Summer 2021 - BP $/sqft prediction

[jbot747]

Yeah, I wasn't suggesting that was a print out from your crystal ball, but rather any number of things that could happen. That being said,  I thought this persons post on 'Ten Reasons It's A Terrible Time To Buy An Expensive House' was good-

https://patrick.net/?p=1282720&c=1301309

Specifically #3 (given this has been a market largely driven higher by low interest rates)

Because it's a terrible time to buy when interest rates are low, like now.
House prices rose as interest rates fell, and house prices will fall if interest rates rise
without a strong increase in jobs, because a fixed monthly payment covers a
smaller mortgage at a higher interest rate. Since interest rates have nowhere to
go but up, prices have nowhere to go but down. When housing falls, you lose your
equity, but not your debt.
The way to win the game is to
have cash on hand to buy outright at a low price when others cannot
borrow very much because of high interest rates. Then you get a low price, and
you get capital appreciation caused by future interest rate declines. To buy an
expensive house at a time of low interest rates and high prices like now is a mistake.

It is far better to pay a low price with a high interest rate than a
high price with a low interest rate, even if the mortgage payment is the same
either way.

A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
As interest rates fall, real estate prices generally rise.
Your property taxes will be lower with a low purchase price.
Paying a high price now may trap you "under water", meaning you'll have a
mortgage debt larger than the value of the house. Then you will not be able to
refinance because then you'll have no equity, and will not be able to sell without
a loss. Even if you get a long-term fixed rate mortgage, when rates
inevitably go up the value of your property will go down. Paying a low
price minimizes your damage.
You can refinance when you buy at a higher interest rate and rates
fall, but current buyers will never be able to refinance for a lower interest rate
in the future. Rates are already as low as they can go.

 

[usctrojancpa]

So jbot, so tell us your theory on what will drive interest rates higher?  Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing.  I've said it a few times that the US will experience what Japan experienced with interest rates being low for decades to come (we have way too much debt to service for interest rates to go materially up).  If the Fed raises rates too much, that'll cause a recession and guess what the FED will do then?  Yup, decrease interest rates again.

 

[Ready2Downsize]

You know he wrote that over a year ago, right?

So in your scenario, you assume

No more cash buyers (they are not affected by higher rates).

The fed will just keep raising rates even if housing comes down (contrary to their attempt to prevent ANY slowdown in the last 10 years).

The fed can control mortgage rates (they control short term rates not long term).

Those who have low rates will panic, sell at a loss and either rent or be forced into a mortgage with higher rates.

The home builders will just keep building if there is a slowdown instead of slowing down themselves which in turn dries up supply.

The home builders won't throw incentives in their product to sweeten the deal and keep prices up.

No one will come in if prices fall 5%, 10%, etc until we see 20-30% drop in prices (and no attempt at keeping rates low).

Um, I'm thinking

Those with low rates will just keep their houses with their low rates, depriving you of your low priced home with high rates

Cash buyers/investors/hedge funds will sop up supply if prices drop long before you see anywhere close to your buy range

The fed will continue to prop up what they can



I bought a house in 1981 when rates were SKY high and guess what? Price wasn't low and I couldn't wait to sell it when rates came down so I could buy somewhere else (at a higher price). Bought it from a builder who financed it at lower rates. Homeowners were stuck and couldn't sell at that time so my pick of houses was very low.

 

[Ready2Downsize]

So jbot, so tell us your theory on what will drive interest rates higher?  Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing.  I've said it a few times that the US will experience what Japan experienced with interest rates being low for decades to come (we have way too much debt to service for interest rates to go materially up).  If the Fed raises rates too much, that'll cause a recession and guess what the FED will do then?  Yup, decrease interest rates again.

I agree, the fed is stuck.

They decide what is inflation anyway. Don't tell me the price of food, health care and eduction hasn't gone up a lot, but the fed says we're good so we're good.

 

[meccos12]

Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing. 

By that logic, wouldnt you assume we have inflation then?  I dont think you can tie one to another like you suggest...

 

[usctrojancpa]

Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing. 

By that logic, wouldnt you assume we have inflation then?  I dont think you can tie one to another like you suggest...

Sorry forgot to clarify....inflation in terms of what the FED views as inflation.  Of course inflation is running at over 2%, but the FED is focusing on the "core" inflation rate.  The FED knows that they can't raises rates much because the market can't handle it.  Don't be surprised if we get negative rates at the next mild/modest recession. 

 

[irvinebullhousing]

That is why we have Generation of Renters "Millennial" for a long time!!! I do sympathize for people that yearn for ownership, yet because of the economic forces at hand cause many to continue to rent. By the way the Irvine Company approved on building an additional 1206 more apartments, and this is just in the Spectrum area. At least you have more choices for renting 

My advise, short term is stay renting and at least wait out and see how the rest of this year play out for rate and political change of hands.

This might give you a clearer decision after. My speculation after the election is that more of the same will be in store for economic pathways and housing will continue to a modest increment of positive outlook.

 

[Ready2Downsize]

If we had runaway inflation, the fed COULD raise rates KNOWING we'd have a pretty good recession (as they did around 1980) but the market was already in a rate rising environment at that time. I was sooo young but I remember baby sitting for a realtor in HB and hearing her say we HAVE to get rates under 8%. Little did she know they'd go up at least another 10% and I remember seeing mortgages for 21% in 1980 (my mom had a cd for 18%!).

At that time of course we didn't have the debt we have now. I just don't know how we'd get to that scenario again, and if we did I'm pretty sure the feds would be in a heap of trouble themselves just trying to service their own debt.

 

[Collins]

Assuming it's currently 450 per sq ft, if prices go up 10 percent in the next 5 years that's already 495 per sq feet.  Seems like a sure thing

 

[eyephone]

Assuming it's currently 450 per sq ft, if prices go up 10 percent in the next 5 years that's already 495 per sq feet.  Seems like a sure thing

Are you factoring the cemetery?

 

[irvinebullhousing]

According to the higher power IHS, the Vet Cem. is a non issues. All this is a fog in mirrors. That piece land parcel is far too valueable for the original intended capacity.

 

[kayochan]

According to the higher power IHS, the Vet Cem. is a non issues. All this is a fog in mirrors. That piece land parcel is far too valueable for the original intended capacity.

I agree.  Once PHS proves itself, the shopping center by Modjeska and Irvine Blvd is built out and they pretty up that general area by PS3, the two new GP neighborhoods, the prices of homes in that area near the new HS is definitely going to go up.  I already heard from a few friends who are selling their home in WB and SG so their kids can eventually walk to PHS.  The exodus to that area is already starting. 

A girl I know who works for a local builder at their design center at PS3 said a lot of people moving into that area near PHS are from WB, SG, and other surrounding area and their main reason is to position their kids to attend PHS.  I personally know of at least 4 families with kids currently going to PHS who are actively looking to move to PS3 near the school so their kids can eventually walk/bike there.

 

[Ready2Downsize]

One of the reasons we decided to cash in on our Irvine home in the NHS area was we thought the premium for attending that high school might erode when PS High opened (despite lots of people on TI saying no one would want their kids to go there).

NHS is 17 years old. PS is new........... pick of the liter on teachers, new tech, etc.

We'll see but I think PS could replace NHS as the new "it" high school.

 

[irvineshadow]

According to the higher power IHS, the Vet Cem. is a non issues. All this is a fog in mirrors. That piece land parcel is far too valueable for the original intended capacity.

I agree.  Once PHS proves itself, the shopping center by Modjeska and Irvine Blvd is built out and they pretty up that general area by PS3, the two new GP neighborhoods, the prices of homes in that area near the new HS is definitely going to go up.  I already heard from a few friends who are selling their home in WB and SG so their kids can eventually walk to PHS.  The exodus to that area is already starting. 

A girl I know who works for a local builder as their design center at PS3 said a lot of people moving into that area near PHS are from WB, SG, and other surrounding area and their main reason is to position their kids to attend PHS.  I know of at least 4 families with kids currently going to PHS who are actively looking to move to PS3 near the school so their kids can eventually walk/bike there.

I see this as an accurate trend.

 

[jbot747]

Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing. 

By that logic, wouldnt you assume we have inflation then?  I dont think you can tie one to another like you suggest...

Sorry forgot to clarify....inflation in terms of what the FED views as inflation.  Of course inflation is running at over 2%, but the FED is focusing on the "core" inflation rate.  The FED knows that they can't raises rates much because the market can't handle it.  Don't be surprised if we get negative rates at the next mild/modest recession.

I have no idea what the next catalyst will be that causes a recession. But look at the track record in this country over the past two centuries-
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

I think everyone has to concede that we have massive financial engineering going on w/ central banks (QE), and corporations with GDP's larger than most countries (stock buy backs). It seems only logical to me that they will engineer a crash if for no other reason than to inflate the next bubble. The problem with realtor's, stock brokers and anyone else that works on commission is they always think its a good time to buy whatever it is they are selling.

Speaking of which, I am just waiting for some 'disruptive' tech to change the way people buy houses, in the era of LegalZoom, Uber, Tinder, and GrubHub, seems like only a matter of time before a company cuts out the commission and charges a much smaller flat rate.

 

[warheadwl]

Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing. 

By that logic, wouldnt you assume we have inflation then?  I dont think you can tie one to another like you suggest...

Sorry forgot to clarify....inflation in terms of what the FED views as inflation.  Of course inflation is running at over 2%, but the FED is focusing on the "core" inflation rate.  The FED knows that they can't raises rates much because the market can't handle it.  Don't be surprised if we get negative rates at the next mild/modest recession.

I have no idea what the next catalyst will be that causes a recession. But look at the track record in this country over the past two centuries-
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

I think everyone has to concede that we have massive financial engineering going on w/ central banks (QE), and corporations with GDP's larger than most countries (stock buy backs). It seems only logical to me that they will engineer a crash if for no other reason than to inflate the next bubble. The problem with realtor's, stock brokers and anyone else that works on commission is they always think its a good time to buy whatever it is they are selling.

Speaking of which, I am just waiting for some 'disruptive' tech to change the way people buy houses, in the era of LegalZoom, Uber, Tinder, and GrubHub, seems like only a matter of time before a company cuts out the commission and charges a much smaller flat rate.

Isn't the disruptor redfin?  They charge 1.5% to sell, and for buyers, give you a rebate on part of the commission.  Makes you wonder what conventional RE agents think about them.

 

[usctrojancpa]

Main thing that I can think of would be inflation, but if inflation is increasing that means that home prices are increasing. 

By that logic, wouldnt you assume we have inflation then?  I dont think you can tie one to another like you suggest...

Sorry forgot to clarify....inflation in terms of what the FED views as inflation.  Of course inflation is running at over 2%, but the FED is focusing on the "core" inflation rate.  The FED knows that they can't raises rates much because the market can't handle it.  Don't be surprised if we get negative rates at the next mild/modest recession.

I have no idea what the next catalyst will be that causes a recession. But look at the track record in this country over the past two centuries-
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

I think everyone has to concede that we have massive financial engineering going on w/ central banks (QE), and corporations with GDP's larger than most countries (stock buy backs). It seems only logical to me that they will engineer a crash if for no other reason than to inflate the next bubble. The problem with realtor's, stock brokers and anyone else that works on commission is they always think its a good time to buy whatever it is they are selling.

Speaking of which, I am just waiting for some 'disruptive' tech to change the way people buy houses, in the era of LegalZoom, Uber, Tinder, and GrubHub, seems like only a matter of time before a company cuts out the commission and charges a much smaller flat rate.

Isn't the disruptor redfin?  They charge 1.5% to sell, and for buyers, give you a rebate on part of the commission.  Makes you wonder what conventional RE agents think about them.

Change is good...I've done rebates before Redfin existed (I should have started Redfin....oh well).  The commission structure that most all agents use is old and tied which needs to be revamped.  Problem is that old habits die hard and the realtor association is huge powerful lobbying group.  If you ask me, they should really revamp who can get their real estate license and become a realtor in the first place.  Make it more difficult where you need a degree or relevant completed courses and then a required mentorship program where you need to be signed off by a broker before you get your license (similar to how it is to get a CPA license).  Problem is the less active realtors, the less money the realtor association collects.

 

[jbot747]

I think Zillow probably cancels out any progress that Redfin makes toward changing the old model of commissions in real estate. Specifically with their 'Zestimates' that are often garbage.

I think an auction.com or FSBO type of venue will allow more direct real estate transactions. They just need someone to package it all together for someone to pick an appraiser, lawyer, home inspector, etc... and allow people to more easily buy/sell homes.

Sorry, it makes my blood boil how much some people in the FIRE economy get paid, for what little is actually contributed. And when I say some people I mean million dollar listing, or articles like this detailing 'shadow flipping'
http://www.moneysense.ca/spend/real-estate/recent-real-estate-fraud-sparks-calls-for-change/

Then again, the fact that there isn't a larger tax on foreign cash buyers, purchasing non-owner occupied homes, etc... or how the NAR has lobbied to allow real estate to be the easiest way to launder money, or the unintended consequences of Prop 13, FHA loans, etc..

To answer the original question this thread asks, Irvine RE prices 5 years from now, I would say that depends largely on whether the same thing that happened to Vancouver happens here, with years of double digit YoY gains from mainland Chinese buyers pushing up prices.

 

[Cornflakes]

Assuming it's currently 450 per sq ft, if prices go up 10 percent in the next 5 years that's already 495 per sq feet.  Seems like a sure thing

Are you factoring the cemetery?

$495 with cemetery.
$595 without. And...
$695 with negative interest rates

Up, Up you go... >

 

[Cornflakes]

I realized I posted a question and never really made my personal position known.

I think that gone are the days of 6-8-10% yearly appreciation in Irvine due to number of factors - high prices, people wary of the interest rate hike and potential correction, lot of new construction etc. However, I do believe that 2-3% annual appreciation in Irvine, and BP is likely as the influx of people to Irvine is still strong and at some point supply will constrict and the gap between demand and supply will widen. I think that such point is somewhere in next five years. After that, prices will reach a point where it will start affecting demand negatively and the appreciation may plateau. What happens next is anyone's guess.

BP has many good things going. It looks far different and better than boxy hoods, the development of GP, Ice rinks, PHS, retail, may be golf course, luxury Toll Brothers homes down the road, decks and so on...Five point is playing smart by offering so many shiny things to keep the attraction going until they done developing and cashing in.