Irvine existing home prices not so bright

S

Sunnyirvine

Member
This house on market since March and multiple price cuts.
Is Irvine market going so down?

24 Easthaven,
Irvine, CA 92602
4 beds3 baths2,698 sqft

FOR SALE
$885,000
Price cut: -$24,500 (12/3)
 
Sunnyirvine said:
This house on market since March and multiple price cuts.
Is Irvine market going so down?

24 Easthaven,
Irvine, CA 92602
4 beds3 baths2,698 sqft

FOR SALE
$885,000
Price cut: -$24,500 (12/3)
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Not a good season to survey the land...although I think prices have settled.
 
That house is in my neighborhood and backs to Portola, has almost zero yard, and no downstairs bedroom. Along with that it isn't fixed up very nicely. I think that has more to do with why it has sat for that long. At the same time that home was on the market, one right across the street from it, with a slightly bigger yard (also on the corner), sold for ~950K (same floorplan).  I've noticed a few of the listings that are in the low $/sq ft back to busy streets. 
 
We are pretty close to rental parity on entry level / 1st time buyer products and that's usually a floor for irvine prices.  Owning is cheaper in some cases. I think course correction is over.
 
Existing homes for sure.. I think new homes are still selling.  The WTF prices are out of whack.. especially since you can get the style you want with new construction. 
 
It's really the lending standards that is holding down purchases.  It is difficult to get a loan without significant down payment.  We've been trying to refinance and it's been an insane process.
 
Irvinecommuter said:
It's really the lending standards that is holding down purchases.  It is difficult to get a loan without significant down payment.  We've been trying to refinance and it's been an insane process.
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Lending practices need to stay in place.. especially at these prices.  can't inflate them anymore.
 
i1 said:
We are pretty close to rental parity on entry level / 1st time buyer products and that's usually a floor for irvine prices.  Owning is cheaper in some cases. I think course correction is over.
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I am not sure whether we have reached rental parity yet.  We have given up (well almost, still hoping Standard Pacific Legacy homes will come in at around $1 million) on our move up primary residence since we couldn't really find anything we will be happy to live in within our price range.  Then we started exploring purchasing rental properties.  Even with 30% down I can't seem to find that will atleast break-even when allowing for management/repair etc
 
Irvine Dream said:
i1 said:
We are pretty close to rental parity on entry level / 1st time buyer products and that's usually a floor for irvine prices.  Owning is cheaper in some cases. I think course correction is over.
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I am not sure whether we have reached rental parity yet.  We have given up (well almost, still hoping Standard Pacific Legacy homes will come in at around $1 million) on our move up primary residence since we couldn't really find anything we will be happy to live in within our price range.  Then we started exploring purchasing rental properties.  Even with 30% down I can't seem to find that will atleast break-even when allowing for management/repair etc
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I don't think u will have a problem getting a new 3000 sq ft stan PAC at tustin legacy for under a million. The Augusta 3000 sq ft homes sell between 950k and 1m. That is with upgrades and hard/landscape. So back out 50-100k?
 
i1 said:
Irvine Dream said:
i1 said:
We are pretty close to rental parity on entry level / 1st time buyer products and that's usually a floor for irvine prices.  Owning is cheaper in some cases. I think course correction is over.
Click to expand...

I am not sure whether we have reached rental parity yet.  We have given up (well almost, still hoping Standard Pacific Legacy homes will come in at around $1 million) on our move up primary residence since we couldn't really find anything we will be happy to live in within our price range.  Then we started exploring purchasing rental properties.  Even with 30% down I can't seem to find that will atleast break-even when allowing for management/repair etc
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I'm pretty sure we're right around rental parity. You have to look at it as someone wanting to live in it owner-occupied.

650k resale townhome will rent for around ~$2,800/month in Irvine
20% down = $130k down and $520k mortgage

+$1,625/month = monthly interest payment based on 3.75% 30 yr fixed loan
+$625/month property taxes
+$250/month Mello Roos
+$275/month HOA
+$50/month homeowners insurance
+$325/month opportunity cost on your down payment assuming safe 3% return on $130k down
-$750/month tax benefits based on 30% marginal tax rate and deduction of interest, MR and property taxes
-----------------------------------------------------------
=$2,400/month true cost of owning vs. $2,800/month to rent the same home

It makes sense to buy an entry level home vs. renting. IC is right though. It is too hard to get a mortgage, but I think entry level homes are a good buy right now.
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you have to take 70% of the opportunity cost, you need to consider the tax impact on that as well. also, some people would not be able to take the property tax/MR deduction at the federal marginal rate due to a higher income.  it still is deductible for state purposes though. state taxes are deductible on your federal taxes so you need totake the state rate and multiply it by 60-70%.
 
i1 said:
I'm pretty sure we're right around rental parity. You have to look at it as someone wanting to live in it owner-occupied.

650k resale townhome will rent for around ~$2,800/month in Irvine
20% down = $130k down and $520k mortgage

+$1,625/month = monthly interest payment based on 3.75% 30 yr fixed loan
+$625/month property taxes
+$250/month Mello Roos
+$275/month HOA
+$50/month homeowners insurance
+$325/month opportunity cost on your down payment assuming safe 3% return on $130k down
-$750/month tax benefits based on 30% marginal tax rate and deduction of interest, MR and property taxes
-----------------------------------------------------------
=$2,400/month true cost of owning vs. $2,800/month to rent the same home

It makes sense to buy an entry level home vs. renting. IC is right though. It is too hard to get a mortgage, but I think entry level homes are a good buy right now.
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Good stuff. I occasionally think about cashing out the $150k+ I have made since early 2012 on my home and I realize that my monthly payments for my home are very low once I deduct the principal I pay each home and the tax deductions I get. If I could invest my down payment plus that $150k in tax-free bonds that paid 6-7% per year like you could 8-10 years ago it would be different, but you only get 3% from those bonds now and the value of those bonds is going to drop like a rock when the interest rates go up.

The main thing that is missing from your costs is repairs/maintenance/renovations. On a new construction home those costs will be minimal in the beginning, but if you buy resale you could have significant costs (I don't think the 1% of home value per year applies here because most of the high purchase price goes towards land value, but even 0.5% is $271/mo and there is the added shock value when you don't any for a year and then suddenly need to spend $8,000.

But yea - the biggest impediments to buying are having a 20% down payment (to avoid PMI) plus steady income (to get a mortgage).
 
On the repairs/maintenance/renovation for new vs. resale, I think it depends on what you spend on design center, landscaping and after market items like window coverings or flooring on new homes compared to if you plan to renovate or just keep whatever is on the resale.

Maintenance is a wash because most resale homes will have at least a 1-year home warranty but that also depends on the condition of the resale.

We've purchased 25+ year old homes, a 10-year old home and a brand new home... the one that needed the most maintenance was the 10-year old one. So mileage may vary.

I also think there is rental parity in Irvine, but that's also because rent rates are higher than they were in 2005/6 during the height of the bubble. Right now, prices are probably close to if not higher than that time, but rental rates have risen to make that seem less bubbly.
 
irvinehomeowner said:
I also think there is rental parity in Irvine, but that's also because rent rates are higher than they were in 2005/6 during the height of the bubble. Right now, prices are probably close to if not higher than that time, but rental rates have risen to make prices less bubbly.
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FTFY

They really are less bubbly - they don't just seem that way. Plus interest rates are lower so the "same" prices as 2005/6 are less bubbly for two reasons:

- Inflation has lowered the real cost (as rents reflect)
- Interest rates are lower which either lower your borrowing cost or lower the amount you'd earn by investing your cash purchase elsewhere.
http://www.in2013dollars.com/2005-dollars-to-2014-dollars

$100 in 2005 is $122.46 in 2014. So if a home was $1mm in 2005 and it's $1mm in 2014 it's really only a $817K home in 2005 dollars.
 
And that's the thing... with real estate, in places like Irvine, is it really ever overpriced or bubbly? Because in 5-10 years, it won't be.
 
irvinehomeowner said:
And that's the thing... with real estate, in places like Irvine, is it really ever overpriced or bubbly? Because in 5-10 years, it won't be.
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I do wonder how high it can go...low interests and cash buyers are helping to funding the buying but what happens when interest rates go to 7% or more?
 
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