when does a neighborhood fundamentally change?

E

edhne

New member
So many people on this board (myself included) have looked at Irvine and said, prices are/were too high. It should be worth xxx for a condo and xxx for a SFR.
My question is why is it worth xxx? Rental parity?

How many high end neighborhoods in America are at rental parity or ever were at rental parity? Was/is Palo Alto in northern California ever at rental parity? Was/is La Jolla at rental parity? Was/is Lake Forest (IL) at rental parity? Was/is Greenwich (CT) at rental parity? Was/is Beverly Hill ever at rental parity?

I guess this question has two components to it.

One, i actually don't know the answer whether the most desirable locations in America were over any meaningful period of time at rental parity. Two, when does Irvine or the most desirable villages of Irvine (since it is such a geographically big city) become like those other "elite" cities.

Does that perception change of becoming an "elite" city have to happen over 3, 5, 10 or 20 years to be valid?

And can people who have lived in Irvine for longer periods of time (10+ years) really perceive this change or will they always think of Irvine as the Irvine of 10 years ago and think, wow, prices are out of whack here because their prices are relative.

 
Being in Irvine for over 20 years... I do think prices are out of whack... but that happened everywhere... the only problem is prices have dropped back down for other areas.

Let's take another south county city, like Mission Viejo... a 5/3/3c sold for around $290k in 1995 (as did Irvine)... they skyrocketed like Irvine in the early 2000s (probably up as high as mid $800k) and now are at around $660k and could probably go down more to $600k high $500ks. But that is still over double compared to 15 years ago... so relatively high. Bring Irvine back into the picture and that same home that started at the same price probably hit almost $1 mil and is still trading at the $800-$900k level today... why is Irvine different?

Other than those marketing buzzwords like "safe", "schools" etc... I really do think it has much to do with location. Situated right in the middle of the 55/405/5 makes it a perfect nest area for anyone working in any part of OC. Like my family -- I work a bit north, she works a bit south... so the location is perfect. And because they are still building new products in Irvine... it keeps demand high.

As for rental parity... not sure if I can answer that question. With low interest rates, there are quite a few homes at rental parity now in Irvine... that's partly what fueled the bubble in early 2000s because the low teaser rates of ARM loans made purchases... even at super high prices... on par with rentals. And unlike other cities in Orange County... Irvine has a large rental pool due to UCI and employment centers like the Spectrum and the Irvine Business Complex. Having John Wayne nearby also makes Irvine an ideal air commuter residence for those in a sector where flying is a large part of their job (like George Clooney in "Up In the Air"). Weather, shopping, cultural dining, near beaches, not far from LA or San Diego and a host of other things make it ideal for even non-family people who are looking for a nice place to rent without having to deal with the grit of LA.

Fundamentally... much of Irvine hasn't really changed. I still marvel at the amount of trees and grass compared to other cities... but it's the other things... mainly perceptual that more people are aware of that makes Irvine more desirable. It's not to say it's better than other areas... but much of it is newer and better located than other cities... and that counts for more than we think.
 
So i took your parameters and found two random homes on redfin.
http://www.redfin.com/CA/Mission-Viejo/27475-Almendra-92691/home/5086904http://www.redfin.com/CA/Irvine/43-Emerald-92614/home/4697410

in 1999, the woodbridge home was 33% more expensive.

I honestly didn't cherry pick and I'm sure there will be examples that match your observations as well.

More importantly, even if they started out exactly the same, i think you are correct that if perception changes and the irvine brand is stronger, then it will be higher even if these two are functionally the same.

Mountain view, right next to Palo Alto in Silicon Valley will not command the same prices as PA even though they have the same employment bases and freeway access. If you go back far enough, there may be a point where the prices were closer together, but they clearly are not now. and I think anyone holding their breadth that PA will "come back in line" with MV will true blue in the face.

Not saying that IR and Mission viejo are the same thing. But when do we know if that is what happened and it will never go back? If it stays that way for 5, 10, 20 years then does the abnormal become the norm?
 
You should find homes that were built at the same time, preferable the low point of the last bubble (ie 1995/96) and it ends up a better comparison.

The reason I chose Mission Viejo as a comparison city is because it has old and new homes, a lakeside community and a brand new build out area (Ladera) to give you a parallel with Irvine. I'm not familiar with Mountain View and Palo Alto so I don't know how they compare geographically, home mix and community. Along with location... those make a difference too because Santa Ana is just as central as Irvine (and what can argue for Costa Mesa, Tustin, Fountain Valley) yet they differ widely in execution, neighborhoods, design etc.
 
edhne said:
So many people on this board (myself included) have looked at Irvine and said, prices are/were too high. It should be worth xxx for a condo and xxx for a SFR.
My question is why is it worth xxx? Rental parity?

How many high end neighborhoods in America are at rental parity or ever were at rental parity? Was/is Palo Alto in northern California ever at rental parity? Was/is La Jolla at rental parity? Was/is Lake Forest (IL) at rental parity? Was/is Greenwich (CT) at rental parity? Was/is Beverly Hill ever at rental parity?

I guess this question has two components to it.

One, i actually don't know the answer whether the most desirable locations in America were over any meaningful period of time at rental parity. Two, when does Irvine or the most desirable villages of Irvine (since it is such a geographically big city) become like those other "elite" cities.

Does that perception change of becoming an "elite" city have to happen over 3, 5, 10 or 20 years to be valid?

And can people who have lived in Irvine for longer periods of time (10+ years) really perceive this change or will they always think of Irvine as the Irvine of 10 years ago and think, wow, prices are out of whack here because their prices are relative.
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Interesting thoughts! I had this whole response typed out earlier today, and my computer ate it. Wah. I will try to duplicate it, except it is later now and I am tired so it probably won't make as much sense as the original. Oh well.

Regarding rental parity, I never really found it to be applicable to anything except whether it was more economically advantageous to rent or to own. Other than that, I don't think it has any practical purpose as far as determining what cities are elite. I also don't think you can ever really determine what a house in a particular city "should" be worth. It's all about what a willing buyer will pay to a willing seller.

All the cities you mentioned have a certain address value...that is, they are prestigious in their own right, and for whatever reason, people will pay to have that Beverly Hills or La Jolla or Newport Beach address. It's just worth more, to those who value that kind of thing. Does Irvine have that address prestige? I don't think so. I've heard that in the Asian community, Irvine is prestigious, but I don't think it's on the level of Beverly Hills, for example.

I think that most cities will tend to get worse over time, unless there is some special feature keeping them expensive and desirable. For Irvine, I think it is the reputation for safety, and more importantly, the reputation of the schools. We've had lots of discussions on the various forums about the importance (or lack thereof) of Irvine schools, but what it boils down to is this: people are willing to pay more for Irvine schools. When people say, "Oh, it doesn't matter, my child will do well in any school," that's fine and dandy and there is some element of truth to it; but it's not only about your kids. It's about the kids of the person who eventually buys your home. Mission Viejo and Mountain View are fine cities, but they don't have anything special to make them more desirable than any other local city. School prestige has always had the power to boost home prices beyond neighboring cities. Arcadia, for example, is more expensive than its next-door-neighbor Monrovia because it has the reputation for great schools.

 
Trace, I agree schools are very important and I think all the cities I mentioned had exactly that in common though I am not 100% sure about schools in Greenwich and La Jolla.
In fact, in northern cali, homes literally across the street from each other are worth 200k to 300k more because that street is the cut off between Piedmont school district (very strong) and Oakland (medium).

But IR has always (at least in recent history) had strong schools and safety. So this is back to IHO's point about "whats changed?" and the thesis I wanted to discuss on was whether the changes are more subtle and hard for those of living here or always watching it to perceive but that brand of Irvine has fundamentally changed to buyers.

Having moved here from Northern Cali about 1.8 months ago, I certainly would not have considered living in mission viejo, not because it isn't a great neighborhood, but simply because I wasn't even aware of the brand. Cities definitely have brands.

When does the brand of Jimmy Choo go from "same as xxx brand" to upper echelon of shoe brands allowing it to command higher premiums....And can it sustain itself to become a stable brand? (Mind you, I am being arbitrary since I don't know anything about shoe brands.) Is it the same with cities? Or when does a city go from "hot" like Coto (that season's hot shoe) to always upper echelon ala Beverly Hills?
 
Although graphrix from the IHB will never agree with me... the biggest change I noticed in the last 20 years is the ethnic demographic. 2 99 Ranch's, 1 HMart, 1 Zion Market and the smattering of Eastern/Asian businesses should be enough indicator for anyone.

My theory has multiple layers that point to Irvine's price stubbornness since the basis of it is high cash down payments and ethnic attitudes towards foreclosure. While I'm sure there is ARM, NinjaLoan, HELOC abuse in every demographic... I tend to think it happens less to FCBs because:

1.  A high down payment (or even 100% cash) makes the loan underwater proof. So no matter what is happening to interest rates, credit, stocks... their house "value" does not change.
2. More prudent (or arguably less prudent) home owners will walk away if underwater... even if they can make the payments... because of the importance of owning a home is so ingrained in many cultures... they will be less willing to do so (this of course is not proven but based on anecdotal evidence and many of BK's observations... hehe).
3. Let's face it... Irvine is as much as brand as LV, Mercedes etc... those who embrace it will do whatever they need to do to keep their residence in Irvine even if it means getting another job, getting a renter or whatever. The perception is that Irvine will be worth it later makes people stay even when the sky is falling. Even more so... when the sky if falling... flight to quality kicks in and people go to the more resistant areas... like Irvine.

Now whether you believe my hypothesis or not... what does matter is data (as graphrix always says). Lately, IrvineRenter on the IHB has been pointing to the rise in inventory in Irvine as an indicator of the kind of trouble Irvine is in. But data without context doesn't mean very much. While you can compare Irvine's own numbers to itself historically... shouldn't you look at other cities as a comparison too? Let's go back to Mission Viejo... it has roughly half the population of Irvine (100k to 200k+)... Irvine's inventory count is about 850 give or take. Guess what Mission Viejo's is? 627.

When I do 3CWG searches, I can find more than double the amount in MV than Irvine and at hundreds of thousands less for bigger lots with views. When I go to open houses in MV, I don't see carloads of FCBs touring the homes. Maybe if they put a 99 Ranch and a center like Diamond Jamboree where Kaleidoscope is they'll get Irvine-like prices.

Now don't get me wrong, I like numbers... but I think this particular number can cut both ways because it needs more defining detail to be significant. For example... another premium area like Newport Beach has about 80k+ residents... but their inventory count is 948... does anyone think they are in more or less distress than Irvine? Santa Ana, which is one of the densest populated cities (350k+) has only 834 homes for sale... so you would think that such a low amount of inventory compared to population would have a uptick effect on pricing right? Yeah... maybe only where BK lives.

Here's another number... 700. That's the estimated number of homes in the 2010 Collection that were added to the Irvine market. And most of them are gone... in less than a year. And I bet you the percentage of ethnic buyers was 75% or more. What other city can do that? I posted a link to an article in the OC Register in this thread:
http://www.talkirvine.com/index.php?topic=1187.0

Irvine has outpaced new home building than any other city in Orange County. And I think FCBs played a big role in that.

Too bad graph doesn't like to come to the sandbox anymore.
 
There are some really good observations here. The significant proportion of cash buyers seems to be true. When I was inquiring earlier this year with a builder's bank rep about prequalifying, I was immediately asked if I was planning to pay cash! Maybe because I was Asian?

It's really hard to deny the incredible sales pace the 2010 NHC has had. I do ask however...would Irvine sales still be so rosy without the NHC? The reason why I ask this is because some 700 new homes sold this year and yet resale inventory has bloomed to over 800 since January. That just leads me to strongly believe that Irvine home sales will continue to be strongly driven by new homes for the next several years, and we'll see the resale inventory continue to rise if economic conditions persist or worsen.

I do agree that if negative housing or economic factors result in widespread home price declines, Irvine would likely get less of the brunt, at least initially. But once potential cash buyers start to see a decline, they'll likely hold back from buying, and then what was an important factor in keeping Irvine RE running may be reduced significantly.
 
irvinehomeowner said:
3. Let's face it... Irvine is as much as brand as LV, Mercedes etc... those who embrace it will do whatever they need to do to keep their residence in Irvine even if it means getting another job, getting a renter or whatever. The perception is that Irvine will be worth it later makes people stay even when the sky is falling. Even more so... when the sky if falling... flight to quality kicks in and people go to the more resistant areas... like Irvine.
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I think it is really interesting that you classify Irvine as a "brand." Edhne was alluding to this as well. I don't really consider Irvine to be a brand, but maybe I'm wrong about that. Maybe it's because I ended up living in Irvine kind of randomly and liked it enough to stay. But I would never consider my Irvine address to be prestigious, or a status symbol, or anything like that (but I'm not big on status symbols to begin with). I've always considered Irvine to be a regular, kind of upscale city, but not bragworthy if you live here. It's kind of the opposite, actually, since lots of people think Irvine is the quintessential bland, boring suburban town. Let's just say I have much less street cred now that I live in Irvine and not San Francisco anymore! But I digress...

If the city of Irvine is in fact a "brand," is it only that way for certain segments of the population, like Asians, or across the board? I know some Asians want to live in Irvine simply because it is Irvine. But what about for white people, for example? Do you guys think that the average white person would consider Irvine to be a prestigious brand? I'm thinking no, but I'm just speaking for myself, and I don't consider myself a good indicator of what the average white person would think. Any thoughts?
 
As someone that moved from the East Coast...none of my friends know/care about Irvine, but when I say Newport/Laguna Beach they are impressed.
 
A brand can have many connotations... to graph and all the Irvine-bashers... their brand definition is like you said... stucco/boring/bland. To Asians (and Middle Easterners), Irvine could be like Beverly Hills or Pasadena of the OC.

That goes along with edhne's question of what fundamentally changed for Irvine... it went from just another city to something that has meaning (be it good or bad) to everyone. When I was younger... I didn't know where Irvine was (nor did my parents)... other than it was where Lion Country Safari was. Later... it became the place where Wild Rivers was. Never thought I was would end up living here. And my choice to live there had really nothing to do with schools (no kids at the time) or safety (I grew up in the 'hood so it didn't bother me), it just seemed like a nice central location with lots of trees and basketball courts. I made some "deep meaningful relationships" (roundcorners phrase) here, opened some businesses here and finally ended up raising my family here... so I was here prior to the "branding" and while I do understand it... I also understand why people love or hate it.

As for the different views based on race... there will always be that. I'm sure that "white" people may think there are too many asians/middle easterners in Irvine... but it's almost become its own micro-county where there are different areas for different cultures. I'm sure Woodbridge has a different demographic than Woodbury... and Turtle Rock is probably a bit different from Turtle Ridge. But like I've said before... location has no color lines so while a "white" person may not think of Irvine as a brand or status symbol... they probably enjoy the convenience of where it's at and what it offers... and that is what the Irvine "brand" means to them (which is probably closer to how I think).

And I do think UCI does a lot more for the Irvine branding than people want to admit. Where is the next closest real university? We don't have very many Ivy League schools in SoCal... so UCI becomes the next best thing.
 
Interesting discussion.  My parents moved to Irvine when my father attended UCI.  Back then there weren't a lot of options for a Loco family to move other than Laguna, but that even then, was out of their price range.  Newport Beach, Villa Park, La Habra Heights, Fullerton, Anaheim Hills and even Buena Park were out of the question for them since those once were considered the most prestigious areas in the county.

Irvine was never anything special when I was growing up, but the schools were always ranked high probably because it was so close to a university and a lot of students were children of professors, researchers and graduate students.
 
irvinehomeowner said:
And I do think UCI does a lot more for the Irvine branding than people want to admit. Where is the next closest real university? We don't have very many Ivy League schools in SoCal... so UCI becomes the next best thing.
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I never thought of UCI really contributing to Irvine branding.  My wife went to UCI and she liked the city enough to have us end up in Irvine after we got married.  But, when I think of UCI, I don't thing prestige.  I am sorry to all the UCI graduates (and my wife, if she ever ends up reading this post), but UCI is just a "good" school.  IMHO, it does not have the prestige to lift up the city of Irvine with a size of over 200,000 people.
 
I had a long talk with an asian lady who relocated here from Japan about five years ago. She said that her husband's company really pushed Irvine for the schools and safety and lifestyle. She knows many asians at a few of the schools that my kids attend and they were told the same thing. It definitely has a brand in their experience.

 
LAtoOC said:
As someone that moved from the East Coast...none of my friends know/care about Irvine, but when I say Newport/Laguna Beach they are impressed.
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Agreed.  In OC you have the "real" OC and you have everything else.  Irvine is part of everything else.
 
Ouch.  Just because Irvine doesn't have a TV show about the city.  I think we prefer it that way though.  ;)
 
sonoma said:
Ouch.  Just because Irvine doesn't have a TV show about the city.  I think we prefer it that way though.  ;)
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Luckily the new Housewife is from Irvine so now everyone will want to move here.
 
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