What the bubble?!?

[irvinehomeowner]

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

What I'm saying is prices jumped for not so apparent reasons... more likely, unfundamental ones.

Whether that defines a bubble or not, I am unsure. Economic conditions don't totally support such high prices even with low interest rates because that's not the whole picture.

Surrounding cities are still in the pits... yet Irvine has seen big jumps in pricing (at least in the segment I am looking at).

My main premise, is prices seem to be higher than the last bubble, and if that is not a "mini-bubble" (as the poll has shown the majority pick), then what is it?

 

[Irvinecommuter]

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

What I'm saying is prices jumped for not so apparent reasons... more likely, unfundamental ones.

Whether that defines a bubble or not, I am unsure. Economic conditions don't totally support such high prices even with low interest rates because that's not the whole picture.

Surrounding cities are still in the pits... yet Irvine has seen big jumps in pricing (at least in the segment I am looking at).

My main premise, is prices seem to be higher than the last bubble, and if that is not a "mini-bubble" (as the poll has shown the majority pick), then what is it?

The fact that Irvine has jumped while other cities have not clearly indicate a difference between Irvine and the other cities.  There is preference to be in Irvine especially with young professionals and foreign FCBs.  Prices jump because there is low supply in resale and FCB coming to buy those.  Those if you want to buy a house on financing, you have to get new houses.  It's supply and demand.  It's as fundamental as that.

I can tell you that the low rates really make a difference...the uptick in rate in May/June pushed a lot of buyers out of the market. 

 

[irvinehomeowner]

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, but not the majority. I think you fell for the Larry fallacy. I challenged him on this, just because Irvine and the OC is where the brokers were from, doesn't mean all the buyers in Irvine used toxic loans. How does buying out in AZ and LV affect Irvine real estate?

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. 

Again... a lot, but not the majority.

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. 

Having seen a snapshot of the buyers back then, it is not significantly lower. In fact, I would bet that most of the buyers in 2005-2008 were FCB related. Why do you think we have all these cultural restaurants and stores now? It didn't happen overnight... it's been happening since the 90s.

 

[Irvinecommuter]

You don't need a majority of people, you need a significant portion.  Irvine was never as hard hit by the foreclosure wave as most other places but it had have an effect.  Also, it completely gutted the buyers market for 2-3 years as banks refused to lend and people didn't want to buy (catching the proverbial knife).

I'm not talking about the brokers relating to toxic loans.  I'm talking about them using their house as ATMs so that they can fund their pipe dreams of being real estate moguls.  A lot of people in wealth places took out seconds to buy properties in the IE/Arizona/Las Vegas thinking that rent and property value will remain high there...when those markets tanked, people were left with no renters and having to pay multiple mortgages.

Also, the mortgage people were living on super high incomes based upon commissions (see also real estate agents).  When the lending and buying stopped, so did their incomes.

 

[irvinehomeowner]

@Irvinecommuter:

I think you are mixing some things here but I don't think either of us can say anything more to convince the other.

I don't know where you are in terms of being a buyer/seller/landord. But I've been cycling through all those things since 2005 to now, so my observations are what they are.

1. Do you agree that prices are close to or maybe higher than they were during the bubble?
2. Did you think they would be at this point 3, 5, 8 years ago?

 

[Irvinecommuter]

@Irvinecommuter:

I think you are mixing some things here but I don't think either of us can say anything more to convince the other.

I don't know where you are in terms of being a buyer/seller/landord. But I've been cycling through all those things since 2005 to now, so my observations are what they are.

1. Do you agree that prices are close to or maybe higher than they were during the bubble?
2. Did you think they would be at this point 3, 5, 8 years ago?

Yes and no.  But the point is that those observations are largely irrelevant.  The issue during the bubble wasn't just prices...it was a lot of the underlying issues...terrible lending standards, people borrowing beyond their means, short term thinking, pipe dreams of being real estate moguls, and use of HELOC like ATMs.  You don't have any of those these days. 

Instead, you have owners who are either FCBs or those carrying loans with very low interest rates.  The only real similarity between now and the bubble days are that prices are high.

I will use tech stocks for example.  There was definitely a tech bubble in the early 2000s and that result in a lot of bad things.  However, companies like Google, Apple, and Amazon have insanely high stock prices...yet fundamentally they are very different than the tech companies around in 2000s. 

One more thing:  In a normal market, very few people have to sell their homes.  Thus, if price stay flat, there is little or no incentives to sell...thus keeping supplies low.  Unless outside forces like a rescission/depression or loan defaults affect a market, a market like Irvine can sustain a price point because people want to live there.

 

[nosuchreality]

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

What I'm saying is prices jumped for not so apparent reasons... more likely, unfundamental ones.

Whether that defines a bubble or not, I am unsure. Economic conditions don't totally support such high prices even with low interest rates because that's not the whole picture.

Surrounding cities are still in the pits... yet Irvine has seen big jumps in pricing (at least in the segment I am looking at).

My main premise, is prices seem to be higher than the last bubble, and if that is not a "mini-bubble" (as the poll has shown the majority pick), then what is it?

I don't think anyone was saying prices would go down 30-40% and stay there.  30-40% was were the bottom was going to be, and, it was.  It is pretty stunning to see how fast we've come off the bottom. Although in retrospect, I'm surprised the bottom was as far down as it was given the amount of intervention that was done to keep the weak hands from folding.

There hasn't been a lot of new housing construction since 2010. In 2010, Irvine had a population of 212K and 84,000 housing units, of which about 4500 were sitting vacant.  Today, Irvine has a population around 240K, and a need for about 92,000 housing units.

In the last twelve months, 3330 housing units have been sold.  That's all.  In the last two years, 6000 housing units have changed hands.

Granted only half of the housing units are owner occupied.  But I think you'll get the gist of the problem.

 

[irvinehomeowner]

@nsr:

That brings up another interesting point. If only half are owner occupied, are we seeing a investor/cash-flow opportunist bubble?

On average, for Irvine, was the bottom really 30-40% off? Westpark II homes were selling for $900-$1m+ during the bubble, I didn't see many go below $800k. Same thing for QH Tapestry homes, many were $1m+, none have sold below $900k.

 

[nosuchreality]

@nsr:

That brings up another interesting point. If only half are owner occupied, are we seeing a investor/cash-flow opportunist bubble?

On average, for Irvine, was the bottom really 30-40% off? Westpark II homes were selling for $900-$1m+ during the bubble, I didn't see many go below $800k. Same thing for QH Tapestry homes, many were $1m+, none have sold below $900k.

I had look at it once I know if seen plenty same home sakes in Newport, Laguna, corona del mar etx that were.  Don't remember irvine a exact stats.  The other big issue is at peak was the ever increasing gap between asking and getting price.

As for owner occupancy. Those numbers are from the census and thus housing unit counts everything.  Much like the 4100 for orchard hills includes te apartment complex  Again primary issue is  no housing stock growth while absorbing a 15% pop growth

Irvine was much more resiliant than many expected.

 

[irvinehomeowner]

I haven't been to OC Housing News in a while and I commented about a possible re-bubble in Irvine on an some overvalued cities article, and it turns out that Larry posted an article about Irvine recently:
http://ochousingnews.com/news/housing-bubble-fully-reflated-in-irvine-california

Housing bulls like to claim the rise in house prices is supported by fundamentals, and rents are moving higher in Irvine. However, 3% increases in rent does not support a 22% increase in house prices. This basic math eludes bulls looking for a reason to believe what they want to believe.

Interesting.

 

[quattroporte]

http://www.doctorhousingbubble.com/...ome-sales-tax-credit-existing-home-sales-drop

?(Bloomberg) The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.?

"Existing home sales are down 5 percent M-o-M and down 2.6 percent Y-o-Y.  The median price dipped 2.8 percent from last month.."

 

[nosuchreality]

My price premium comment is unrelated to historical prices and just related to current price sellers are able to command today due to lack of overall inventory.  If you look today, I see ~550 active listings, Irvine last month sold ~350 homes.  So inventory is around 1.5 months.

I think that translates to about 10-20% price premium since the low inventory level has been present for an extended time, if inventory increasing to 3 months to 6 months range, I think you'll find a corresponding softening in the ability of sellers to get their price and a pull-back in the 10-20% range.  My source of info for the number is a deft extraction from my backside.

That's all nominal November 2013 dollars and has nothing to do with over-all bubble nature or fundamental pricing model.  That's the used Pinto is worth $10,000 because the used Pinto is the only thing for sale premium.

 

[OpenSky]

>

 

[nosuchreality]

If you look today, I see ~550 active listings, Irvine last month sold ~350 homes.  So inventory is around 1.5 months.

What portion of the sold homes are new / not on the MLS? I thought the number was around 10%...

New is included in the sales figures from DQnews.  It doesn't materially change the months of inventory.

 

[OpenSky]

8)

 

[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.

There has been 19.8% inflation from 2005 to 2013.
http://www.bls.gov/data/inflation_calculator.htm

Are your numbers real or nominal?

See my previous math post, I included inflation and a 30% drop (which didn't really happen in the category of homes I was shopping... not even 20%).

 

[paperboyNC]

irvinehomeowner,

You seem very upset that prices never fell on the homes that you rated extremely desirable. I'm guessing the prices (even in Irvine) fell a lot more on undesirable homes than they did on extremely desirable homes.

If you had been looking at attached condos you might have found some with a 30-40% price drop.

 

[irvinehomeowner]

irvinehomeowner,

You seem very upset that prices never fell on the homes that you rated extremely desirable. I'm guessing the prices (even in Irvine) fell a lot more on undesirable homes than they did on extremely desirable homes.

If you had been looking at attached condos you might have found some with a 30-40% price drop.

Agreed.

But... back when the bears were so bearish... I specifically pointed out SFRs and they said "NO PRODUCT IN IRVINE WILL BE IMMUNE".

I even did the math asking them how a $700k SFRs could drop to even $400k (that was the 1999 real prices they were claiming)... yet they still said it would happen.

 

[nosuchreality]

irvinehomeowner,

You seem very upset that prices never fell on the homes that you rated extremely desirable. I'm guessing the prices (even in Irvine) fell a lot more on undesirable homes than they did on extremely desirable homes.

If you had been looking at attached condos you might have found some with a 30-40% price drop.

http://ochousingnews.com/news/housing-bubble-fully-reflated-in-irvine-california

That's IHO's link to OC news, see that post peak trough.  Eyeball it, it's roughly 7-8%, 12-13%, 9-10% year over year for three years.  roughly 25%-28% compounded.  That's on median, nominal dollars.  The problem is that spike out of the trough basically erasing the loses

If you look at the second graph, you see that there's been a substantial shift in overall price point of what is selling.


Here's the Case Shiller chart.  IHO's problem is he's looking at the Irvine SFR, which isn't all homes in Irvine, just actual, true SFR's.

  they dropped 20% nominal.

 

[nosuchreality]

I'll offer two for pondering.  They're hard to find, but only because repeated turnover is low.

I higher end that you couldn't buy at the bottom, 5 Rising Sun  They held out, sold it for a 10% loss this spring.

and a middle tier SFR 32 Rising Sun 25% off its June 2006 sale as of it's March Sale this year.

And one more, 35% as late as fall 2012.  77 Fanlight  Not bad for a once $1.6M Stucco box.