Forget escrows, here's what prices in Irvine are doing...

[irvine_home_owner_IHB]

See... but this is what you number dudes don't realize... numbers don't always equal happiness.

You can't put a number on having that 3-car garage, the extra space or a cul-de-sac location. We spent WAAAAY more this past 8 months renting than the previous year on owning... but I don't deal with busy street noise, we live in a great area, our current place is GIGANTIC and I don't worry about whether my house is going to appreciate or depreciate. Was it worth the extra money? Maybe not... but we're happier here... and we have more options depending on what happens the next few years.

I also think that looking at this only a year later is too soon... just wait until 2011/12 and maybe you'll feel differently.

And just remember... if it was only numbers... FCBs wouldn't exist!

 

[awgee_IHB]

IPO - You are talking like it is already over. Do you think the downturn is done and prices will either stay flat or rise in Irvine in the next few years?

 

[Geotpf_IHB]

IPO - You are talking like it is already over. Do you think the downturn is done and prices will either stay flat or rise in Irvine in the next few years?

It would be nice for somebody to agree with me on this point, so I'm curious as well.

 

[graphrix_IHB]

How dare you doubt the veracity of my analysis!?!

First: LOL!

Doubt you!? No... more like coaxing you into breaking it all down and posting your analysis for everyone to see... Yes.

Oh well, you win some, you lose some. I thought for sure the market would tank after I sold. I was wrong. You were wrong too. We all were. I can't remember any posters saying "bad financial choice IPO, prices will be flat over the next year"... I showed my wife the maps of all the foreclosure filings back then and explained how it would be practically impossible for prices to not fall given the bloated inventory sure to come from this pipeline. Wrong again. Inventory is 25% lower in Irvine than it was a year ago. I'd have guessed back then, and you as well, that it would have been 25% higher instead. If my forecasts at work were that far off, I'd have lost my job years ago!

Heh... this is real estate. There are many factors at play here, government meddling, mark to market and what it would really do to tier 1 capital ratios, having the capacity to handle the volume of distressed assets, and like IHO mentions, psychology that is difficult to predict. Your forecasts were off, as were mine... but there were many other, supposedly highly credible, forecasters that had been that far off if not more for several years and they still have their jobs and they are still making forecasts. I look at it the same way as I do as trading stocks, as long as I am right more than I am wrong I come out ahead. For the most part I have been right about this market, and while I was wrong about this last year, what I see in the pipeline will eventually come to the market. With people getting excited now, and fearing this is their last chance, it drains the buyer pool for that future inventory.

Like IHO said, as long as you are happy where you are, whether you are renting or paying a mortgage, that is all that matters. And look... once you do find a new job you will most likely need to be there for a while to qualify for a loan, this sets you up perfectly to buy that larger house in 2011/2012 with at least a 5% discount.

And thanks for replying, I really was trying to coax you into breaking it down by the numbers and the emotions of your decision. You have been very generous to IHB in sharing your experiences with us.

 

[usctrojanman29_IHB]

Not continuing to be a homeowner for the past year has cost me over $5K.

Aren't you renting a SFH that is at least 1,000 sq ft bigger? How much would it be to rent your previous detached condo?

I was thinking the same thing. It's like saying... "Dude, the lease payments on my 5-series bimmer, even after the tax breaks, cost me $5k more a year than making loan payments on my 3-series bimmer." Gotta compare apples to apples, not apples to oranges.

Things to consider, how much more would it have cost to own an equivalent larger place? I bet it would be a lot more. IIRC, one of the reasons why IPO decided to rent was to upgrade in size, and he did. Well... you pay more for more square footage, whether you rent or own... DUH! Me thinks he just wants to be cranky since all those purdy foreclosure pics I posted didn't really flood the market like I said the would. I plead the hoocoodanode on the moratoriums, that so may others who plead on, well... subprime and New Century, and Bear Stearns going down. I think I should get one free pass.

Ipo, when it boils down to it, I ask you this... Putting your job situation aside for the moment and the importance of saving/having cash, and not listening to bloggers about a market collapse aside as well... Since you upgraded in size, which your family clearly needed, and it is something you wanted, would you still be mentioning the $5k in savings? How much more or less would it have cost you to own an equivalent place? Honestly, do you really regret $5k for your family to have a larger place? Yeah... your job situation is looking grim, but what if it wasn't? You upgraded from your old place, and you know it would cost you more to own that kind of place even with the tax breaks. I could be wrong, but the one thing you and I have in common is that we love to analyze the numbers. I think you might have saved a bit, or at worse broke even when you compare the 3-series detached condo you were making mortgage payments on with the 5-series house you are leasing. The two aren't the same, you made an upgrade.

Since I am a numbers dude graph, I of course accounted for the size difference between places in my $5K figure. We spent $890 per month more on an after-tax basis when we sold/rented/moved, so $10,680 more over the first year. Discounting that to the market rent for my same-sized place in my old area, the additional spend would have been around $400/per month for a 12-month total of around $5K. Yes, I also accounted for the interest earned on the equity extracted. I even accounted for no longer needing a storage unit since we are in a larger place I was able to fill the garage up with our junk... How dare you doubt the veracity of my analysis!?!

All the above being said, what's done is done and we made the decision then for the right reasons after much thought and consideration. When I forecast it out then, all I wanted was 5% depreciation to make the sell/rent scenario a break-even from a pure financial perspective over the first 12 months. I am amazed that we didn't get even this much... It is indeed nice to have the flexibility of a rental given my job situation. Then again, it would have been nice to have a lower net cost of living given that we're going to be down an income for a while. We did need the additional space and our sale was a way to force us to make the move to bigger digs. It could have gone the other way, i.e. large depreciation, and the gamble would have paid off in spades. Unfortunately for me it didn't work out that way.

Oh well, you win some, you lose some. I thought for sure the market would tank after I sold. I was wrong. You were wrong too. We all were. I can't remember any posters saying "bad financial choice IPO, prices will be flat over the next year"... I showed my wife the maps of all the foreclosure filings back then and explained how it would be practically impossible for prices to not fall given the bloated inventory sure to come from this pipeline. Wrong again. Inventory is 25% lower in Irvine than it was a year ago. I'd have guessed back then, and you as well, that it would have been 25% higher instead. If my forecasts at work were that far off, I'd have lost my job years ago!

Never regrest your past actions, it will only eat away at you. Trust me, we've both made the right decision to sell our homes last year. For me, I got rid of a huge monthly obligation that was weighing me down. Now that I don't have that monthly obligation and a few other ones, I feel so much freer financially. So much so that I'm seriously considering starting up a financial/CPA consulting firm once I get my CPA. That being said, I was going to speak with you as that time gets closer about seeing if you would be interested in teaming up as I think you would bring a lot of credibility to the table. I don't know what about, but I've working at larger corporations most of my professional career and I've come to enjoy the taste of the consulting life on my current project. I'm kinda burnd out on the whole office drama and politics that come along with being a corporate monkey. I'll definitely be in touch with you later on in the year about joining forces....USC & IPO Associates.

 

[ipoplaya_IHB]

IPO - You are talking like it is already over. Do you think the downturn is done and prices will either stay flat or rise in Irvine in the next few years?

I have no idea what will happen awgee. I was way wrong a year ago so now I don't even want to try and guess. I hope prices fall but heck, they just might not.

 

[awgee_IHB]

I honestly do not know why Irvine prices are so much stickier than other places just as nice or nicer, but they are. But, just as it is important to recognize reality and honestly see that in some parts of Irvine prices are holding up, (if you want an example of prices in Irvine that are falling hard, look at Shady Canyon), it is also important to not equate Irvine with re prices as a whole. They are still trending down.

And you know that the overall market influences the micro market, not the other way around.

It is fairly obvious to me that the sections of Irvine that are experiencing price increases and panic buying are in the midst of another mini bubble, or dead cat bounce. I know not why others do not see what to me is so plain to see. My guess is that they are emotionally tied to buying a house in Irvine and are feeling panicky, and that emotion of fear is clouding their judgment. Consider the last time there was overall panic buying. What were the causes, symptoms, and results?

Of course I do not have a crystal ball and I am wrong many times, but everything that I see is telling me Irvine prices are due for a fall, a big fall. The price action that you are documenting and reporting tells me something completely different than it tells everyone else. People see all the buyers and multiple offers and failed bids, and how do they react? Read their posts. Do you hear the fear? You know the difference between acting on data and reacting to fear. People are reacting. I know it is difficult to go against the crowd. Gosh how I know it is difficult. When we put our home on the market in the spring of 2005 and our friends found out that we intended to rent, can you imagine the "reactions"? Everybody who could afford to buy and everyone who could not afford to buy were buying homes. The only folks who were selling were those who were moving up and incurring more leverage. My wife's friends told her that she should not let me sell our house and rent. Can you imagine the pressure? And for a full year after we sold, prices kept going up. And our new investments did nothing for at least six months to a year. Can you imagine what it felt like? It was scary. But every factor and piece of data that I used to judge the positions of the various markets had not changed to preclude a change in our position. Only the prices changed. Only the prices of re kept going up.

I am trying to remember if I doubted myself. I must have. Only a fool would not consider the possibilities. But, if the reasons you sold your home and decided to rent are still in place now, and price is the only thing that has changed, ...

If price was the only consideration when you sold, then I can most assuredly understand why you would now think that prices are going up, in the long term.

IMO, price analysis is good for short term and timing, but that is all.

For long term planning, one must understand the fundamentals.

What are the fundamentals that drive real estate psychology and prices? Have they changed?

IMO, they have, but only in ways that will cause greater price declines and a more drawn out collapse.

 

[irvine_home_owner_IHB]

I honestly do not know why Irvine prices are so much stickier than other places just as nice or nicer, but they are.

Blame it on the eh-eh-eh-eh FCBs!

 

[Gohabsgo_IHB]

Good post Awgee. It is impossible to time the real estate market perfectly. However, if you are 80% right, then you would be coming ahead once everything is said and done. It's hard to know when and to what extend prices will fall, however, if you trust your instincts and trust your analysis, there's no reason to doubt about your actions.

 

[Anonymous_IHB]

Sometimes I wonder if the Irvine school district is what is making Irvine fare better. Certainly, if you had kids of school age, with all the talk of California budget cuts, that would make one want to buy in an area where the schools would still be good ...

Also, if you were renting commercial space, you'd want a solvent commerical landlord. Irvine Ranch Co fits the bill, perhaps there are new office spaces being rented to pull in new employees to live in the area.

 

[Geotpf_IHB]

Sometimes I wonder if the Irvine school district is what is making Irvine fare better. Certainly, if you had kids of school age, with all the talk of California budget cuts, that would make one want to buy in an area where the schools would still be good ...

I'm guessing that's a big factor. There's been a flight to quality-not to over the top over the topness, but to quality in general, and good schools (or the reputation for good schools at least) certainly qualifies.

 

[Anonymous_IHB]

Sometimes I wonder if the Irvine school district is what is making Irvine fare better. Certainly, if you had kids of school age, with all the talk of California budget cuts, that would make one want to buy in an area where the schools would still be good ...

I'm guessing that's a big factor. There's been a flight to quality-not to over the top over the topness, but to quality in general, and good schools (or the reputation for good schools at least) certainly qualifies.

IUSD Basic Aid

 

[PANDA_IHB]

I honestly do not know why Irvine prices are so much stickier than other places just as nice or nicer, but they are. But, just as it is important to recognize reality and honestly see that in some parts of Irvine prices are holding up, (if you want an example of prices in Irvine that are falling hard, look at Shady Canyon), it is also important to not equate Irvine with re prices as a whole. They are still trending down.

And you know that the overall market influences the micro market, not the other way around.

It is fairly obvious to me that the sections of Irvine that are experiencing price increases and panic buying are in the midst of another mini bubble, or dead cat bounce. I know not why others do not see what to me is so plain to see. My guess is that they are emotionally tied to buying a house in Irvine and are feeling panicky, and that emotion of fear is clouding their judgment. Consider the last time there was overall panic buying. What were the causes, symptoms, and results?

Of course I do not have a crystal ball and I am wrong many times, but everything that I see is telling me Irvine prices are due for a fall, a big fall. The price action that you are documenting and reporting tells me something completely different than it tells everyone else. People see all the buyers and multiple offers and failed bids, and how do they react? Read their posts. Do you hear the fear? You know the difference between acting on data and reacting to fear. People are reacting. I know it is difficult to go against the crowd. Gosh how I know it is difficult. When we put our home on the market in the spring of 2005 and our friends found out that we intended to rent, can you imagine the "reactions"? Everybody who could afford to buy and everyone who could not afford to buy were buying homes. The only folks who were selling were those who were moving up and incurring more leverage. My wife's friends told her that she should not let me sell our house and rent. Can you imagine the pressure? And for a full year after we sold, prices kept going up. And our new investments did nothing for at least six months to a year. Can you imagine what it felt like? It was scary. But every factor and piece of data that I used to judge the positions of the various markets had not changed to preclude a change in our position. Only the prices changed. Only the prices of re kept going up.

I am trying to remember if I doubted myself. I must have. Only a fool would not consider the possibilities. But, if the reasons you sold your home and decided to rent are still in place now, and price is the only thing that has changed, ...

If price was the only consideration when you sold, then I can most assuredly understand why you would now think that prices are going up, in the long term.

IMO, price analysis is good for short term and timing, but that is all.

For long term planning, one must understand the fundamentals.

What are the fundamentals that drive real estate psychology and prices? Have they changed?

IMO, they have, but only in ways that will cause greater price declines and a more drawn out collapse.

Awesome post Awgee. This one is a real masterpiece. I have every confidence what you are saying here is going to happen, but what if unemployment gets so bad in Irvine where it reaches 20%? Most of here are not DCBs (Domestic Cash Buyers). We must get a loan in order to purchase our home. Without a job, no banks will give you a loan. I agree with you that if are planning to pay 100% cash you have nothing to worry about, but most of us are not in that position.

 

[Gohabsgo_IHB]

what if unemployment gets so bad in Irvine where it reaches 20%?

20%, really? If that happens we are in a lot of trouble. I doubt unemployment can reach 20% in Irvine, as you need a good income to pay rent/mortgage. So you would have a lot of people leaving Irvine before employment reaches 20%.

You would most likely need a county or state wide 20% unemployment.

 

[PANDA_IHB]

what if unemployment gets so bad in Irvine where it reaches 20%?

20%, really? If that happens we are in a lot of trouble. I doubt unemployment can reach 20% in Irvine, as you need a good income to pay rent/mortgage. So you would have a lot of people leaving Irvine before employment reaches 20%.

You would most likely need a county or state wide 20% unemployment.

Roo,

Here is a scenario i am afraid of. Let's say that you are a lawyer in Newport Beach making $200,000 a year. You have $300,000 cash to put down on your house hoping to buy an Irvine home that is valued at $700,000. You will need $400,000 loan to purchase this home. You are guaranteed to get this loan now and can purchase a home that is valued at $700,000 today. If mortgage rates rise to 8-9% in 2012 and you are laid off from work on November 2011. You are out of luck.

 

[awgee_IHB]

I honestly do not know why Irvine prices are so much stickier than other places just as nice or nicer, but they are. But, just as it is important to recognize reality and honestly see that in some parts of Irvine prices are holding up, (if you want an example of prices in Irvine that are falling hard, look at Shady Canyon), it is also important to not equate Irvine with re prices as a whole. They are still trending down.

And you know that the overall market influences the micro market, not the other way around.

It is fairly obvious to me that the sections of Irvine that are experiencing price increases and panic buying are in the midst of another mini bubble, or dead cat bounce. I know not why others do not see what to me is so plain to see. My guess is that they are emotionally tied to buying a house in Irvine and are feeling panicky, and that emotion of fear is clouding their judgment. Consider the last time there was overall panic buying. What were the causes, symptoms, and results?

Of course I do not have a crystal ball and I am wrong many times, but everything that I see is telling me Irvine prices are due for a fall, a big fall. The price action that you are documenting and reporting tells me something completely different than it tells everyone else. People see all the buyers and multiple offers and failed bids, and how do they react? Read their posts. Do you hear the fear? You know the difference between acting on data and reacting to fear. People are reacting. I know it is difficult to go against the crowd. Gosh how I know it is difficult. When we put our home on the market in the spring of 2005 and our friends found out that we intended to rent, can you imagine the "reactions"? Everybody who could afford to buy and everyone who could not afford to buy were buying homes. The only folks who were selling were those who were moving up and incurring more leverage. My wife's friends told her that she should not let me sell our house and rent. Can you imagine the pressure? And for a full year after we sold, prices kept going up. And our new investments did nothing for at least six months to a year. Can you imagine what it felt like? It was scary. But every factor and piece of data that I used to judge the positions of the various markets had not changed to preclude a change in our position. Only the prices changed. Only the prices of re kept going up.

I am trying to remember if I doubted myself. I must have. Only a fool would not consider the possibilities. But, if the reasons you sold your home and decided to rent are still in place now, and price is the only thing that has changed, ...

If price was the only consideration when you sold, then I can most assuredly understand why you would now think that prices are going up, in the long term.

IMO, price analysis is good for short term and timing, but that is all.

For long term planning, one must understand the fundamentals.

What are the fundamentals that drive real estate psychology and prices? Have they changed?

IMO, they have, but only in ways that will cause greater price declines and a more drawn out collapse.

Awesome post Awgee. This one is a real masterpiece. I have every confidence what you are saying here is going to happen, but what if unemployment gets so bad in Irvine where it reaches 20%? Most of here are not DCBs (Domestic Cash Buyers). We must get a loan in order to purchase our home. Without a job, no banks will give you a loan. I agree with you that if are planning to pay 100% cash you have nothing to worry about, but most of us are not in that position.

I will not speculate on exact numbers, but I think your scenario on unemployment is one of the reasons that home prices will continue to fall even though the price of consumer staples and anything that China wants will continue to rise.

 

[SoCal78_IHB]

I agree, Panda. That was one of awgee's best posts. It deserves a... (all together now)... "Viva la roja!"

 

[garrison_IHB]

TI

 

[usctrojanman29_IHB]

I honestly do not know why Irvine prices are so much stickier than other places just as nice or nicer, but they are. But, just as it is important to recognize reality and honestly see that in some parts of Irvine prices are holding up, (if you want an example of prices in Irvine that are falling hard, look at Shady Canyon), it is also important to not equate Irvine with re prices as a whole. They are still trending down.

And you know that the overall market influences the micro market, not the other way around.

It is fairly obvious to me that the sections of Irvine that are experiencing price increases and panic buying are in the midst of another mini bubble, or dead cat bounce. I know not why others do not see what to me is so plain to see. My guess is that they are emotionally tied to buying a house in Irvine and are feeling panicky, and that emotion of fear is clouding their judgment. Consider the last time there was overall panic buying. What were the causes, symptoms, and results?

Of course I do not have a crystal ball and I am wrong many times, but everything that I see is telling me Irvine prices are due for a fall, a big fall. The price action that you are documenting and reporting tells me something completely different than it tells everyone else. People see all the buyers and multiple offers and failed bids, and how do they react? Read their posts. Do you hear the fear? You know the difference between acting on data and reacting to fear. People are reacting. I know it is difficult to go against the crowd. Gosh how I know it is difficult. When we put our home on the market in the spring of 2005 and our friends found out that we intended to rent, can you imagine the "reactions"? Everybody who could afford to buy and everyone who could not afford to buy were buying homes. The only folks who were selling were those who were moving up and incurring more leverage. My wife's friends told her that she should not let me sell our house and rent. Can you imagine the pressure? And for a full year after we sold, prices kept going up. And our new investments did nothing for at least six months to a year. Can you imagine what it felt like? It was scary. But every factor and piece of data that I used to judge the positions of the various markets had not changed to preclude a change in our position. Only the prices changed. Only the prices of re kept going up.

I am trying to remember if I doubted myself. I must have. Only a fool would not consider the possibilities. But, if the reasons you sold your home and decided to rent are still in place now, and price is the only thing that has changed, ...

If price was the only consideration when you sold, then I can most assuredly understand why you would now think that prices are going up, in the long term.

IMO, price analysis is good for short term and timing, but that is all.

For long term planning, one must understand the fundamentals.

What are the fundamentals that drive real estate psychology and prices? Have they changed?

IMO, they have, but only in ways that will cause greater price declines and a more drawn out collapse.

Very well put!

 

[graphrix_IHB]

Whoops... Looks like they waited too long for back up offers for 42 Mount Vernon, because it went back to the bank yesterday for $686,375. It will be about another 120 days plus before we see this home in Ipo's sales stats when the bank finally gets it to market and sells it to a real buyer.