Observations from the front lines of the Irvine housing market?

[Nous]

how come ARMs are becoming more popular these days with more conservative buyers?  with 30-year fixeds so cheap, i dont understand the sudden interest in a 7 year ARM.  i know ARMs became more mainstream as affordability products but now it seems like conservative folks are going for them and they are still advertised heavily.

ARMs are cheaper and rates probably aren't going up soon enough to make it more in the favour of fixed rate anytime soon.  Housing will have to recover a lot before rates will really jump.

 

[irvinehomeowner]

I think there is also a difference in the type of ARMs offered.

I remember that before OARMs, most ARMs were the yearly or even monthly adjustable type. Given that type of product, a fixed is better because of that volatility. But a 5/1 (or even better, a 7/1) gives you the stability of a fixed and enough time to refi (or move) if rates jump. And I think USC mentioned a lifetime cap of 7.x% which is quite manageable for anyone who had mortgages in 90s/early 00s since that was the prevalent "good" rate.

Interestingly enough, for anyone who used an OARM more for flexibility than affordability, they are in a really good position now, they can refi out to a lower fixed rate or may even be paying lower than current rates based on whatever index/margin their product is.

 

[usctrojancpa]

I think there is also a difference in the type of ARMs offered.

I remember that before OARMs, most ARMs were the yearly or even monthly adjustable type. Given that type of product, a fixed is better because of that volatility. But a 5/1 (or even better, a 7/1) gives you the stability of a fixed and enough time to refi (or move) if rates jump. And I think USC mentioned a lifetime cap of 7.x% which is quite manageable for anyone who had mortgages in 90s/early 00s since that was the prevalent "good" rate.

Interestingly enough, for anyone who used an OARM more for flexibility than affordability, they are in a really good position now, they can refi out to a lower fixed rate or may even be paying lower than current rates based on whatever index/margin their product is.

If your rate adjusted on an ARM loan today, your interest rate would be 3.125% (2.25% margin plus .875% for the 1-year LIBOR rounded up).  Also, the loan re-amortizes so if you've been paying more towards the balance the payment will go down further. 

 

[so_scared]

I know for myself I figure why pay 4.5% when I can pay 3% and will be putting that extra 1.5% down on principal (so basically making the same payment I would have made anyways.  I know for some, they would rather take that difference and invest that because they think they will get a better rate on their money.  I'm not saying they won't, its just not my thing.

For the adjustment risk, like Trojan said above, you have to evaluate yourself.  My goal is to get a much smaller loan than I can afford from the start and therefore pay it off quicker.  Say I am in year 5 or 6 and rates are starting to go higher and higher than I would probably even put more into principal  Therefore, when it does come time to adjust hopefully the balance will be quite small so interest won't really matter that much (since its calculated based on principal)

edit: I shouldn't say I am getting a much smaller loan than I can afford since that is pretty subjective.  I should say much smaller than i could qualify for. IMO I could probably qualify for a loan that is higher than i could afford.

at the current rate difference of about 125, the after tax delta ends up being 81 basis points delta in rate for first 5 years. (assuming 35% combined marginal rate) After that, who knows.

Totally understand the argument about not living in same home for more than 5 to 7 years on average but if rates are higher in the future and you have to rent it out, you have lower cost with the 30 year fixed or you even have the option to "wrap" the mortgage and provide your buyers with a below market rate, making your home a more attractive purchase. (something some sellers did during the 80s where rates were crazy high).

Given the high volatility of interest rates in last 5, 10, 20, 30 years, 81 bps for a fixed rate seems like an awfully cheap insurance policy.

 

[usctrojancpa]

I know for myself I figure why pay 4.5% when I can pay 3% and will be putting that extra 1.5% down on principal (so basically making the same payment I would have made anyways.  I know for some, they would rather take that difference and invest that because they think they will get a better rate on their money.  I'm not saying they won't, its just not my thing.

For the adjustment risk, like Trojan said above, you have to evaluate yourself.  My goal is to get a much smaller loan than I can afford from the start and therefore pay it off quicker.  Say I am in year 5 or 6 and rates are starting to go higher and higher than I would probably even put more into principal  Therefore, when it does come time to adjust hopefully the balance will be quite small so interest won't really matter that much (since its calculated based on principal)

edit: I shouldn't say I am getting a much smaller loan than I can afford since that is pretty subjective.  I should say much smaller than i could qualify for. IMO I could probably qualify for a loan that is higher than i could afford.

at the current rate difference of about 125, the after tax delta ends up being 81 basis points delta in rate for first 5 years. (assuming 35% combined marginal rate) After that, who knows.

Totally understand the argument about not living in same home for more than 5 to 7 years on average but if rates are higher in the future and you have to rent it out, you have lower cost with the 30 year fixed or you even have the option to "wrap" the mortgage and provide your buyers with a below market rate, making your home a more attractive purchase. (something some sellers did during the 80s where rates were crazy high).

Given the high volatility of interest rates in last 5, 10, 20, 30 years, 81 bps for a fixed rate seems like an awfully cheap insurance policy.

I believe that the only kind of fixed rate loan that is assumable is an FHA loan (I could be wrong).  I also believe that most ARM loans are also assumable.  Again, each buyer need to weighs the pros/cons and look at their own specific situation to determine whether an ARM loan is an option that they should select.  For those that have a goal of paying off their home in 10 years or less, an ARM loan (especially a 7-year ARM) is a no brainer.  That being said, the majority of buyers will probably opt for a fixed rate loan product.

 

[sgip]

FHA's are assumable. VA's are for Veterans. ARM loans are assumable only after the fixed period ends and it changes to an annual adjustable rate mortgage.

My .02c

Soylent Green Is People.

 

[freedomcm]

SGIP, what is the cost penalty for an FHA nowdays if you put 20% down to avoid the PMI?

higher rate?  higher origination?

 

[villiagepeople]

SGIP, what is the cost penalty for an FHA nowdays if you put 20% down to avoid the PMI?

higher rate?  higher origination?

from what i read and from what my co-worker, who just bought a home via fha... you have to pay the pmi for at least 5 years, regardless of how much down you put... if it has been more than 5 years AND you have 20% down then they will remove pmi.  (sgip please correct me if i'm wrong)

 

[Nous]

SGIP, what is the cost penalty for an FHA nowdays if you put 20% down to avoid the PMI?

higher rate?  higher origination?

from what i read and from what my co-worker, who just bought a home via fha... you have to pay the pmi for at least 5 years, regardless of how much down you put... if it has been more than 5 years AND you have 20% down then they will remove pmi.  (sgip please correct me if i'm wrong)

This is correct.  Only other way out is a refi.  FHA is 20% or 5 years whichever comes second.

 

[usctrojancpa]

Attached you'll find the Irvine sales data for Sept. and Oct. 2011.  Sept. 2011 sales were basically flat with those in Sept. 2010 (157 vs. 159), but Oct. 2011 sales increased approx. 16.5% from Oct. 2010 (141 vs. 121).  Year-to-date, total sales through Oct. 2011 are down about 2% to 1,680 from 1,711 in 2010.  Inventory levels at the end of Oct. 2011 were down about 5% from the same time last year.  There is about a 5 month supply of homes on the market which is a neutral market.  That being said, it seems like prices are softening a bit.  Could this be because of the decrease of the jumbo conforming loan limit?  Well, I don't think it helped things.  From my own viewpoint, I had a few buyers hit the sidelines due to the lack of good inventory and to see how the European mess plays out in the next 3-6 months.  However, I did have a few buyers who were sitting on the fence jump into the market because of the super low interest rates.  So net-net, things seemed to have balanced out.  I am one of those buyers who is now ready to pull the trigger once the right home comes onto the market.

 

[Nous]

Attached you'll find the Irvine sales data for Sept. and Oct. 2011.  Sept. 2011 sales were basically flat with those in Sept. 2010 (157 vs. 159), but Oct. 2011 sales increased approx. 16.5% from Oct. 2010 (141 vs. 121).  Year-to-date, total sales through Oct. 2011 are down about 2% to 1,680 from 1,711 in 2010.  Inventory levels at the end of Oct. 2011 were down about 5% from the same time last year.  There is about a 5 month supply of homes on the market which is a neutral market.  That being said, it seems like prices are softening a bit.  Could this be because of the decrease of the jumbo conforming loan limit?  Well, I don't think it helped things.  From my own viewpoint, I had a few buyers hit the sidelines due to the lack of good inventory and to see how the European mess plays out in the next 3-6 months.  However, I did have a few buyers who were sitting on the fence jump into the market because of the super low interest rates.  So net-net, things seemed to have balanced out.  I am one of those buyers who is now ready to pull the trigger once the right home comes onto the market.

Prices are to high, free market is starting to kick in.  I'm surprised inventory is lowering so much, wonder if the foreclosure changes that happened recently will pick that back up or if the banks are still going to vice grip the market.  5 months of inventory that we can see, but what lurks in the shadows?

 

[usctrojancpa]

Attached you'll find the Irvine sales data for Sept. and Oct. 2011.  Sept. 2011 sales were basically flat with those in Sept. 2010 (157 vs. 159), but Oct. 2011 sales increased approx. 16.5% from Oct. 2010 (141 vs. 121).  Year-to-date, total sales through Oct. 2011 are down about 2% to 1,680 from 1,711 in 2010.  Inventory levels at the end of Oct. 2011 were down about 5% from the same time last year.  There is about a 5 month supply of homes on the market which is a neutral market.  That being said, it seems like prices are softening a bit.  Could this be because of the decrease of the jumbo conforming loan limit?  Well, I don't think it helped things.  From my own viewpoint, I had a few buyers hit the sidelines due to the lack of good inventory and to see how the European mess plays out in the next 3-6 months.  However, I did have a few buyers who were sitting on the fence jump into the market because of the super low interest rates.  So net-net, things seemed to have balanced out.  I am one of those buyers who is now ready to pull the trigger once the right home comes onto the market.

Prices are to high, free market is starting to kick in.  I'm surprised inventory is lowering so much, wonder if the foreclosure changes that happened recently will pick that back up or if the banks are still going to vice grip the market.  5 months of inventory that we can see, but what lurks in the shadows?

The foreclosed inventory is still continuing to trickle into the market.  I wouldn't expect that huge wave of REOs to hit the market.  Banks will take their sweet time even though it will take a good 5-7+ years to clear out most of that distressed inventory from their books.  Other cities in Orange County have had prices come down a good bit since the end of last year's sugar rush of tax credits but Irvine prices were very sticky.  It seems now that prices in Irvine are beginning to drip down a bit.  You still have a lot of Sellers out there who are dreaming with their asking prices.

 

[Nous]

Attached you'll find the Irvine sales data for Sept. and Oct. 2011.  Sept. 2011 sales were basically flat with those in Sept. 2010 (157 vs. 159), but Oct. 2011 sales increased approx. 16.5% from Oct. 2010 (141 vs. 121).  Year-to-date, total sales through Oct. 2011 are down about 2% to 1,680 from 1,711 in 2010.  Inventory levels at the end of Oct. 2011 were down about 5% from the same time last year.  There is about a 5 month supply of homes on the market which is a neutral market.  That being said, it seems like prices are softening a bit.  Could this be because of the decrease of the jumbo conforming loan limit?  Well, I don't think it helped things.  From my own viewpoint, I had a few buyers hit the sidelines due to the lack of good inventory and to see how the European mess plays out in the next 3-6 months.  However, I did have a few buyers who were sitting on the fence jump into the market because of the super low interest rates.  So net-net, things seemed to have balanced out.  I am one of those buyers who is now ready to pull the trigger once the right home comes onto the market.

Prices are to high, free market is starting to kick in.  I'm surprised inventory is lowering so much, wonder if the foreclosure changes that happened recently will pick that back up or if the banks are still going to vice grip the market.  5 months of inventory that we can see, but what lurks in the shadows?

The foreclosed inventory is still continuing to trickle into the market.  I wouldn't expect that huge wave of REOs to hit the market.  Banks will take their sweet time even though it will take a good 5-7+ years to clear out most of that distressed inventory from their books.  Other cities in Orange County have had prices come down a good bit since the end of last year's sugar rush of tax credits but Irvine prices were very sticky.  It seems now that prices in Irvine are beginning to drip down a bit.  You still have a lot of Sellers out there who are dreaming with their asking prices.

Agreed, I guess my point is how accurate is saying 5 months of inventory when we know they are holding back.

 

[usctrojancpa]

Attached you'll find the Irvine sales data for Sept. and Oct. 2011.  Sept. 2011 sales were basically flat with those in Sept. 2010 (157 vs. 159), but Oct. 2011 sales increased approx. 16.5% from Oct. 2010 (141 vs. 121).  Year-to-date, total sales through Oct. 2011 are down about 2% to 1,680 from 1,711 in 2010.  Inventory levels at the end of Oct. 2011 were down about 5% from the same time last year.  There is about a 5 month supply of homes on the market which is a neutral market.  That being said, it seems like prices are softening a bit.  Could this be because of the decrease of the jumbo conforming loan limit?  Well, I don't think it helped things.  From my own viewpoint, I had a few buyers hit the sidelines due to the lack of good inventory and to see how the European mess plays out in the next 3-6 months.  However, I did have a few buyers who were sitting on the fence jump into the market because of the super low interest rates.  So net-net, things seemed to have balanced out.  I am one of those buyers who is now ready to pull the trigger once the right home comes onto the market.

Prices are to high, free market is starting to kick in.  I'm surprised inventory is lowering so much, wonder if the foreclosure changes that happened recently will pick that back up or if the banks are still going to vice grip the market.  5 months of inventory that we can see, but what lurks in the shadows?

The foreclosed inventory is still continuing to trickle into the market.  I wouldn't expect that huge wave of REOs to hit the market.  Banks will take their sweet time even though it will take a good 5-7+ years to clear out most of that distressed inventory from their books.  Other cities in Orange County have had prices come down a good bit since the end of last year's sugar rush of tax credits but Irvine prices were very sticky.  It seems now that prices in Irvine are beginning to drip down a bit.  You still have a lot of Sellers out there who are dreaming with their asking prices.

Agreed, I guess my point is how accurate is saying 5 months of inventory when we know they are holding back.

Good point, but since we can't get a good handle of the amount of shadow inventory out there that we don't know about the best thing out there is to use what's listing on MLS.  Could the true number be 6 or 7 months worth of inventory?  Sure it could.  As long as rates stay around where they are, loan limits stay where they are, and the economy doesn't implode then prices in Irvine will be flattish to slightly down.  Obviously those less desirable areas will have more downside pressure on pricing than the most desirable areas.  The cash buyers are still out in force making up a good chunk of the market.  The next spring/summer selling season will be interesting.

 

[IndieDev]

The pretender brigade is holding on for dear life. But will loan modifications, and 20 hours a week employment be enough to hold on? Tune in next Fall to see the thrilling conclusion.

 

[usctrojancpa]

Here's the updated sales information through Feb. 2012.  Sales have been essentially flat except for Jan. 2012 which had a 23% increase in sales from Jan. 2011.  The really interesting thing that I've noticed is that inventory levels are getting back to the lows in late 2009.  For example, there were approx. 200 less homes for sale at the end of Feb. 2012 than there were in Feb. 2011.  I'll be interesting to see if the Spring and Summer selling seasons will bring a good amount of homes for sale.

From the buyers that have contacted me in the past 3-4 months, most of them state that they are looking to buy because rates are so low and many properties (outside of Irvine) are below rental parity.  Even in Irvine I'm beginning to see a handful of detached condos get down slightly below rental parity, mainly older condos in Woodbridge, Orangetree, and old Northwood.  Attached condos in Northpark and West Irvine are just slightly above rental parity.  I got a buyer into a Fannie Mae REO in Woodbridge where the condo is about 8-10% below rental parity (we got outbid of 2 cash buyer investors but Fannie Mae preferred to go with owner occupant over investors if they offer amounts aren't too far apart).

Interest rates continue to bounce around low-time lows between 3.75% and 4% for 30-year mortgages.  It seems like every time that rates want to creep above 4% they begin to drift back down.  There are several home owners out there who are tired of getting an interest rate of less than 1% of having their money sit in a savings account, money market, and/or CD and are beginning to look at buying a rental property to obtain a higher return on their money. 

On a side note, I actually purchased a detached single family home recently and just moved into it after doing some remodeling work (I'll post a separate thread all about it later).  Like I've been telling my buyers, if you intend to own for the longer term (7+ years) and it makes financial sense then it is decent time to buy.  My opinion is that we are closer to the bottom than we are to the top so I decided to put my money where my mouth is.  I'm just so glad to be out of that tiny TIC apartment and into a home with a driveway and a yard.  A BIG THANKS goes out to all my buyers out there for making it all possible. 

 

[WoodburyDad]

Congrats on the purchase of your home
Did you buy in Irvine or someplace else?

 

[usctrojancpa]

Congrats on the purchase of your home
Did you buy in Irvine or someplace else?

Thanks, I actually bought in Irvine.  I looked around in other cities...Aliso Viejo, Foothill Ranch, Lake Forest, Tustin Ranch, and Orange but Irvine turned out to make the most sense for me.

 

[WoodburyDad]

Congrats on the purchase of your home
Did you buy in Irvine or someplace else?

Thanks, I actually bought in Irvine.  I looked around in other cities...Aliso Viejo, Foothill Ranch, Lake Forest, Tustin Ranch, and Orange but Irvine turned out to make the most sense for me.

Same for us but I also get where others are coming from as well

 

[usctrojancpa]

Congrats on the purchase of your home
Did you buy in Irvine or someplace else?

Thanks, I actually bought in Irvine.  I looked around in other cities...Aliso Viejo, Foothill Ranch, Lake Forest, Tustin Ranch, and Orange but Irvine turned out to make the most sense for me.

Same for us but I also get where others are coming from as well

I've lived in Irvine for the past 10+ years or so (excluding the few years I spent in Vegas), my mom lives in Irvine, and the majority of my buyers are Irvine/Tustin Ranch buyers so Irvine made the most sense for me.  Then I have buyers who are looking to buy in South and North County and Irvine is right in the middle.  Besides all that, I was able to locate a few floor plans in Irvine that met all of my needs too.  My back-up plan was to buy a Las Ventanas Plan 2 if I couldn't find a re-sale home by the end of this summer.