The Irvine/OC price premium

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I can't find the article I read so this may be a little off.

Historically the Premium was 2.3 that rose to 2.7 during the boom

So at 100k nationwide median would make so cal.230,000 but at boom it was 2.7.

The factors IR discussed were part of it but so as Income.

Big Metros. IE OC, LA, NY SF etc usually had a premium based on Income. The comparable got skewed, I think, because of land. In certain area's the consumer got 4 acres of land with thir 1500 sf house where as here the consumer got 2200 sf of land with that home.

Now that is in value to value. What isn't included and may not have been considered is the Mello roos and HOA.

So right now in Irvine the actual wil probably be higher if those are included.

Now since incomes did not raise at the rate of housing I think it really came down to the fact most people made enough to afford their homes. In so cal we made a little bit more then they did in kentucky or texas.
 
I will give two short-term rental situations I have had (while waiting on new construction):

An 1,800 sq. ft. townhome (Quail Hill) for $2,500 - at rent times 160, price is $400,000. Price per sq. ft. would be $222.

An 1,740 sq. ft. townhome (Turtle Ridge) for $3,300 - at rent times 160, price is $528,000. Price per sq. ft. would be $303.

This is why I ask.
 
Oh and Janet...

IR answered the first part on affordability with the loans

They bought all the cool stuff with equity extraction.

http://www.pauljorion.com/blog_en/?p=14

Pretty informative. Shows the relation between equity and spending.

I work at a company with about 100 employes in OC. Not many are making the 85k.....

I would say the percentage is maybe 10% and those are the sales people. I am happy we just resigned a lease because I was getting concerned we were shutting this location down because it is hard to hire people.

How does someone making 40k a year live in So cal? We need people making that or less in so cal don't we?

Most of the people we are losing site quality of life. They can't afford to live in OC. With Gas prices and less travel time it makes sense to work in their comunity.
 
Yes, plenty spent equity on crap.

But many also put it right back into their homes.

Home remodelling has been a huge business since 2000.
 
trrenter,

The 2.3 to 2.7 price premium for Irvine/OC would be appropriate IF there were either a "halo effect" from superstar wage jobs or incomes were much higher than the national average. As I documented in my original post, Irvine/OC household incomes are above the national median, but not that far above. Moreover, just by looking at the job postings on craigslist for OC, not many companies offer $100K+ jobs for your average salaried worker. What makes other cities' homes like New York, SF, and West LA so expensive relative to the rest of the country is they have superstar jobs in finance, technology, and media respectively. Irvine and most of OC, while it attracts quality employers you don't see occupations where salaries of half a million and up are routine like you would in NY/SF/west LA. That is why I said home prices have to fall to match what the median worker can reasonably afford.
 
hs teacher said, "Besides, I know a lot of people who are willing and able to buy a decent condo for 300K or a decent house for 500K. So buyers will come in to stabilize prices when we get to that point".

I just wonder if the money to lend is going to be there, at the right terms. Also, if people will have 10 - 20% to put down.

When I bought my first place in 1989, I had an FHA mortage at 11 % !!! That was the going rate, and it was government subsidized for affordability. 11 %. sheesh. What if that happens now ?
 
gargangle -- I think you might be oversimplfying the OC market a bit. If we were on an island somewhere, or out in the middle of the desert, then yes --- there is nothing that could support Irvine being 2.3 times the rest of the US. But there are many other factors at play here that I suspect do not factor in the median income. Foreign money, entertainment and sporting world money, and a lot of wealth imported from other places in the US when those people that came here to enjoy all of the things that OC offers that you won't find anywhere else ARE all influencing the OC market. Yes, we are way over-valued right now and this correction is very warranted, and I am enjoying it is much as the next person --- waiting for my opportunity. But this is indeed a special place different from most others --- and I don't see a scenario where OC or Irvine is within 30% of Topeka. I truly wish that were the case --- but imagine what the traffic would look like on the 405 if the mortgage payment difference between OC and everywhere else was just a couple of dinners out a month?
 
gr,

I was agreeing with you. The 2.3 was tied to all of So cal not just OC. And it was more in relationship with earnings in those area's.

My first post was centered around median income and median housing prices needing to even out in OC.

To me it makes sense that housing prices have to adust down to income now that the exotic financing is gone.

Unless of course people will be driving from Hemet to OC because they can still buy houses cheap.
 
garfangler

Interestingly enough, West LA is actually somewhat cheaper than Irvine now. At least from the few houses I saw. One can buy a truly unique home in 90210 on the hill for around 1.2 mil that sits on a huge lot, the same amount of money will buy you a home in Irvine that looks the same as homes of your ten thousand closest friends, and you will be no more than 10 ft away from them.
 
try 9962 Westwanda Dr, Beverly Hills, CA 90210. We are looking for houses in Beverly Hills area, and we were quite stunted to see that for what one would pay for an average nice home in Irvine, we could actually buy in Beverly Hills. Of course, we are still waiting for the price to come down even more, I think we might see this house at 900k or even 800k. One interesting note, Beverly Hills is generally selling about 20 to 30% below Zillow where as Irvine is selling at or slightly above Zillow. People with money evidently know how to price their home correctly.

On the other hand, one has to put up with a lot of famous people in Beverly Hills. After seeing this house, on the way to a nearby house, we actually ran into Nikkie Hilton on the sidewalk, also saw the guy in Miami Vice in a local coffee shop near by.
 
NIR, welcome to west LA. I think you will find life here is slightly less restrictive than Irvine/Newport. I like Irvine a lot (spend two years in UCI), but I can not live in that place, too restrictive. The layers of zoning law are too suffocating.
 
"When you said an appropriate premium would be 30%, and the national median is currently $220,000, that would put the median for us at $286,000.

Since we can also presume the national median may also decline, wouldn't that put our median even less than $286,000?"

I wish our median would drop that low, but I don't think it is going to happen. We make more than the national average in Irvine, and our rents are the highest in the nation, so our median will not align with the national average.

To me the question is, "how much higher will the median price/income ratio be?" I think we will probably maintain a 30% premium over the rest of the country mostly because we do not have the lower strata of the housing market to bring our median down. When you look at the relationship between rents and prices, I believe our prices will fall in line with the rest of the country, however, since our rents are very high, even relative to our income, I think house prices will maintain a premium. I predicted our median will drop down to about $400,000 which would be about 30% over the $286K figure it should be based on price/income.
 
Trooper has a good point. I don't think the average homebuyer makes a decision based on the home price, but rather the monthly payment. It's the investors who care more about prices. I think the price to income ratio is ridiculous because it doesn't take into consideration interest rate and therefore monthly payment. That is why prices have been going up like crazy in the past 4 years... people are buying based on option arms and adjustable rate loans with lower payments. I still think that renting should be around $2000/month and buying should be around $3000/month for a starter home. Assuming that the median price of a condo in the OC is 450k, I think it would bottom out at 300K. And if the median price for a SFR is 650K, I think it would bottom out at 500K. IMO, current values are 100-150K overpriced. So far all of those who make 85K/year, you should be able to afford a 400k home. And if you're dual income (170K), you should afford a 800K home. Stop complaining about your high income already.
 
Haha I actually know someone who makes north of $1M per year living in a 3/2 rental at $2500 a month in Tustin. I also know someone who makes $250,000 a year who bought a $235,000 place. Just depends what suits your fancy. I'm sure there are people making $40,000 per year that bought $400,000 homes too.
 
HS teacher,

You must make a lot of extra income because someone who earns $85K a year, nets only $60K or $5K a month after taxes. To support a $400K home at 6.50 interest rate it would cost $2401/mo. with 5% down. That is just the loan payment, it does not include property taxes, HOA dues, or mello-roos. Most people need to also pay for insurance, a car, gas, food, utilities, retirement, etc. and the remaining amount won't go very far in Irvine.
 
I think hs_teacher is on the right track with her thinking. As gargangle pointed out above, I think her payment scenario is too agressive which would make the valuations at the bottom a bit lower.
 
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