What the bubble?!?

[nosuchreality]

That's nonsense.  There's plenty of friends I know that live in Laguna Beach and work.  That house isn't even that great- it's just cheap.  That's a family house.

Then they're running their own businesses, or gluttons for punishment.  Commuting out of Laguna is harsh.  But if you work in the right part of Irvine, or Newport, not horrible, probably 30 minute commute.

 

[bones]

.

 

[abcd1234]

I guess I didn't express myself well- the house is poorly located for school-aged children- regardless if "someone who lives in LB doesn't have to work"  Again- that's silly.  If you can live in LB and not have to work, you'd pick a better house than that. 

That house is not convenient for the parent to drive there and back regardless if they have to work or not.  Doing that on daily basis would get old real quick.  Just seeing the traffic jams on Ridgeline, Campus, Michelson to get to Uni and Rancho is a real eye opener. I can't imagine having to take kids to Top of the World.

 

[abcd1234]

roads are twisty.  I wouldn't trust my kids in a crappy bus, but that's just me.

Also, since the house is so far from the school, they'd be probably the first ones on the bus route.  I'd rather they get extra sleep at home than being on a bus.

 

[nosuchreality]

ABCD, we're saying the same thing.  And it's not really just that house.  Most people I know in Laguna are like Bones' friends. They pretty much set their own hours, or like Tyler, start at 5AM in finance and have a stay at home spouse (note, don't know if Tyler's SO, if any, is stay at home).

The Laguna crowd, is not the Irvine crowd.  Irvine is a bunch of high achieving corporate sloggers.  Even those running their own businesses in Irvine are more high achieving slogger.  In Laguna, it's more eccentric, a little more like 'gifted' when talking about gifted students versus high achieving students for the way they approach things.

The Irvine model, is four years of Kumon and SAT camps and tutors pushing for a perfect SAT, the Laguna model, is a TED presenter Timothy Ferriss type.

Just IMHO.  And not saying their aren't plenty of both in both places, just the predominant approach to success and 'employment'.

 

[zubs]

My comment on the 133 is because I was on it for 2 hours going to Laguna Beach from 405.  If you lived in that property you would have crazy traffic after leaving your residential roads.  I guess you could just turn right on 133 and head to Irvine.  It's not busy going that way.

 

[irvinehomeowner]

Let's try some math:

1. In 2007, it was said that $1m for a home in Irvine is bubble pricing and that prices should drop 20-40% to their real value. So let's say 30% off = $700k

2. 2% inflation per year, starting for 6 years gives me $790k.

3. Homes that were $1m in 2007 are not $790k now. They are probably $1m+ now.

So were the last 6 years a mirage? In 2008 I was looking at Quail Hill homes in the $1.1m range... today, there is nothing that is $1.1m (Tapestry models, one just closed for $1.4m). In 2009-10, I was looking at Quail Hill detached condos for $750k, those same exact models are now closing for $850-$950k.

That is not inflation.

And we can point to affordability over price, but wasn't that the argument the bears were pooping on during the bubble? That you can't look at price because ARMs makes it affordable? But now, today, you can use affordability as an argument?

I'm not sure how many of you have been here since 07-08 on the IHB and then now on TI (USC, IR2 and some others) but am I misremembering all this?

 

[nosuchreality]

I think you're slightly misremembering.  As I recall, the argument was more along the lines of the gap between income, affordability, rental equivalence and price.

Also I think your timing is a bit late.  by 2008, things were already falling apart.  For the 30-40% comments, there's plenty of homes that did resell at the 30-40% off peak. 

Are home prices ahead of themselves?  I think so.  Will they retreat? Not in a timely manner.

A fairly typical 3 bedroom apartment in Irvine is $3000/month.    That's apartment apartment.  The PITA equivalent with 20% down is $600K.

I don't see that $3000/month changing.

The only thing that will drive prices down outside of wider scale unemployment or a sudden rate spike is supply increasing to push average DOM over 90.

 

[Irvinecommuter]

Let's try some math:

1. In 2007, it was said that $1m for a home in Irvine is bubble pricing and that prices should drop 20-40% to their real value. So let's say 30% off = $700k

2. 2% inflation per year, starting for 6 years gives me $790k.

3. Homes that were $1m in 2007 are not $790k now. They are probably $1m+ now.

So were the last 6 years a mirage? In 2008 I was looking at Quail Hill homes in the $1.1m range... today, there is nothing that is $1.1m (Tapestry models, one just closed for $1.4m). In 2009-10, I was looking at Quail Hill detached condos for $750k, those same exact models are now closing for $850-$950k.

That is not inflation.

And we can point to affordability over price, but wasn't that the argument the bears were pooping on during the bubble? That you can't look at price because ARMs makes it affordable? But now, today, you can use affordability as an argument?

I'm not sure how many of you have been here since 07-08 on the IHB and then now on TI (USC, IR2 and some others) but am I misremembering all this?

No one is saying that it's just inflation, there a lot of other factors as well. 

I don't know why you keep dismissing the bad loan issue.  Bad loans aren't an issue when they are made or shortly thereafter.  They become an issue if a year or two down the line, the interest rates jump or someone runs into financial difficulties.  Having a fixed rate loan at a rate is significantly different than having one on a short term adjustable.  You also do not have things like NINJA or stated docs loan anymore where people just made up their income. 

Also, there are a lot more FCB buyers than there were before. 

There is a significant difference between what is happening now versus what happened in 2005-2007.  I was a big bear back in those days because I was in the trenches trying to buy a house and I saw what was going on and who was buying.  Completely differently now.

What you have now is a rise in prices but really no bubble because the people who are buying are fundamentally different in qualifications.  In 5 years, the odds of these buyers defaulting are significantly lower.

 

[irvinehomeowner]

I think you're slightly misremembering.  As I recall, the argument was more along the lines of the gap between income, affordability, rental equivalence and price.

Doesn't that same gap exist today? I was a landlord back then, rents then and rents now aren't all that much higher. Maybe 5-10% (we rented a 4/3 out for about $2900 then, it will probably rent for about $3200-3300 out now). Has income jumped all that much? Especially going through all that unemployment?

Also I think your timing is a bit late.  by 2008, things were already falling apart.

I will posit that it took longer for things to fall apart in Irvine. Prices in 2008, were about 5% down from 2005 (I was tracking those numbers).

For the 30-40% comments, there's plenty of homes that did resell at the 30-40% off peak. 

And there were plenty that did not. I think Larry posted that the drop on average was more like 10-15%, not 40% or even his more conservative 20-25%.

And to clarify, a very vocal contingent was saying that prices should BE 30-40% less based on "income, affordability, rental equivalence and price". The term being bandied around was "rental parity".

I don't know why you keep dismissing the bad loan issue.  Bad loans aren't an issue when they are made or shortly thereafter.  They become an issue if a year or two down the line, the interest rates jump or someone runs into financial difficulties.  Having a fixed rate loan at a rate is significantly different than having one on a short term adjustable.

I didn't dismiss it. But you don't seem to remember that your scenario would only happen if rates went up... they didn't. After 2007, rates took a nosedive and have stayed low, so when those ARMs recast/reset, there was no sticker shock. I said this before, did you dimiss it? I actually HAD an ARM during that timeframe, and my payments went DOWN... not up.

That was the big mistake Larry made and he admitted it. Rates did not rise as he thought and so all those ARM loans, not a big tsunami of defaults as predicted because payments were still affordable. HAMP/HARP/etc helped people refi because rates were lower.

Also, there are a lot more FCB buyers than there were before. 

Hey... I was the original one who said this and got laughed at. So is this true or not?

There is a significant difference between what is happening now versus what happened in 2005-2007.  I was a big bear back in those days because I was in the trenches trying to buy a house and I saw what was going on and who was buying.  Completely differently now.

So do you think it's justified that prices have returned back to bubble heights?

What you have now is a rise in prices but really no bubble because the people who are buying are fundamentally different in qualifications.  In 5 years, the odds of these buyers defaulting are significantly lower.

This is probably true... but did anyone (including yourself) predict that prices would be back to this level by 2013? I don't think anyone did... most of what I remember is that it would drop and stay low for an extended period of time. I think even Larry said in 2010-11 at most, a 5% rise... but I believe it's been more than that.

So maybe it's not a bubble (although I don't see these type of price appreciations that high in surrounding cities), but it sure was unexpected.

When we've been shopping at the $800k range for the last 3 years and then this year, all of that has moved to $1m+, there is something strange happening.

 

[nosuchreality]

I think we have the difference between the California bubble and "a bubble".

The former is the disproportionately high level of prices compared to incomes in general, California has always been a bubble in that stand point.

As for price collapse, well frankly, pretty much every stop has been pulled out to pump air into the new normal.

Is it different this time, I don't think so. But I think we're still in that California dreaming bubble and not a full blown bubble.

Again, I think it's a supply issue. When you look across the housing landscape of what has been built, do you see the housing that 25% of the population with incomes north of $150K want?

That's the root of the California dreaming.


IMHO, I think there's currently about a 10-20% price premium being paid due to over-all lack of for sale supply. 

 

[irvinehomeowner]

IMHO, I think there's currently about a 10-20% price premium being paid due to over-all lack of for sale supply. 

Again from personal experience, the numbers don't make sense.

For most of 2012, inventory dwindled down to 200... and we were looking (I think we even put an offer on one home). 2013 rolls around, inventory is back up to 500s, new homes are everywhere but prices are much higher than 2012.

It goes back to my anti-gravity theory, prices in Irvine don't fall that quickly but rise fast and stay high longer.

 

[nosuchreality]

Your memory is faulty.  Most of 2012 had inventory equal to 6 or more months of sales.

Today, we have inventory, right around a month and most of the summer, less than a month of sales.

Saying 200 is meaningless, it's like saying I save $2000 on the car I bought.  If I'm buying a base Civic that's pretty good, if I'm buying a Bentley, not so much.


Most importantly, prices are going up, because, like you, buyers are frustrated.  Frankly, it's becoming worth the $200K to get off the treadmill.


The best analogy is like way back when the Wii first came out.  30 people lining up each week to get a Wii at the store at Christmas, each week the store got about 5.  That's the Irvine housing market at the moment, except the 5 people willing to pay the most get the Wii.

 

[Irvinecommuter]

IMHO, I think there's currently about a 10-20% price premium being paid due to over-all lack of for sale supply. 

Again from personal experience, the numbers don't make sense.

For most of 2012, inventory dwindled down to 200... and we were looking (I think we even put an offer on one home). 2013 rolls around, inventory is back up to 500s, new homes are everywhere but prices are much higher than 2012.

It goes back to my anti-gravity theory, prices in Irvine don't fall that quickly but rise fast and stay high longer.

I think you need to look at it slightly different.  Are price too high?  Probably but it doesn't matter unless A) people start selling and B) there are defaults.

As to point A:  People are not going to sell because 1) they are still underwater (thus precluded from selling), 2) they have nowhere else to go (unless they want to leave Irvine), and 3) most of the new buyers are buying to stay in the homes and not to flip. 

I will use myself as an example.  My house is way overprice IMO but I can afford it because of the low rates.  Essentially, I am buying about 20% more house (price wise) because of the low rate (as compared to a normal of 6-7%).  I don't care about house prices because I am staying there for the next 20 years.  All I really care about is how much I have to pay every month. 

If the prices go up, great but I can't really sell because I would have to move somewhere else and pay the inflated prices.  If they go down, I wouldn't like it but I'm still living there. 

As for Point B:  The super strict lending standards and FCBs make massive default down the line a lot less likely.

Regarding FCB:  They are real.  The fact that places like SGV, Irvine, Walnut/RH have seen significant increases while other places have not seen has strong of an increase is clearly indication of that.  I mean Riverside and SB are still somewhat struggling.
http://www.ocregister.com/articles/buyers-380751-foreign-homes.html
http://ochousingnews.com/news/with-depleted-mls-inventory-all-cash-buyers-rule-the-market

I disagree with the premise of the last article in that while FCBs may be left holding the bag, most FCBs these days are not buying for profit...they are doing it to send money out of their native country.  They have no need to sell and if things go south in China/India or whereever, they will just move here.  It's insurance, not an investment.

 

[Irvinecommuter]

As for the loan issue, you are missing two serious points: 

1)  A lot of people were buying on made up income and teaser rates (like 1%)

2)  A lot of people got in trouble because of HELOC and second loans.  They started taking equity out of their homes like ATM machines and then realized that they have to pay later.  It's kinda of like people getting their first CC and then realizing that the money is not really free.

As for rates falling in 2007...a lot of people got into trouble before then...most of the bad loans were made in 2004-2006...the bad stuff started happening in 2005-2006.

Also, there was obviously a huge employment issue.  A lot of people lost their jobs and a lot of sales people started losing commission.  People who kept their jobs often saw fewer hours or salary cuts.  Thus, the people who are most affected are already gone from the buying market.  Most of the people who buy now have steady white collar incomes that have survived the worst...thus is less reason to believe why they would suffer a decrease in income going forward.

 

[irvinehomeowner]

As for the loan issue, you are missing two serious points: 

1)  A lot of people were buying on made up income and teaser rates (like 1%)

2)  A lot of people got in trouble because of HELOC and second loans.  They started taking equity out of their homes like ATM machines and then realized that they have to pay later.  It's kinda of like people getting their first CC and then realizing that the money is not really free.

But how much of that was in Irvine?

I know that Larry loved to do HELOC ATM of the week but in the end, I think if you look at the overall numbers, the % of troubled buyers in Irvine even during the bubble is lower than surrounding cities and the percentage of qualified buyers in Irvine.

FCBs are not new to Irvine... they were here back during the bubble, that's why the average down payment in Irvine was higher than 20% (documented on the IHB), cash buyers and large down payment buyers that did not use ARMs or were unaffected.

For your two serious points, there are always counter cases which I believe outnumber yours.

 

[Irvinecommuter]

As for the loan issue, you are missing two serious points: 

1)  A lot of people were buying on made up income and teaser rates (like 1%)

2)  A lot of people got in trouble because of HELOC and second loans.  They started taking equity out of their homes like ATM machines and then realized that they have to pay later.  It's kinda of like people getting their first CC and then realizing that the money is not really free.

But how much of that was in Irvine?

I know that Larry loved to do HELOC ATM of the week but in the end, I think if you look at the overall numbers, the % of troubled buyers in Irvine even during the bubble is lower than surrounding cities and the percentage of qualified buyers in Irvine.

FCBs are not new to Irvine... they were here back during the bubble, that's why the average down payment in Irvine was higher than 20% (documented on the IHB), cash buyers and large down payment buyers that did not use ARMs or were unaffected.

For your two serious points, there are always counter cases which I believe outnumber yours.

A lot was in Irvine.  Don't forget that Irvine and OC was the HQ for mortgage brokers and real estate agents.  Also, a lot people who lived in Irvine started buying investment homes out in Arizona and Las Vegas, all on financing. 

A lot of people took out money out of their homes in Irvine...the Jones got a lot of really nice things in Irvine between 2004-2007. 

I haven't done the search but I would imagine that the percentage of FCB relative to the market was significantly lower during the bubble than now. 

 

[Ready2Downsize]

Realtors were literally banging on my door in February trying to get me to sell. I told every one of them............ find me a single story recently built home in Irvine.

Not one came back.

The last one who came, I said................ what do you guys want me to do? Live in a truck? WHERE am I going to go if I sell my house?

Fast forward......... still want that smaller single level home (or two story with everything I need downstairs and guest rooms upstairs like the Hawthorn plan two), but now the prices and rents have gone up so much that I can rent out my house (nearly paid off) when I find something and have the rent pay for both houses, inflated taxes and all if I can get a mortgage probably around 400K. Granted, I have to put down a lot of money, but even if I wasn't I could swing both with the rental income, just not covering both with only rent.

As for the difference now and at the peak of the bubble. Rent vs. cost to buy was out of whack favoring renters due to the payments being higher. With interest rates low, we don't see that now.

Another albeit smaller percent of high down payments come from people lucky enough to have profited from stock option grants. I bet there are quite a few people sitting on big fat gains who got those grants a few years ago.

 

[Irvinecommuter]

IHO...I am lost as to your overall thesis.  Are you saying it's a bubble just because prices are high? 

 

[irvinehomeowner]

Your memory is faulty.  Most of 2012 had inventory equal to 6 or more months of sales.

Uh... are you sure. In Irvine? If I remember USC's updates, I don't think it ever hit 6 months worth of inventory. Hard to believe that's true with numbers going from 500 to 200. Are you saying that for 2012 demand had stopped in Irvine?

He never mentioned 6 months of inventory for Irvine in this thread:
http://www.talkirvine.com/index.php/topic,844.0.html

Saying 200 is meaningless, it's like saying I save $2000 on the car I bought.  If I'm buying a base Civic that's pretty good, if I'm buying a Bentley, not so much.

In a place like Irvine, not really. I think 200 is a significant number because it showed how constrained the market was back then... which to me is what caused the price jumps in the first place. Then when the people started seeing how much homes were selling for, inventory rose as people put their homes on the market to capitalize on the uptick.

Most importantly, prices are going up, because, like you, buyers are frustrated.  Frankly, it's becoming worth the $200K to get off the treadmill.

100% agreed. But it was a quick switch. Usually prices take more time to ramp up, this was like a 3-month jump.