Observations from the front lines of the Irvine housing market?

[GenericIrvineResident]

Also, real estate gives you pretty great leverage akin to trading options.

You put in 20% of, let's say 1 mil, which is 200k. In one year, if your house appreciates 4% (which is likely in these markets) you can get 40k back from your 200k investment. That's like 20% returns. Obviously, I'm glossing over a lot of things like property taxes etc, but in general you get the idea.

Makes most sense to diversify, though. Invest in stocks/real estate/crypto/etc.

Not everything is about maximizing profits. Everybody needs a home and those that have bought homes in the past have rarely regretted it in the long run.

 

[Kenkoko]

It comes down to whether you see the home as a place you live or an investment tool. You can think of it as both, but you can't always think of it as an investment solely. Not saying anyone here does that or anything.

As for stocks, that's another risk you have to take. Sure it grew 360% from 2016 as Kenkoko says, but it could have gone to 0. Whereas for homes which grew only 30%, you at least have a place to live even in case it depreciates. 

If you already own a home and thinking of buying an investment property, then I think timing kind of matters more. But for your primary residential home, I think finding the home where your family feels happy is what matters the most. If you think you will feel horrible when the home price is going down, then maybe buying a home is not for you no matter what time or season.

Agree with much of what's already being said about the positives about buying a home. I took the plunge myself too.

My point really was that the home buying discussion on TI tends to only focus on the RE market as if it's isolated in a vacuum. Not what the RE market is doing relative to other markets. Conclusions are often drawn as if down payments are parked in 0% return cash. Makes very little sense to me.

You brought up a couple points often used to make the home buying case that I disagree with.

Stocks could have gone to 0 seems like a hyperbole to me. We're talking about average investors investing in major index funds. There's no evidence of such in the past 4+ decade. Equities has significantly outperformed Irvine RE in any 5 year period in the past 2 + decade.

And this "you at least have a place to live even in case it depreciates" makes even less sense to me. Do people who have not yet bought homes live in the streets? I am a firm believer that one do not need to own a home to be happy in life.

 

[usctrojancpa]

IF you had time on your side and can wait out, the dip will come and offer you better price. The issue is that wait can be too long for some of us, and we all have a finite amount of time to live. What is the point if I have to wait 5-10 years only to hope that I might get lower price on the home...?

The point is if you invested properly, in 5-10 years, you could afford the same home regardless whether the home price went up or down.

When we bought our home in 2016, a coworker of mine almost followed. His family loved the layout and the builder had a cancellation & offered a discount.

But they eventually decided not to pull the trigger because it was very close the their max affordability and they would have to liquidate their entire stock portfolio to make down payment.

It turned out great for them. Their stock portfolio has gone up 350% since 2016 while the Irvine RE gone up less than 30%.

I get that many people feel like they don't have 5-10 years to wait / waste. But immediate gratification has opportunity costs.

And with proper investment, a 5-10 years wait could lead to many more years of financial freedom on the back end.

I'll keep saying it, a home is a place to live first and a potential long-term investment second. You are not factoring in the leverage on real estate returns.  If the price of the home has gone up 30% and they had bought with an 80% LTV loan their leveraged return would have been 150%.  Some people don't have the time or knowledge to invest like you or I, everyone's risk tolerance is different.

 

[usctrojancpa]

It comes down to whether you see the home as a place you live or an investment tool. You can think of it as both, but you can't always think of it as an investment solely. Not saying anyone here does that or anything.

As for stocks, that's another risk you have to take. Sure it grew 360% from 2016 as Kenkoko says, but it could have gone to 0. Whereas for homes which grew only 30%, you at least have a place to live even in case it depreciates. 

If you already own a home and thinking of buying an investment property, then I think timing kind of matters more. But for your primary residential home, I think finding the home where your family feels happy is what matters the most. If you think you will feel horrible when the home price is going down, then maybe buying a home is not for you no matter what time or season.

Well said Mety.  An investment property is a better comparison to investing in stocks.  A home is a commodity first because people need to live somewhere.  You either pay rent or you pay a mortgage (unless you are living at home saving up with family).

 

[irvinehomeowner]

I don't think anyone is saying try not to be prudent with your timing... just to be aware that sometimes you can't wait for timing or... can't accurately guess to point where you get paralysis by analysis.

IMO that's what people should avoid doing -

Pulling the trigger on a big investment, not because of conviction but to avoid getting paralysis by analysis - is most likely a terrible financial decision.

But, I agree this is commonly seen. Real life is more complicated and I fully agree buying a home is more than just a financial decision for many people.

To me, part of the solution is to learn to invest. Make the home purchase / investment a smaller slice of your portfolio.

Instead of just hoping "maybe you lucked out and can afford a bigger home so you sell and move up"

That's not exactly what I'm saying. You are approaching this from more of an investment angle... I am talking about just a "buying a place to live in" scenario.

And there is no "hoping" here... what I referenced is people saying you can't use residence stability as a caveat when people move all the time.

 

[ucla bruin]

A home is not purely a commodity or an investment. For most, it's an emotional commodity and an investment.

You just can't look at it through a single lens.

 

[Kenkoko]

I'll keep saying it, a home is a place to live first and a potential long-term investment second. You are not factoring in the leverage on real estate returns.  If the price of the home has gone up 30% and they had bought with an 80% LTV loan their leveraged return would have been 150%.  Some people don't have the time or knowledge to invest like you or I, everyone's risk tolerance is different.

USC, we had similar but more in-depth discussion on this in another thread already. 

Nobody is going to dispute that a home is a place to live first. Not sure why this keep getting parroted. Is anyone actually disputing this notion?
And here's another shocker - renting and owning both accomplishes such goal.

To me, the discourse has always been on the potential long-term investment part.

I've never suggested we should compare a leveraged stock portfolio vs a non leveraged home purchase. The personal example I referenced above, my coworker's stock portfolio, was not leveraged. I've always said it's better to compare a similarly leveraged stock / RE. I am surprised to hear you say that I failed to factoring in the leverage on RE return.

A 80% LTV loan purchased home in Irvine will significantly underperform vs a similarly leveraged major index fund in any given 5 year period in the past 2+ decade.

What I said (in the other thread) was you could adjust the level of your leverage much easily in stocks than RE.  Also the paper gain you have in your primary home takes time to realize (sell) and is costly. A 1 mil Irvine starter home cost 50k in commission in a sale.

If you have investment money tied up in your primary home, it's harder and more costly to tap into that to take advantage of market up/down turns.

Anyway, I knew that my opinion was going to be unpopular here on TI. So I'll stop here, never intended to antagonize anyone.

But maybe sometimes contrarian views have value  ;D

 

[sleepy5136]

If you were to isolate the fact that renting/owning still gives you a place to live, the only difference between renting and owning is one may give you an ROI and one does not. So it then comes down to whether or not you are looking to maximize profits when buying a home or not. If not, you can ignore the ROI factor which then means buying a home is a lifestyle choice more so than a financial one.

As a FTHB, I can definitely say that buying a primary home is definitely not something you'll want to do if you're only looking for ROI. You end up spending a ton more money on things like furniture, renovations, property taxes, etc. If you are simply looking to maximize ROI, you should definitely not buy a home unless you plan to have an investment property or you're flipping it. I made more money renting than I did owning a home and I'm not even moved in yet. I've spent money on light fixtures, window treatments, furniture, etc. Some I can take with me to my next home or rental and the others are going to be something I leave there should I decide to sell in the future.

People need to see what they are looking for in a home and then make the decision from there. Constantly pointing out things like "paying rent means throwing money away" is an ignorant statement unless you are only leaving your savings in cash while renting. I've been pushed to buy a home for so many years by family and never pulled the trigger until now and its not due to pressure from them but more because its a great time to take profits from the stock market and diversify my portfolio.

In the end, your mileage may vary (YMMV)

 

[Mety]

It comes down to whether you see the home as a place you live or an investment tool. You can think of it as both, but you can't always think of it as an investment solely. Not saying anyone here does that or anything.

As for stocks, that's another risk you have to take. Sure it grew 360% from 2016 as Kenkoko says, but it could have gone to 0. Whereas for homes which grew only 30%, you at least have a place to live even in case it depreciates. 

If you already own a home and thinking of buying an investment property, then I think timing kind of matters more. But for your primary residential home, I think finding the home where your family feels happy is what matters the most. If you think you will feel horrible when the home price is going down, then maybe buying a home is not for you no matter what time or season.

Agree with much of what's already being said about the positives about buying a home. I took the plunge myself too.

My point really was that the home buying discussion on TI tends to only focus on the RE market as if it's isolated in a vacuum. Not what the RE market is doing relative to other markets. Conclusions are often drawn as if down payments are parked in 0% return cash. Makes very little sense to me.

You brought up a couple points often used to make the home buying case that I disagree with.

Stocks could have gone to 0 seems like a hyperbole to me. We're talking about average investors investing in major index funds. There's no evidence of such in the past 4+ decade. Equities has significantly outperformed Irvine RE in any 5 year period in the past 2 + decade.

And this "you at least have a place to live even in case it depreciates" makes even less sense to me. Do people who have not yet bought homes live in the streets? I am a firm believer that one do not need to own a home to be happy in life.

You don't need to own anything to be happy. It just depends where your focus is. Someone like you who knows the investment side pretty well can try to do what you recommend and the others might not. There is no right or wrong. We're just sharing our different views and thoughts here.

 

[ThirtySomethingWEquity]

I'll keep saying it, a home is a place to live first and a potential long-term investment second. You are not factoring in the leverage on real estate returns.  If the price of the home has gone up 30% and they had bought with an 80% LTV loan their leveraged return would have been 150%.  Some people don't have the time or knowledge to invest like you or I, everyone's risk tolerance is different.

USC, we had similar but more in-depth discussion on this in another thread already. 

Nobody is going to dispute that a home is a place to live first. Not sure why this keep getting parroted. Is anyone actually disputing this notion?
And here's another shocker - renting and owning both accomplishes such goal.

To me, the discourse has always been on the potential long-term investment part.

I've never suggested we should compare a leveraged stock portfolio vs a non leveraged home purchase. The personal example I referenced above, my coworker's stock portfolio, was not leveraged. I've always said it's better to compare a similarly leveraged stock / RE. I am surprised to hear you say that I failed to factoring in the leverage on RE return.

A 80% LTV loan purchased home in Irvine will significantly underperform vs a similarly leveraged major index fund in any given 5 year period in the past 2+ decade.

kind of a dumb take, CA home loans are no recourse, you don't get extended that same benefit with the stock market. 

 

[Kenkoko]

I'll keep saying it, a home is a place to live first and a potential long-term investment second. You are not factoring in the leverage on real estate returns.  If the price of the home has gone up 30% and they had bought with an 80% LTV loan their leveraged return would have been 150%.  Some people don't have the time or knowledge to invest like you or I, everyone's risk tolerance is different.

USC, we had similar but more in-depth discussion on this in another thread already. 

Nobody is going to dispute that a home is a place to live first. Not sure why this keep getting parroted. Is anyone actually disputing this notion?
And here's another shocker - renting and owning both accomplishes such goal.

To me, the discourse has always been on the potential long-term investment part.

I've never suggested we should compare a leveraged stock portfolio vs a non leveraged home purchase. The personal example I referenced above, my coworker's stock portfolio, was not leveraged. I've always said it's better to compare a similarly leveraged stock / RE. I am surprised to hear you say that I failed to factoring in the leverage on RE return.

A 80% LTV loan purchased home in Irvine will significantly underperform vs a similarly leveraged major index fund in any given 5 year period in the past 2+ decade.

kind of a dumb take, CA home loans are no recourse, you don't get extended that same benefit with the stock market.

Is it?

You obviously do not know about options trading.

I actually discuss this in another thread with USC too. He said to use margins and I said options trading is the superior option in part because of what you said.

Edited to include the quote and link to the other discussion thread

The problem with those leveraged ETFs is that they also have decay because they have to buy options/futures to get those 2-3x returns.  You can see with UPRO that it's still below the peak in Feb even though the S&P is higher now.  The best thing to do is to have a diversified asset portfolio...stocks, bonds, real estate, commodities, cypto currency, collectibles, etc.

Sure, every investment vehicle has pros and cons. But IMO leveraged ETF is still superior to using margins, especially for investors who aren't true seasoned vets. Unlike using margins, losing money on leveraged ETF is still cash loss. Won't lose your house / car on cash loss  ;D

I agree very much with having a diversified asset portfolio. Which is why I am vehemently against "small fish everyday people" stretching to their max to buy, using their primary home as an investment is putting all their eggs into one basket.

https://www.talkirvine.com/index.php/topic,17694.msg374175.html

 

[Kenkoko]

You don't need to own anything to be happy. It just depends where your focus is. Someone like you who knows the investment side pretty well can try to do what you recommend and the others might not. There is no right or wrong. We're just sharing our different views and thoughts here.

Hey Mety, you're absolutely right. There's no right or wrong. We're just debating pros and cons and discussing the rationales behind each.

IMO, there's no "dumb take" except those who tried to get an internet dunk but failed. (hint see above) 

 

[sleepy5136]

It comes down to whether you see the home as a place you live or an investment tool. You can think of it as both, but you can't always think of it as an investment solely. Not saying anyone here does that or anything.

As for stocks, that's another risk you have to take. Sure it grew 360% from 2016 as Kenkoko says, but it could have gone to 0. Whereas for homes which grew only 30%, you at least have a place to live even in case it depreciates. 

If you already own a home and thinking of buying an investment property, then I think timing kind of matters more. But for your primary residential home, I think finding the home where your family feels happy is what matters the most. If you think you will feel horrible when the home price is going down, then maybe buying a home is not for you no matter what time or season.

Agree with much of what's already being said about the positives about buying a home. I took the plunge myself too.

My point really was that the home buying discussion on TI tends to only focus on the RE market as if it's isolated in a vacuum. Not what the RE market is doing relative to other markets. Conclusions are often drawn as if down payments are parked in 0% return cash. Makes very little sense to me.

You brought up a couple points often used to make the home buying case that I disagree with.

Stocks could have gone to 0 seems like a hyperbole to me. We're talking about average investors investing in major index funds. There's no evidence of such in the past 4+ decade. Equities has significantly outperformed Irvine RE in any 5 year period in the past 2 + decade.

And this "you at least have a place to live even in case it depreciates" makes even less sense to me. Do people who have not yet bought homes live in the streets? I am a firm believer that one do not need to own a home to be happy in life.

You don't need to own anything to be happy. It just depends where your focus is. Someone like you who knows the investment side pretty well can try to do what you recommend and the others might not. There is no right or wrong. We're just sharing our different views and thoughts here.

Yes, there is no right or wrong and that is why I mentioned YMMV. But as someone mentioned already, it doesn't take a genius to invest in index funds. If one consistently dumps money every month in an index fund, you come out ahead whether you own RE or not. When people make investing sound difficult, its due to the following:
1. has no interest in it
2. doesn't want to put effort in doing some due diligence (ties to point 1)
3. fear of loss (ties to point 2)

You don't need to do options trading to have gains to offset inflation..

 

[ThirtySomethingWEquity]

You don't need to own anything to be happy. It just depends where your focus is. Someone like you who knows the investment side pretty well can try to do what you recommend and the others might not. There is no right or wrong. We're just sharing our different views and thoughts here.

Hey Mety, you're absolutely right. There's no right or wrong. We're just debating pros and cons and discussing the rationales behind each.

IMO, there's no "dumb take" except those who tried to get an internet dunk but failed. (hint see above) 

If you can show me a leveraged ETF that gets 5x leverage without any risk beside the initial investment I'll eat my words and say I had the dumb take.

 

[Kenkoko]

You don't need to own anything to be happy. It just depends where your focus is. Someone like you who knows the investment side pretty well can try to do what you recommend and the others might not. There is no right or wrong. We're just sharing our different views and thoughts here.

Hey Mety, you're absolutely right. There's no right or wrong. We're just debating pros and cons and discussing the rationales behind each.

IMO, there's no "dumb take" except those who tried to get an internet dunk but failed. (hint see above) 

If you can show me a leveraged ETF that gets 5x leverage without any risk beside the initial investment I'll eat my words and say I had the dumb take.

I already did. It's through options.

There are many ways you can structure your options to mimic a 5x leverage. The simplest one would be to can buy a levered ETF and buy naked call options on top.

All of which can be done without any risk beside the initial investment.

 

[irvinehomeowner]

Irvine internet dunks over everyone!!!!!

 

[nosuchreality]

Alex, I'll take Leverage for $200,000.

 

[usctrojancpa]

Well, the first 2 months of 2021 have been more of the same strength that we saw going into year end and I?d say that things have gotten worse from a supply of resale home perspective.  We went from about 3 months of inventory in 4Q 2020 to less than 2 months of inventory by the end of February 2021 even despite the ?% increase in conforming rates in the past month. 

Attached is the data for both January and February 2021. January 2021 sales increased by approx. 17% from the same month last year even though there was a large drop from the record sales pace of December 2020.  One big reason for the drop in sales was due less inventory of resale homes coming onto the market from the previous 1-2 months versus September through November.  February 2021 sales increased almost 21% from the same month last year and were up slightly from January 2021. This increase was due to more homes being listed in Dec 2020/Jan 2021 vs. Dec 2019/Jan 2020 along with the strong buyer demand. As of March 15th, there are 277 active listings while there are 463 homes in escrow. The last time I saw something similar to this was in 2013 when market prices increased about 20% over a period of 15 months.

The median home price increased to $495/sf in January 2021 (up approx. 6% YOY) and then continued to increase to an all-time record level of $509/sf (up approx. 9% YOY).  We are seeing the strong demand and tight supply driving prices higher as just about every single home gets multiple offers within days of being listed.  I don?t see this trend relenting in the near term as the high demand is causing supply issues which is driving prices higher with bidding wars.
The decline of resale inventory continued in January and February 2021.  Inventory levels were over 23% lower at the end of January 2021 vs. January 2020 (424 vs. 553).  At the end of February 2021, inventory did increase slightly from the end of January 2021 but were still down over 17% from the end of February 2020 (479 vs. 578).  There were 668 new listings that came to market in the first 2 months of 2021 compared to 593 in the first 2 months of 2020 so it?s the strong buyer demand that is causing low inventory levels which result in building wars.  As I mentioned above, we are down to 277 active listings as of March 15th as the relenting demand continues while there?s been a slowdown in new listings in the past few weeks.  Even the inventory levels in the high-end of the market is very low as that market has picked up a lot in the past 3-4 months. 

Getting buyers into escrow has gotten worse and worse in the past few months as I?m seeing 5-20 offers on just about every home I make an offer on for my buyers. This is happening in and outside of Irvine in the rest of Orange County.  When I looked at the data, what is happening today reminds me a lot of what happened in late 2012 to the end of 2013 when prices rose around 20% over a 15-16 month period. Waiving appraisal contingencies is basically a requirement for all offers and I?m seeing more sellers counter back insisting that buyers purchase the home ?as-is? meaning the seller won?t do any repairs and/or provide a credit in lieu of repairs. For two homes that I made an offer on, the seller countered back asking that buyers remove all contingencies day 1?no way I would let my buyers do that (this was done because there were a few very motivated cash buyers bidding on the homes).  I?m going to start working escalation clause on some of my buyer counters. I typically give my buyers a range of what to bid on a home??X? (minimum offer to have a chance) to ?Y? (top of the board bid if the really like the home).  Since I?ve been tracking sale prices on homes my buyers got outbid on, I discovered that if my buyers would have big to my Y amount they would have only gotten the home about half the time which is pretty crazy.  Although, the winning offer tends to be within about 1-2% of my ?Y? amount when it goes above my range. It?s almost impossible to use closed comps even in the past month as the market is moving too fast so my range is a combination of my gutt feeling along with trend analysis. 

I haven?t experienced it yet, but I?ve heard that a few builders are not going to a ?highest bid? format to sell their homes as they see how strong the demand is. Getting any kind of discounts and/or incentives even on standing inventory homes is basically impossible. Thankfully most all builders are still going off of their waitlist and slowly increasing their pricing from phase to phase (around 1-2%).  Calpac has almost sold out of it?s lower end homes in Portola Springs and Cypress Village so there isn?t much to pick from other than The Great Park for new homes under $1m in Irvine. 
On the interest rate front, rates increased from around 2.50% to as high as 3.25% for conforming 30-year fixed rates in the past month but have selected down a bit around 3% now.  Jumbo 30-year fixed rates did not see this kind of increase as they aren?t directly tied to the MBS mortgage bond market and are hovering around 2.75% to 2.875% currently. It seems like the increase in rates may have caused more urgency for buyers to move quickly as they believe that rates will continue to move higher. I don?t think rates are going to rise above 3.50% in the next 2-3 months but beyond that all bets are off.  Then we heard from SGIP that rates for investment properties and 2nd homes have gone up so maybe that takes a bit of steam out of the market....we shall see.  Fact of the matter is that we are not at equilibrium so the trajectory of prices will continue upward until we get more into balance between supply and demand.

 

[usctrojancpa]

And here are the 5-year charts for active listings, closed sales, median per SF, and Days On Market (DOM) through February 2021.

 

[Liar Loan]

[quote author=irvinehomeowner]
As for Liar Loan, that's a different subject.  He doesn't think Irvine is a good place to make the "largest investment of your life"... which seems contrary to why everyone tends to buy in Irvine in the first place. He always thinks prices in Irvine is dropping every 2 to 3 years... and that everywhere else it's better but who here agrees with that? Where is TalkHB or TalkAlisoVideo or TalkSanCelemente?
[/quote]

IHO, you're making stuff up now to try to smear me.  Unlike you, I actually pay attention to data and respect what it says.  From 2009 - 2012 I was saying the bottom was more or less in and people should be buying like crazy, including in Irvine.  This was across my time on the Lansner Blog, OC Reader, and OC Housing News. 

Larry was the permabear back in 2012 and tried to smear me just like you are doing now.  You are very much like him in letting your personal biases blind you to reality.