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<p>CK- I stand corrected on the rent. My assumption was $3,000, whereas, you are correct, the reality is the average rental for 3BR/2BA TH/SFR in Irvine is around $2,300 - $2,500. So my calculation was erring a bit on the side of caution... It makes the comparison even more heavily weighted towards waiting it out and renting in this market. Welcome to Waitwatchers!</p>
 
I'd like to thank everyone who posts so much useful info. I'm 29 and getting married this summer. My fiance and I would absolutely love to live in irvine. If you would have asked us 4 months ago what our plan was for our living arrangements, we'd have both said buying a home, preferrably in irvine, but definitely OC. After a couple months of looking at lots of new homes, i got this feeling that the prices justed seemed so out of whack with the product being offered. Not that there weren't some good homes, but the concept that $600K equated to the matchbox slums of irvine forced me to start doing some research. I mean, like many people on here, we know we can afford more house than that and would splurge if we found something we loved, but we'd rather not. Thru my exploration, I came across zovall's wonderful website and have learned so much along with learning from the many people in these forums which are awesome. My lady has trusted me to take the lead on this subject and although its so hard to for her to swallow that a young couple of two fairly successful people "aren't Irvine material", i've been able to convince her its a matter of intelligence and making the right decision for the long term. My soon-to-be-wife wants to own, more than anything based on lifelong dreams of moving into a new home with her new husband and starting her new life. I feel terrible i can't deliver that dream for her, at least not in irvine. But at the same time, i find a lot of comfort in knowing that there is so much information which supports waiting to buy as being the "right" thing to do as a responsible consumer who respects himself and the hard-earned money he and his wife work for. All that being said, while we haven't completely closed the door on buying this summer, lately we've definitely been concentrating on looking at rentals.
 
WantToLiveInIrvine: Welcome. You have come with the right mindset. There is a time and a place to buy. Irvine is definitely one of the best places around for young families, no doubt about that. However, this is definitely not the time. Wait it out and the world will be yours... Good luck and congratulations on your wedding!
 
crucialtaunt: What is the point of your example of a couple buying the $700K home? Are you talking about affordability? If so, a couple having half the income buying a $350K home would be in the same bad situation if there was a job loss. So the price of homes going down would not solve this!
 
<p>rickhunter: <em>What is the point of your example of a couple buying the $700K home?</em></p>

<p>Several "points":</p>

<p>#1 is Affordability.</p>

<p>#2 close behind is having the means (cash cushion) to weather any downturns:</p>



<p>i.e. if you or your spouse had a job loss and either:</p>

<p>(a) you had to sell and liquidate in a declining market,</p>

<p>(b) had to make it through on one income for a while.</p>



<p dir="ltr">#3 Disconnect between monthly rents vs. monthly home purchase obligations</p>



<p dir="ltr">If one had to move out and rent out the property (for whatever reason, such as relocation and including the job loss scenario mentioned above) you would be cashflow negative from day 1. Not to mention what would happen if the rental market also declined...</p>



<p dir="ltr">In answer to your other question about 1/2 the income and 1/2 the property value - yes, numerically it is same situation as the 700k, except it differs on one major count. In order to do an apples to apples comparison, in Irvine, $350k will most likely buy you nothing more than a 1BR condo! You would need to compare rents on a 1BR condo to equate my example at that level.</p>

<p dir="ltr">So how is a price decline going to solve this?</p>

<p dir="ltr">By having market prices more in line with rental rates, the couple in question would possibly have monthly mortgage obligations closely aligned with current real rental rates for the same square footage. In the worse of cases discussed (i.e. job loss, etc.) they would simply be able to rent out the property at the market rate, be more or less cashflow positive, and be somewhat free to move to a new location with better job prospects. At that point, the fluctuations in the home prices will be less of an issue to the couple.</p>
 
<p>crucialtaunt: "At that point, the fluctuations in the home prices will be less of an issue to the couple."</p>

<p>I was pointing out that even if the prices of houses are cut by half, a serious scenario like losing a job might subject a couple to not be able to make house payments. In your last paragraph you, stated that an alternative would be to rent after that. But if rent to ownership ratios are aligned, then the couple would have to move into a smaller, lesser place if they wanted to stay in the same area. This scenario would be more probable than the scenario of moving to a new location.</p>

<p>Thank You for the detail explanation though. I just think that the people that got caught up in the buying frenzy were either greedy, misinformed, or just plain needed a place. But then I see a lot of these bloggers wishing so hard for the prices to come down. The prices will come down but there are always factors that we dont see or the consequences that will result in this happening. There are always consequences in making money and doing nothing for it.</p>
 
crucialtaunt: the math doesnt seem to be a fair comparison to me.





I am pretty sure the "townhome" CK is talking about is San Carlo Villa apartments. It is an older (15-20 years old) WestPark community. The unit is an attached 1300sqft 3 bed, 2.5 bath with detach 1-car garage. This is not better than Savanah in Columbus. The current market value for that unit can't be more than $475k. The current rent per their website is $2500.





Let's say CK is to purchase that San Carlo unit with ~10% down.





Loan amount $425k.


Mortgage 5/1 ARM IO is apprx $2200.


Tax in that area is 1% no Mello Roos, so $400 per month.


HOA is that area is $50.


Hazard Insurance $50





Total monthly cost is apprx. $2700.





So I dont think the currrent housing price in Irvine is as bad as you think.
 
"The current market value for that unit can't be more than $475k. The current rent per their website is $2500."





This isn't accurate. If you look on the MLS at rentals in the $2,400 to $2,800 range and look up their comps on Zillow, you will see price ranges from $600,000 to $850,000 at those rental rates. If it were only $475K for a $2,500 rental, the market would still be inflated, but it wouldn't be far from where someone might reasonably consider buying.





I just secured a different rental this week, so I have a pretty good handle on today's rental market. A good place to look for MLS rentals is <a href="http://firstteam.com/">firstteam.com</a>. They keep their MLS updated. It is better than <a href="http://www.ocrealestatefinder.com/apts/index.shtml">ocrealestatefinder.com</a>.
 
<p>Red: You are correct on San Carlo Villa --- but I would disagree on your math, and assertion. They do not sell my IAC units, so we cannot say for sure what they might sell for --- but the closest comps are directly across Harvard at the corner of Harvard and San Marino. I don't know the name of the community --- but the comp units are 3 bed 2 ba, with 70 less sq ft at 1,240 sq ft, although they do have a one car attached garage. These were built in 1987, same vintage as my rental. Currently 2 models listed for sale, neither of which appear to have been updated:</p>

<p>- 172 Alicante Aisle for $554,900</p>

<p>- 59 Costero Aisle for $560,000</p>

<p>Both have an HOA of $185. Not sure where your $50 came from.That said, I would think my unit would list for probably around $550K. Now, would I EVER in a million years sign up for $550K mortgage for the place I live in? No way. And especially not using the funny money methodology you used to make the prices seem equitable. </p>

<p>What I am saying is that of course you cannot compare the rental I live in now to what you can get in a brand new community --- or to my target areas of Northpark and NP Square. They are entirely different. I rent what is adequate and convenient, where I get the most percieved value for my buck. When I buy and mortgage my future --- that's when I will go for everything I WANT. By no means do I expect to pay a similar amount for my mortgage than I do for rent....I know there is going to be a premium to homeownership, and am ok with that. The point of my post was that with the current state of the market, what I can get for that monthly premium (at least $3,500 on a $700K home, even after I get my expected rent hike in March) does not come anywhere near the percieved change in value I would expect for $3,500 month. Essentially, the increase I would actutally realize in raw sq. ft , ammenities, neighborhood, school, et. al. does not justify the cost, at least to me. </p>

<p>When the value proposition works for me, I will buy. Hopefully in Orchard Hills in 2008!</p>
 
http://orangecounty.craigslist.org/apa/255520086.html





No, they will never get that rent. They are just dreaming trying to reduce their negative cashflow.





Try these: <a href="http://firstteam.com/homes/propertydetails.asp?id=64511470&db=1&MLS=S468776">82 Townsend</a>, a rental at $3000 a month, and <a href="http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=S463125&page=1&property_type=CONDO&mls=mls_so_cal&cKey=m3698f8l&source=SOCALMLS">58 Townsend</a> the same model for sale for $875,000.





Or this one: 1 Fern Canyon, Irvine, <a href="http://firstteam.com/homes/propertydetails.asp?id=82526&db=0&MLS=S469283">a rental at $2,500</a> or <a href="http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=S469286&page=1&property_type=SFR&mls=mls_so_cal&cKey=374s8w0f&source=SOCALMLS">for sale at $711,800.</a>





Or this one: 2 Gainesmill, Irvine, <a href="http://firstteam.com/homes/propertydetails.asp?id=81615&db=0&MLS=S465527">a rental at $2,400</a> or <a href="http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=S461730&page=1&property_type=SFR&mls=mls_so_cal&cKey=6bx01rq5&source=SOCALMLS">for sale at $699,000.</a>





Sorry, the for sale links require <a href="http://www.ziprealty.com/index.jsp">Zip Realty</a> registration.





The MLS is going to be a bit more realistic than Craig's list.
 
You can probably say the same thing on the asking price for most resale home these days. They will never get that price. Seems that 10% price reduction is reasonable. I am just not as confident as some people in this blog that housing price in Irvine will go down much more than 10-15% than current pricing. Also many people currently shopping for house in Irvine have equity, and U.S. dollar is weak so for buyers with foreign cash the sticker price may not shock them as much.
 
<p>IrvineRenter-</p>

<p>How ironic that you showed 1 Fern Canyon in Deerfield. I am not familiar with the area of Deerfield, so I drove by a couple of open houses and that was one of them. It was a DUMP- to say it mildly. So, I looked on zillow.com to see what zillow says as a price- and the realtor has it listed at exactly the same price that zillow does. However, what struck me odd was that the realtor's pic was on the website, with pics of the house- and i just felt like zillow's "impartiality" is somewhat compromised now that they are allowing realtors to post pics- it makes me feel like the realtor somehow "massaged the numbers" and influenced what the value is. </p>
 
<p>red: <em>"I am just not as confident as some people in this blog that housing price in Irvine will go down much more than 10-15% than current pricing."</em></p>

<p>Actually none of us are soothsayers, or even claim to have all the answers. In fact, we are merely taking a guess that the market will continue it's downward trend. Here's a brief recap of what we have observed through this forum and others that track Irvine:</p>



Builders will continue to ride out the down trend until they are marginally profitable at around $150 - $160 per sq ft. In fact, builders will "lead" the way down for the market overall. The current price per sq ft. is around $375 - $400 for new contruction. So they have a long way to go <em>(and there will be many suckers along the way)</em> to the bare minimum margin of profit for the builders.



<em>Put this into context: A 2000 sq ft TH retailing now for $750,000 (i.e. $375/sq ft) could be selling for $360,000 ($160/sq ft.) - this ain't no stinkin' 10% decline, it is more like 50%!!!</em>

Important note: Builders need TICs approval to lower prices below a certain range. In other words, prices are somewhat "regulated" in Irvine by TIC (The Irvine Co. - to the uninitiated) so prices will have a slower than normal downward adjustment than if the entire area been built up and we were talking strictly about demand for resale homes to compare against.

>



There may be an escalation in the downward trend if there's a recession as being forecast by the inverted yield curve, and as other astute observers of the economy have <a href="http://calculatedrisk.blogspot.com/2006/12/housing-in-2007.html">noted</a>.

The prices of existing homes in Irvine, since they are for the most part based on comps, will follow the down trend set by the builders.

People who are bringing in equity into their home purchases, should be on the alert for "instant equity vaporization" when they buy their house in Irvine:



As I have noted before, if you are older, with older kids in school, you will most likely base your purchase decision on a longer time horizon, i.e. 10 - 20 years to see your kids through to high school within the same school district. In this case, people who bring in equity can feel 'safer' that they can ride out the ups and downs since "they are not going anywhere, anytime soon." If these people are in secure enough jobs, they should do fine.



However, if their jobs could be impacted by an economy in recession, then their "equity" will be screwed too, since they would have to sell and relocate to a place with better job prospects or try to rent it out (with very likely negative cash flow)...

>



If you are younger and have hope to get into a starter home first then move up to a larger home later, if you are bringing in equity, you might as well kiss it goodbye now. You will have to essentially (in the best case) start over when you decide to move up. In the worst case, if your job is negatively impacted by the economy, then you will be screwed in other ways, i.e. potential default/foreclosure etc.

>



>
 
red,





I have heard anecdotally from realtors that real sellers have been giving 10% off asking lately. Since both the rental rates and for sale prices are asking, both will probably decline for a transaction to occur. As sales prices decline, the situation improves, but renting is still much cheaper.





Statistics show home equity in the US is at an all time low (which is shocking considering the recent price increases). When you drive around Irvine and see all the new cars in the driveways, it is a demonstration of where this equity went: they got a home equity line of credit and spent it. The people currently house shopping in Irvine probably don't have much equity, and most are financing their purchase with an 80/20 loan.





As for the foreign investment, this is possible, but not likely. Foreign money is generally late to the game making up many of the knife-catchers who get steamrolled by a declining market. See the article <a href="http://piggington.com/the_dumb_money">Dumb Money</a> at Piggington's site.
 
<p>IrvineRenter: <em>"Foreign money is generally late to the game making up many of the knife-catchers who get steamrolled by a declining market."</em></p>

<p>I think you just set the new Irvine (dare I say, World?) Record for mixing up metaphors! </p>

<p>I agree with you on where the home equity went, or is still going. <em>(Escalade (hers)-check, S550 (his) -check, Nordstroms (his & hers) -check, Hawaii and ski vacations-check)</em>. Don't forget that a big chunk of that home equity went to flipping or "investing in" properties which fueled the speculative boom in the new construction condo/TH market.</p>
 
I wish that were true, but looking on the MLS at homes that have closed in the past 2 months, the stats do not show a trend of 10% off. Less than 5% to 0% off is what I am seeing. Do you have an example of a home that went for 10% under asking? I would like to see it.
 
<p>irvine_native: <em>Do you have an example of a home that went for 10% under asking? I would like to see it.</em></p>

<p>Please read the posts again. We are talking about a hypothetical example in a scenario in which a home purchased for $700k today might see a 10% decline by January 2008.</p>
 
"<em>knife-catchers who get steamrolled</em>"





Just losing one's hand didn't seem graphic enough. Complete destruction by a steamroller is more fitting.
 
<p>Irvine Native, I'll agree that 10% off is hard to find in Irvine right now.</p>

<p>Do keep in mind that many homes are being relisted 2,3, or even 4 times with new MLS numbers and lowered prices. When an offer finally arrives, it's often 100% of list but that list price ain't what it was six months ago!</p>

<p>If you want to find homes listed at 10% off their <strong>acquisition cost</strong> (not their 2006 wishing price) today, you'll need to dig around in places like RSM. Even then, they aren't all that common. Yet.</p>

<p>RE busts are slow-moving affairs. Blogs give us something to do when we're not counting our treasury bills. </p>
 
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