Observations from the front lines of the Irvine housing market?

[usctrojancpa]

I went to an open house for a single story SFR in Laguna Niguel, was the only person there under 70, and it went for almost $700/sqft

Single story homes typically sell for a 20-25%+ higher price per square foot than 2-level homes.  Those older buyers that you saw are mostly cash buyers as well.

Also the interior was designed by Caesar Augustus

https://www.redfin.com/CA/Laguna-Niguel/28376-Via-Alfonse-92677/home/4930135?utm_source=android_share&utm_medium=share&utm_nooverride=1&utm_content=link&2010988919=variant&813945303=variant

Nice clean looking home with high ceilings and only one neighbor, not surprising it went for also $700sf.

 

[Irvinehomeseeker]

I went to an open house for a single story SFR in Laguna Niguel, was the only person there under 70, and it went for almost $700/sqft

Single story homes typically sell for a 20-25%+ higher price per square foot than 2-level homes.  Those older buyers that you saw are mostly cash buyers as well.

I didn't quite realize the value of these single level homes. My wife was very interested in the brand new single level Napa home in EW that was being offered at 1.4M last October, but I was unsure.  Come March 2021, an almost model match on the behind street sold for 1.8M!! and I was like  :'( on missed opportunity!

 

[freedomcm]

3.5%?  The Fed hasn't even pulled back on QE.  I doubt we will see 3.5% in the next decade.

I think the demand may go down if prices remain high and Fed decides to raise rates sooner to combat inflation. Rates are currently expected to raise mid to late next year. If rates go to 3.5-4%, I would think we see some decrease in demand which may cause homes to sit on market longer than now.

 

[usctrojancpa]

3.5%?  The Fed hasn't even pulled back on QE.  I doubt we will see 3.5% in the next decade.

I think the demand may go down if prices remain high and Fed decides to raise rates sooner to combat inflation. Rates are currently expected to raise mid to late next year. If rates go to 3.5-4%, I would think we see some decrease in demand which may cause homes to sit on market longer than now.

We have way way too much debt so the FED won't get too frisky with interest rate increases and we'll go the way of Japan and Europe with perpetual low rates.  A lot of the inflation that we are seeing is due to supply chain issues which will be resolved in the next few years with additional capacity and Covid playing less and less of any issue.  We'll see 2.50% rates before we see 4.00% rates for mortgages. 

 

[irvinebullhousing]

3.5%?  The Fed hasn't even pulled back on QE.  I doubt we will see 3.5% in the next decade.

I think the demand may go down if prices remain high and Fed decides to raise rates sooner to combat inflation. Rates are currently expected to raise mid to late next year. If rates go to 3.5-4%, I would think we see some decrease in demand which may cause homes to sit on market longer than now.

What Sleepy was referencing is the mortgage rate.

http://www.mortgagenewsdaily.com/mortgage_rates/daily.aspx

The mortgage rate follow closely to the 10 year bond rate.

You can have the FED funds rate stay at zero, but the 10 yield push up, so will the mortgage rate. If the FED dial back MBS purchase 40 Billion to what they are outline to 30, then 20 and then 10 so on each month follow, as they have describes the path forward to slowly withdrawl support, then 10 years yield will rise higher to gain attractiveness for investor to buy. This will push mortgage rate to 3.5% or low 4 % as the FED still in zero bound FED funds rate.

Having said that, institutions and pensions funds will seek to for higher return and continue to target residential rental market. This is where the cheese is at. Pensions funds are lock and loaded with available funds to scoop it up even before I finish writing this sentence. If there is an imminent crash, the FED has already done saving equitities last year but it won't let the housing sink. We saw what the FED did in scooping up corporate bonds and junk bonds. Who to say treasury can't do the same, if neccessary. Its a matter of which boat do they want to let sink and which one they will want to stay afloat. Debt has to be repaid, write off or restructures. Tangible assets, like rental markets will and continue to be shelters of the growing populations.

This is why Donald Bren is the 50th richest person in the United State ranking in Fortune. He knows where the cheese is at.

 

[sleepy5136]

3.5%?  The Fed hasn't even pulled back on QE.  I doubt we will see 3.5% in the next decade.

I think the demand may go down if prices remain high and Fed decides to raise rates sooner to combat inflation. Rates are currently expected to raise mid to late next year. If rates go to 3.5-4%, I would think we see some decrease in demand which may cause homes to sit on market longer than now.

that's a bold statement right there. We shall see what happens.

We have way way too much debt so the FED won't get too frisky with interest rate increases and we'll go the way of Japan and Europe with perpetual low rates.  A lot of the inflation that we are seeing is due to supply chain issues which will be resolved in the next few years with additional capacity and Covid playing less and less of any issue.  We'll see 2.50% rates before we see 4.00% rates for mortgages.

 

[usctrojancpa]

A lot of people are hoping that mortgage rates goes up so that it will translate to lower real estate prices, I just don't see it happening.  I said it a few times, we are slowly becoming Japan 2.0 including on the interest rate front. 

 

[irvinebullhousing]

I don't think the case for higher rate will lower real estate price. How high is too high in rate for the real estate to crash should be the question?

Right now, even Owning is sitting at 3.125 for 30 years, and we know Owning only do primary and stellars credits. If the yield control were not in place then rate historic standards should be 6ish or low 7, right? Then the sky would fall. The key here IMHO is that the FED flood the liquidities into the systems. From Hedge Funds to shadow banking has ample of ammunitions and buy. What will that do to price of assets? It at least stablize. We all saw it. No suprise there.

 

[usctrojancpa]

I don't think the case for higher rate will lower real estate price. How high is too high in rate for the real estate to crash should be the question?

Right now, even Owning is sitting at 3.125 for 30 years, and we know Owning only do primary and stellars credits. If the yield control were not in place then rate historic standards should be 6ish or low 7, right? Then the sky would fall. The key here IMHO is that the FED flood the liquidities into the systems. From Hedge Funds to shadow banking has ample of ammunitions and buy. What will that do to price of assets? It at least stablize. We all saw it. No suprise there.

I agree with you that higher interests won't have a big effect on real estate prices unless they go significantly up.  However, there are a lot of potential buyers who think and hope that even a moderate interest rate increase will cause prices to decline (which it won't).  I think worst case prices will be flattish but from what I see today prices are heading higher.

 

[irvinebullhousing]

I don't think the case for higher rate will lower real estate price. How high is too high in rate for the real estate to crash should be the question?

Right now, even Owning is sitting at 3.125 for 30 years, and we know Owning only do primary and stellars credits. If the yield control were not in place then rate historic standards should be 6ish or low 7, right? Then the sky would fall. The key here IMHO is that the FED flood the liquidities into the systems. From Hedge Funds to shadow banking has ample of ammunitions and buy. What will that do to price of assets? It at least stablize. We all saw it. No suprise there.

I agree with you that higher interests won't have a big effect on real estate prices unless they go significantly up.  However, there are a lot of potential buyers who think and hope that even a moderate interest rate increase will cause prices to decline (which it won't).  I think worst case prices will be flattish but from what I see today prices are heading higher.

Some members on here including you, who are correct in saying don't time the market, buy when you can afford it.

The huge problem now is for first time buyers, with the competition from corporate funds, hedge funds and bidding war result in having them priced out. For buyers that already own and trade up, they will have the appreciation of equities in the run up to trade up. Not fair, but that's where we are, unless we have a Paul Volcker style as the next FED chair person. For owners a few will be upgrading because of low locked in fix rate to change up. For young buyers its a bitter pills to swallow. Many will sit out. Hence the stagnate market will soon follow. I think you built a solid reputation not only here but also in real life, so your business stream will continue. For many other realtors, competing is fierce with Zillow, Redfin and even Opendoor platforms taking a huge bite out of their bread.

 

[sgip]

If the Fed and Congress were actually serious about affordable housing (spoiler alert... they are not.) both entities would work quickly to revise the tax system make it unsustainable for Hedgies to buy up everything they can. They could start by hypertax large LLC SFR owners rental income which compels through financial methods the eventual liquidation by mass unit owners of their housing stock. Yes, overall prices would drop a bit in some areas. Are hedgies buying Irvine properties to lease long term?Don't know, but would really love to see the stats. Certainly other SoCal Counties would experience price drops given how many homes are in the portfolios of hedge funds.

Ask yourself this: would you rather see 1/2 the block you live on as Blackstone owned rental properties, or owner occupied homes for 1st and 2nd time buyers?  Which pathway is better for the long term benefit of society? Concentrated ownership or mass ownership? 

 

[fatduck]

You can't reduce the cost of something by taxing it

 

[irvinebullhousing]

This is the same ideas as Canada?s New Proposal to Tax Non-Resident Homeowners. Over sea investor snatched up properties and frustrated prospected buyers in Canada.
https://www.mansionglobal.com/artic...roposal-to-tax-non-resident-homeowners-226964

The FED and Congress care little about affordable housing. The housing industry is huge. How huge, about 31 Trillions dollars. The pockets of these politicians is also lined in some ways with these profits. For buy and lease, the number have to make sense. Right now, there is no freakin way to buy in Irvine and lease out and not in big hole. I don't reccommend buy for future appreciation play. That's not a good idea. Buy in a place that you love where to live and able to live with it for long while.

 

[fatduck]

That proposal exempts rental properties and is intended to reduce vacancy rate. In a really ham handed way imo. Just tax the value of the land and holding vacant or undeveloped property will be disincentivized.

 

[fatduck]

The only way to make housing more affordable is to increase supply.  You do that by encouraging development and density and discouraging holding of vacant/undeveloped property.

So, reduce zoning restrictions and tax land value.

Not really Fed/Congress policies. It has to happen at the state and local level.

 

[irvinebullhousing]

The only way to make housing more affordable is to increase supply.  You do that by encouraging development and density and discouraging holding of vacant/undeveloped property.

So, reduce zoning restrictions and tax land value.

Not really Fed/Congress policies. It has to happen at the state and local level.

Right, you are correct that it has to happen at the state and local level.

Then you have these Not In My Backyard folks. Too much traffics residents throw up their hands and signs with too much building and polutions.

 

[usctrojancpa]

Yes, the NIMBY crowd is very strong especially in nicer areas.

 

[usctrojancpa]

I don't think the case for higher rate will lower real estate price. How high is too high in rate for the real estate to crash should be the question?

Right now, even Owning is sitting at 3.125 for 30 years, and we know Owning only do primary and stellars credits. If the yield control were not in place then rate historic standards should be 6ish or low 7, right? Then the sky would fall. The key here IMHO is that the FED flood the liquidities into the systems. From Hedge Funds to shadow banking has ample of ammunitions and buy. What will that do to price of assets? It at least stablize. We all saw it. No suprise there.

I agree with you that higher interests won't have a big effect on real estate prices unless they go significantly up.  However, there are a lot of potential buyers who think and hope that even a moderate interest rate increase will cause prices to decline (which it won't).  I think worst case prices will be flattish but from what I see today prices are heading higher.

Some members on here including you, who are correct in saying don't time the market, buy when you can afford it.

The huge problem now is for first time buyers, with the competition from corporate funds, hedge funds and bidding war result in having them priced out. For buyers that already own and trade up, they will have the appreciation of equities in the run up to trade up. Not fair, but that's where we are, unless we have a Paul Volcker style as the next FED chair person. For owners a few will be upgrading because of low locked in fix rate to change up. For young buyers its a bitter pills to swallow. Many will sit out. Hence the stagnate market will soon follow. I think you built a solid reputation not only here but also in real life, so your business stream will continue. For many other realtors, competing is fierce with Zillow, Redfin and even Opendoor platforms taking a huge bite out of their bread.

Thank you for the kind words.  My goal in helping my buyers to purchase is a home is to get them a home that will appreciate into the future at the best deal possible price because as I tell them...."the better that you do, the better I do later" (aka their home will appreciate better and will be able to sell it at a higher price later and move up to a bigger home).  I've told many clients who were ready to buy new bad 3-level properties (mostly new through a builder which would have been easy work for me) but I steered them into 2-level properties.  It's good for future business to help my clients buy the good homes.  And when my buyers ask me if it's a good time to buy, I tell them 2 things...1) If you plan on giving in the home for 3-5+ years you will not lose a dime even if you buy at today's prices AND 2) If I am actively looking to buy a more expensive home that means that means that I believe prices will continue upward in the intermediate/longer term.

 

[usctrojancpa]

If the Fed and Congress were actually serious about affordable housing (spoiler alert... they are not.) both entities would work quickly to revise the tax system make it unsustainable for Hedgies to buy up everything they can. They could start by hypertax large LLC SFR owners rental income which compels through financial methods the eventual liquidation by mass unit owners of their housing stock. Yes, overall prices would drop a bit in some areas. Are hedgies buying Irvine properties to lease long term?Don't know, but would really love to see the stats. Certainly other SoCal Counties would experience price drops given how many homes are in the portfolios of hedge funds.

Ask yourself this: would you rather see 1/2 the block you live on as Blackstone owned rental properties, or owner occupied homes for 1st and 2nd time buyers?  Which pathway is better for the long term benefit of society? Concentrated ownership or mass ownership? 

I can ask my title rep to run a report to see all Irvine homes purchased by LLCs and Corps in the past 2 years.  I'm sure I'll see Redfin, Zillow, Offerpad, and Opendoor but it'd be curious if I see other corporate entities.

 

[sgip]

@Fatduck,

Actually you can reduce the price of something if you tax it. Some examples:

1) Congress could authorize a universal "recapture tax" - as they do with "affordable housing" programs - taxing up to 50% of gain (or more) if a home is resold within 5 years. Congress could also require the Agencies and FDIC Insured Banks to refuse to finance  the purchase of homes that have been bought and resold within 2 years, up considerably from the current 90 days. Sure, there would be exceptions - like the new price could only be greater than the YOY rate of inflation (5% today) These options could make flipping much less profitable and suppress sales of homes to speculators. Fewer sales = more inventory = better pricing.

2) Congress could tax 90% of any YOY rental income increase over the rate of inflation. This would tamp down "to market" rent increases once a tenant moves out, making rental property less attractive. Couple that with the elimination of non-owner occupied depreciation (effectively a tax increase) and rental property ownership becomes even more of a losing proposition for some. Finally Congress could restrict FNMA/FHLMC and any FDIC insured bank from lending more than 3 Non-Owner Occupied loans to one person - pushing risk over to the private sector rather than the Government. Going further still, cash-out, non-owner and HELOC, non-owner could be eliminated by Congress and the FDIC with a few strokes of a pen. While not tax increases per-se, crimping NOOC lending would suppress ownership of rental property, forcing in some cases sales, which bloats inventory ultimately reducing the price of housing.

3) Congress could deny bulk owners of real estate (Hedgies) any and all tax benefits, impose "affordable housing goals" on bulk real estate like requiring half of all real estate owned by corporations holding greater than 5 SFR's/Condo's to be rented at no more than 33% of Area Median Income (AMI) or other value suppressive measures. Blackstone, et al, would reevaluate their holdings, discover quickly the value of single unit real estate is evaporating (within their business model) and start the process of liquidation what they do have.

Don't think this is possible? Think again my young Padawan. Old timer like myself remember the 1980's Commercial Real Estate crash caused partly by tax law change. This link is to a fairly wonky paper on the subject. For those with PLENTY of time on their hands can read through the Appendix regarding the impact of tax law change and commercial real estate. 
https://www.fdic.gov/bank/historical/history/137_165.pdf

We are in an environment where "progressive" ideology is gunning for both the SFR and The Landlord. The wise will recognize this early and prepare their contingencies. All things are possible when only people with short term memory are in charge.

My .02c