Foreign Competition for Irvine Real Estate

J

jpx7_IHB

New member
I am a real estate bear, and just like many of you i dream of owning a home in Irvine in next couple of years at a bargain price. Prices seems to be 20% off of the 2006 peak and i am hoping that we are only half way there with another 20% reduction from 2008 prices.



However there are couple of things that are concerning me. I can see that the inventory of homes went down a lot compared to last year this month. I am wondering if anyone knows how much of these homes in Irvine are being bought up by foreigners in Asia and Europe. As the FED continues to print funny money into this economy our hard earned dollars are continuing to depreciate against the Asian and European currencies. As we are seeing a 20% drop, they are seeing a 50% drop (Where Irvine real estate is much more of a bargain in their eyes). As many of these homes in Irvine foreclose, I am wondering if all the asian and european foreign money will pour into Irvine, soaking up these inventories to keep the prices high, and not drop to the levels many of us want to see. This would create competition for us.



3 Questions:

#1: How much of the Irvine inventory are being soaked up by foreigners? i.e. Koreans, Chinese, and Indians living in Asia. It seems that new millionaires are being made practically every minute.



#2: How much inventory is being soaked up by local americans/residents who live in southern cal and also out-of-staters like myself who is interested in purchasing a home in Irvine.



I know that someone else had posted something like this before, but someone had responsed to him that foreign investment from Asia would be too small to make a difference on the inventory level. However, I am not too sure about that statement. Personally, I think that more inventory may be soaked up by foreigners (particularly Asia) than many of us may think.



Just like many of you, i am on the side line waiting to buy my first irvine SFR between $250 - $300 per square foot, but this is one concern i have which may prevent homes to drop at these levels that many of us may be hoping. For the past couple of years I have been buying up more and more silver and gold to use as my down payment for my irvine home as i have no faith in the value of our $US dollar, which I believe will continue to lose its value in the coming years? The Chinese Yuan, I believe will grow much stronger in coming years, compared to the weakening US dollar.



This is just my opinion, and would interested to hear what others have to say.



JPX
 
i think irvine real estate will go down another 10% at most since it's one of the highest demanded area due to good school, crime...and due to its geographic location (middle of orange county, minutes from the beach, shopping...) but if we all can predict the future then we all are rich right?
 
Catchmeifyoucan,



i think irvine real estate will go down another 10% at most since it?s one of the highest demanded area due to good school, crime...and due to its geographic location (middle of orange county, minutes from the beach, shopping...)



Yes, no really knows it can be 10%, 20%, or even 40% from here.



but if we all can predict the future then we all are rich right?



This comment i don't entirely agree. I think it is more about being prepared when the opportunity arises, and knowing the trends and cycle of this real estate market. The guys that are super rich, are the ones who had a lot cash on side and bought themselves the biggest home they can afford in 1994, 1995, 1996 in Irvine and New Port Coast. I am sure that many people were afraid to buy a home in Irvine back then because of the big drop in home prices from 1990 - 1995. Some of these new single family new port coast and turtle rock homes, you were able to buy them at $350,000 back then in 1997. I am thinking we are currenly in 1992/1993 right now in 2008. In 1997, i was still in college and had no savings to buy at this opportunity, but the guys who had a lot of savings on side to ride this 10 year Irvine bull market, are probably retired by now. This time around, I think that the drop is going to be a lot worse than 1990 - 1995.



JPX
 
do you realize how many gallon of gas or oz of gold you could buy with $350K in 1995 ? Do you really think median home price in Irvine will go down to $350k? Do you think average income now is the same as 10 years ago?



You have to take in account the inflation. Most economists use gold price as a measurement for the inflation. 1 oz of gold was worth 350 bucks. Guess how much an oz of gold is worth now?k

350k 10 years ago is worth about 1.0 million now and yes you can still buy a house in Turtle Rock with that price.



Just my 2 cents
 
I don't know if median home prices would drop down to $350k, but I think low 400's is definitely within reach by 2010, and I don't think $350k ten years is worth $1.3 million dollars now with inflation (Does anybody else have an input this?).



Gold cost $850 an ounce in 1980. It is about $950 now (in 2008) don't you think gold is undervalued if it only cost $850 an ounce 28 years ago?
 
Yeah, there will be some foreigners buying SoCal real estate on the way down. There will be all sorts of buyers on the way down. There always is. And they will find out what the term, "catching a falling knife" means.

And $850 was a speculative bubble top for gold in 1980 dollars that may be relevant in the future, but has nothing to do with the price of gold at this point.
 
I just do not understand gold. I know that people look at it as an inflation/dollar weakness hedge but who is to say that an ounce of gold should be worth $1k?



As for a house, you can at least say you can rent it out for a certain amount a month. I know the price/rent is out of whack currently.



Awgee, I am curious about when you would consider buying a place? Would you be more of a timer - no matter what wait until 2 years later? Or are you looking for a specific price decline?



If you are looking at timing - when do you think is a good time? Or if a price decline - how much further? What is the justification? I am trying to understand.
 
[quote author="JPX" date=1207473832]I don't know if median home prices would drop down to $350k, but I think low 400's is definitely within reach by 2010, and I don't think $350k ten years is worth $1.3 million dollars now with inflation (Does anybody else have an input this?).



Gold cost $850 an ounce in 1980. It is about $950 now (in 2008) don't you think gold is undervalued if it only cost $850 an ounce 28 years ago?, however this topic is more about irvine real estate and not about commodities.



Catchmeifyoucan, I am getting the impression that you a home owner in Irvine, while many bloggers on site are renters.</blockquote>
I am just being realistic. I do know lots of people waiting on the side line to jump in to buy a house in irvine hoping it will drop another 20 or 40% but the truth of the matter is that irvine is one of the most desired cities in OC and it will be hard for this to happen. It all comes down to Supply and Demand.



If you looked at the home prices in less demanded areas like Garden Grove, Santa Ana, Anaheim...the values have dropped around 40% already compared to the 2006 peak price. Funny thing is that as soon as owners or banks own houses in those areas dropped the prices to around $350, there are tons of people making offers and some offers are little bit higher. The point is that there are lots of people waiting on the sidelines waiting to buy. As soon as something in the market fall within desired range, people jump on it. Now, you and I know better that people are willing to pay extra 50k to 100k to live in the irvine.



I work in sw company that provide default systems for banks to handle default process for mortgage. One interesting fact that I got from many default managers is that "conforming loan" is at 417K. That means when house price gets to around 500K, there are lots of people out there who can afford paying 417K loan (20% down) at 6%. For example, a working couple whose income is about 60K each can afford this kind of monthly payment.

Due to this fact, it's not realistic to see average home price in high demanded area like irvine to drop below 500K.



No I do not own a house in irvine yet.



Just my 2 cents.
 
Foreign investors will lose doubly on Irvine real estate. Continual dollar and housing price decline. I doubt many foreigners will be signing up for that soon.
 
[quote author="now.buying" date=1207482511]I just do not understand gold. I know that people look at it as an inflation/dollar weakness hedge but who is to say that an ounce of gold should be worth $1k? </blockquote>


The buyers and the sellers say what gold is "worth", and right now they say gold is worth $913.70, no matter what it should be worth. In other words, <strong>should</strong> has nothing to do with prices, only morals.



<blockquote>As for a house, you can at least say you can rent it out for a certain amount a month. I know the price/rent is out of whack currently.



Awgee, I am curious about when you would consider buying a place? Would you be more of a timer - no matter what wait until 2 years later? Or are you looking for a specific price decline?



If you are looking at timing - when do you think is a good time? Or if a price decline - how much further? What is the justification? I am trying to understand.</blockquote>


I will buy based on market timing and personal timing; a combination of when I think prices are low and it is a good time for us as a family to buy. I am not looking at a specific price, at least not in dollars. I have no idea what a dollar will be worth, but as I observe B-52 Ben, Paulson, and the candidates, it looks like pretty good odds that the dollar will be devalued into oblivion. Understanding is good; much better than predicting. I like IRs model of rent vs. buy. It makes mucho sense.



So far, it seems like a waste of time trying to predict a specific price or percentage decline, and I am more of a follower than a brilliant mind. I buy BRK.b when I want to be long the market. Buffet is a much better stock picker than me. In other words, I don't know. When the price of real estate in real vs. nominal dollars or in barrels of oil, or gold, or yuan, or Swiss francs, or more likely a combination of those assets is trending up, I will find real estate more attractive. The thing I am good at is not fooling myself based on what I want to be true. And the facts as I see them are that there is no reason for real estate to trend higher and the reasons for it to trend lower are still in place and getting stronger.



I guess it is difficult to feel comfortable with the unknown. It is difficult for me.



What do you think?
 
I am no expert but going with Buffet is rarely wrong. Do you think inflation rate is moving up? If yes, don't you want to own real assets, like real estate?
 
[quote author="now.buying" date=1207485263]I am no expert but going with Buffet is rarely wrong. Do you think inflation rate is moving up? If yes, don't you want to own real assets, like real estate?</blockquote>


Monetary inflation has been over 10% for a few years now. Price inflation is double whatever the government numbers are.



Hard assets, yes. Real estate, no. Real Estate is just past the peak in one of it's normal cycles and there is no reason to think that this cycle will be any shorter than the last cycle. Well, maybe there is one reason that is observable; wishful thinking.
 
Awgee, since you mentioned hard assets ( I am assuming you are talking about gold, silver, copper, and platinum.) I agree with you that you want to own hard assets, not real estate. I've read in Forbes and businessweek that though gold is a commodity that people hoard, silver is a consumable commodity (it used for cell phones, chips, computers). With so much demand from china and india for silver, silver may be obsolete of silver supply in the United States by 2018. This is the reason why i think silver is much more undervalued than gold. Normally gold has cost 20 times more than silver, but at current prices gold is 50 times more expensive than silver. I think that the bull market for gold started in year 2000 at around $350 and will continue to boom until year 2020. Yes, I do believe that gold price of $5000 an ounce is possible.



Awgee, what are your thoughts?
 
I would posit silver will outperform gold for all the reasons you mention and just because of history. That said, I think most folks who invest in silver will not do as well as gold investors, because to hold silver, you have to have huevos grande. As volitile as gold is, silver is twice as volitile and the down moves will scare out the weak hands. More later, gotta go.
 
<em>#1: How much of the Irvine inventory are being soaked up by foreigners? i.e. Koreans, Chinese, and Indians living in Asia. It seems that new millionaires are being made practically every minute.</em>



Foreigners have always bought real estate, especially in Irvine. Are they buying more than usual because they are becoming rich? No, just look at the sales volume it is below the historical average, and there are more homes, more people, and more foreigners here. And really... if you were new money rich, would you really want to buy a lame tract home in Irvine? I mean, if you were the CEO of some new awesome company making millions, where in the world other than the US would you buy a home, and would you buy some plain Jane tract like home? I know my villa in Italy would be one of a kind, not what just anyone could buy. Maybe, just maybe, rich foreigners account for two more sales in Shady Canyon, but they sure as hell not buying some tract home in Woodbury.



<em>#2: How much inventory is being soaked up by local americans/residents who live in southern cal and also out-of-staters like myself who is interested in purchasing a home in Irvine.</em>



See above.



If real estate is a hard asset, then why did it go down from 91-96, when inflation was up? I love the inflation theorists, they all seem to block out that five year period. Usually they will say it is because of the job losses. Really? Then why in 94, 95, 96 did jobs go up, up, and up, but real estate went down, down, and down and foreclosures went up, up, and up? BTW, gold was in the $350-$450 range from 88-96, and house prices moved a lot in that time, then after 96 gold was down, but real estate was up. I need to figure out a way to make a chart of gold and compare it with the Case/Shiller index. A home is a place to live, it is not a commodity, and it is all about AFFORDABILITY, always has been always will be. It goes through a cycle, just like it did last time, it will go back down, just like it did last time, and people will be sick of real estate, just like the last time.
 
[quote author="graphrix" date=1207532291]<em>#1: How much of the Irvine inventory are being soaked up by foreigners? i.e. Koreans, Chinese, and Indians living in Asia. It seems that new millionaires are being made practically every minute.</em></blockquote>


and a whole bunch of previously wealthy asians are getting booted out of the millionaire club, just like those internet "tycoons" who got their memberships revoked when their bubble burst. as troubling as things look here in america, the outlook is much worse overseas. the s&p;500 is faring much better ytd than its counterparts in europe and asia.



keep in mind that most people around the world, whether poor or rich, aren't as culturally inclined toward leverage as their american counterparts. while some rich amjack might make his first million and decide that means it's ok to buy a $2M home, east asians, indians, and middle easterners are far more conservative. when their stock indices are down 30+% in the first quarter of the yr, you better believe even the rich foreigners are thinking twice about buying new toys overseas right now.
 
awgee



Which other commodities do you think will perform better than gold? Do you like oil? Do you think we are in a long term bull market in commodities? Want to hear your thoughts.
 
[quote author="JPX" date=1207567461]awgee



Which other commodities do you think will perform better than gold? Do you like oil? Do you think we are in a long term bull market in commodities? Want to hear your thoughts.</blockquote>


I read that fundamentals with oil prices do not support the doubling or so in prices over the past few years.
 
catchme, you are funny... You make a 10% drop sound like something huge. My Irvine condo's value has fallen 25% since peak with 15% of that drop over the past 6-7 months. Let me repeat that, 15% drop in less than nine months. At recent rates of decline, a 10% drop would take less than a college basketball season.



The great schools haven't changed, crime rate hasn't gone up, mortgage rates are mostly the same, and inflation has gone up perhaps 2-2.5% over the time it took for my Irvine condo to drop $160K in value. Where are the sideline buyers to bring back my condo's bubbly pricing or even stop its free fall? All I see is REO after REO hitting the market and pounding the comps down a little further. Yes, I am talking about Irvine, not the GG or Santa Ana. Is that going to end soon or will the many hundreds of Irvine homes currently in default keep that price constricting cycle alive for a bit longer?
 
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