to create inflation. 

 

[jbh]

http://patrick.net/housing/calculator.php?rent=2%2C900&price=430%2C000

Just type in your assumptions and see what happens...

 

[irvinehomeowner]

http://patrick.net/housing/calculator.php?rent=2%2C900&price=430%2C000

Just type in your assumptions and see what happens...

I like this calculator better than the IHB's new one. For the rent that I would be paying for some of the homes I like, buying it just about even (although I would have to buy a smaller home in the same area).

And that's the rub... do we settle for smaller/lesser for affordability? We could pay higher... but don't want to.

 

[akim997]

indiedev brings up some good points. 

there is something that still does confuse me though...  even as housing prices adjust, how does affordability improve at all?

part of the argument of why house pricing will fall is that the government can no longer prop up the economy with fake money (i.e. QE2)... so let's say housing prices tumble.  Absent government intervention (to a certain degree), wouldn't another by-product be rising interest rates?  Not to say that everything will move in parity, but it will to a certain degree offset the declining RE prices.  Does that mean the RE will depress even further?    As with the RE market, will panic set in and will there be huge liquidation?  I get annoyed of those who argue that prices will continue to decline 15-30%, but mortgage rates will still be at historic lows because the fed will keep them there...  at the same time they argue that we can't keep "propping" up the housing market.  How do you think that they are doing it? 

so in this scenario - we think housing is still not affordable and that we will move closer to parity in terms of LTI ratios and own/rent analysis.  this would really scare me, because housing prices would really need to tank.  If we argue that 1995 was a good benchmark in terms of overall affordability and what not, adjusted for inflation, $228K in 1995 adjusted for inflation would be $335,000 in today's dollars.  Is that what we are looking at?  If so, start buying guns, hand grenades and gas masks, because that's armageddon.  Is it really going to be that grim?  I don't think so.

So what is going to happen as home prices continue to fall?  We think that there will be a glut of homes in terms of supply?  Behavioral economics show that home ownership tends to be much more sticky than stock ownership.  It's exactly why many homeowners choose to continue to own even though they are technically under water.  "Exercising their put option" as it is taught, isn't the same as actually owning an actual put option.  Community, pride, credit scores all cause homeowners to hang on.  So, if prices do fall, I believe many homeowners, instead of selling in a declining market, will actually just hold onto their homes.  Of the homes sold in Irvine between 1996-2002, how many owners sold at the January 2009 lows out of fear?  Not as many as there were people who sold out of their portfolios, partly evidenced by huge inflows to money markets and ST treasuries.   

 

[edhne]

Its interesting that people ask what the difference between 1996 and 2010 is. I don't know if you lived in the area in 1996, but Irvine and OC in general have developed significantly since 1996. The jobs, the ethnic restaurants/markets, the overall desirability stemming from the Irvine "brand" seems to have changed with enough people to make a difference.

I lived in Irvine in 1996 and I would always have to drive to garden grove to get to the Asian markets. It was royal pain. I used to have to drive up to LA all the time too. Now, I hate going to LA and would never go and I never find I have to go to GG to find what I need more than once a month.

Obviously this in the eye of the beholder but certainly the area has changed significantly from 1996 to 2010 for me.

 

[akim997]

Anyone read Bill Gross' latest March 2011 Investment Outlook?    Maybe he's trying to convince people he's right as PIMCO TR just sold out of a huge amount of treasuries last week....  but I do not disagree with anything he's stated. 

"What I would point out is that Treasury yields are perhaps 150 basis points or 1?% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%. "   

Increase of 150 bps to the 10yr treasury (benchmark for mortgage rates) would definitely have an affect on housing prices...  However, like I stated in a previous post, I'm not sure how that changes affordability...  the payment on a 300,000 loan at 5% is about $1,610; the same payment at 6.5% equates to a 255,000 loan?there?s your 15% drop...

 

[IndieDev]

Irvine is impervious to market fundamentals. We have an 85 degrees, and an Irvine Spectrum. Prices will hold strong and continue to go up. The Irvine brand is worth the $160,000 premium.