Will this Fall be brutal?

NEW -> Contingent Buyer Assistance Program
I think this fall and continuing into 2009 is when we'll start to see some pressure, REAL pressure on the higher end communities and homes. The starter homes are already being pummeled, but with REOs coming to market, interest rates, and a probable recession, the banks will price to sell destroying comps in the those neighborhoods. As interest rates rise, it'll only prolong the housing downturn as rates reset higher and higher, forcing more prime borrowers to default.
 
It will be interesting to see how it affects Irvine. I've noticed that a lot of the other communities have a LOT more foreclosures on *newer* properties, where Irvine's foreclosures all seem confined to the very old communities. I think we'll see Aliso, costa mesa, ladera and lake forest all hit rock bottom a good year before Irvine even feels the effect.
 
OK, here's a question (because apparently I have not had my fill of abuse): If you could get a nice house in a good community at 40% off peak pricing today, would you bite?
 
EvaLSeraphim said:
OK, here's a question (because apparently I have not had my fill of abuse): If you could get a nice house in a good community at 40% off peak pricing today, would you bite?
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Not me, I still think you will get better in a few years. No rush for me, with kids or under different circumstances, I would.
 
If it cost the same each month as it would to rent, then I would probably bite.

Of course, knife catchers would probably beat me to it and bid it higher to the point that it wouldn't pencil out, so in that case I would have already moved on.
 
EvaLSeraphim said:
OK, here's a question (because apparently I have not had my fill of abuse): If you could get a nice house in a good community at 40% off peak pricing today, would you bite?
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Nah. If I could buy for 40% off peak pricing today, that would just give me assurance that I will be able to buy for 80% off peak pricing in a few more years.
 
EvaLSeraphim said:
OK, here's a question (because apparently I have not had my fill of abuse): If you could get a nice house in a good community at 40% off peak pricing today, would you bite?
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Thats kind of a loaded question. Peak pricing varied greatly. If I could get a nice detached 1500 place for a little over 400 in Irvine I would bite in a heartbeat. If I could get a really nice 2 bedroom condo in the low to mid 3s, I'd snatch it up too.

And this isn't just wishful thinking. I have the cash and the income. I just feel bad for people who are actually wishing for 80% off todays pricing. Well, thats not true. I don't actually feel bad, but it is sad.
 
25w100k+ said:
biscuitninja said:
It will be horrible, i'm estimating 75-100 per sqft.
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wait, your saying 75-100 per ser sqft by this year???

If so...I'll bet you $100,000 dollars it won't be there.

...
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No... i'm guessing the bottom. For this year I forsee maybe another 7-10%. I'm guessing the bottom to be something like late 2010-2011.

The main think to keep this pain and hurt will be interest rates. They MUST go up to keep our solvency and keep the $$ worth something.

-bix
 
"Hey, no vas, if you want to read religion books, try some from Alan Watts. "

No Vas, if you are looking for myth and religion, try the "Masks of God" series by Joseph Campbell (whom IR quoted today on the blog). Great stuff! Also, Alan Watts is great too: "Myth and Symbols in Christianity" (or something like that) and "Behold the Spirit" are excellent.
 
biscuitninja said:
No... i'm guessing the bottom. For this year I forsee maybe another 7-10%. I'm guessing the bottom to be something like late 2010-2011.

The main think to keep this pain and hurt will be interest rates. They MUST go up to keep our solvency and keep the $$ worth something.

-bix
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Damn. :-(

I thought I was going to double my downpayment fund....

In all honesty though, I don't think prices will ever get that low for newer, nice properties. Even pre-bubble, things were nowhere near that cheap. (unless your talking about 40 year old shacks).

Cheap crappy houses are not always a substitute for a nice newer house. Neither are nice, inconvenient houses. There are some people who will live in a big house in Ladera if its half the price of a place in Irvine. But not everyone.

Think of it this way. How much would Ferrari have to lower its prices if all new Mercedes were slashed 50%? Some, I'm sure. But there are still people out there who arn't looking for a way to maximize their 200k in terms of car, they just want a goddamn Ferrari. *shrug*
 
25w100k+ said:
biscuitninja said:
No... i'm guessing the bottom. For this year I forsee maybe another 7-10%. I'm guessing the bottom to be something like late 2010-2011.

The main think to keep this pain and hurt will be interest rates. They MUST go up to keep our solvency and keep the $$ worth something.

-bix
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Damn. :-(

I thought I was going to double my downpayment fund....

In all honesty though, I don't think prices will ever get that low for newer, nice properties. Even pre-bubble, things were nowhere near that cheap. (unless your talking about 40 year old shacks).

Cheap crappy houses are not always a substitute for a nice newer house. Neither are nice, inconvenient houses. There are some people who will live in a big house in Ladera if its half the price of a place in Irvine. But not everyone.

Think of it this way. How much would Ferrari have to lower its prices if all new Mercedes were slashed 50%? Some, I'm sure. But there are still people out there who arn't looking for a way to maximize their 200k in terms of car, they just want a goddamn Ferrari. *shrug*
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I am not sure you understand why prices are rapidly falling. Demand would still be high if all the bubble factors were still in place. However, speculation and easy financing are no longer there causing the big downswing we are witnessing. There is nothing that can keep all the homes falling a lot lower than they have ever been. You might think a lot of people would start buying homes if they were 25% cheaper tomorrow, but it couldn't happen because people can't qualify for homes. There are way too many homes on the market (and coming to the market) than the potential pool of credible buyers. Interest rate will only make things worst as they will increase foreclosure driving prices even lower.

The bigger the bubble, the more it will burst. Meaning that prices won't just come down where they should be, but much lower. The market is always overreacting and this time won't be any different.

To answer your question, this fall will be brutal and probably worse than what most bears are thinking here. I think you will be able to get the deal of your lifetime in a few years.

To answer another question, it's not because prices are rental equivalent or better that you should buy. You need to factor the home depreciation in your calculations. If you expect prices to fall even further, you should spend more money renting and buy later at a lower price.

One more point, you should read one of IR post about move-up buyer. It shows how people move from dirt cheap condos in Santa Ana to the McMansion on Crystal Cove.
 
25w100k+ said:
biscuitninja said:
It will be horrible, i'm estimating 75-100 per sqft.
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wait, your saying 75-100 per ser sqft by this year???

If so...I'll bet you $100,000 dollars it won't be there.

Masterofdamoney said:
A unit on his street that is about 10 houses down and at the END of the road (ON THE WATER WITH THE FULL OCEAN VIEW) just sold for $985,000... and it's 50 years newer and 3000 sqft in size.

He paid almost $1100 a sq/ft. for his house. The comps put it at around $360 a sq/ft if he's lucky.

Pain is a proper word.
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Uhm, really? 3000 sq ft. newerish house with a full ocean view? I kinda find it hard to believe...
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Me too... not that we could afford $1M home, but that sounds like an awfully good deal.
 
25w100k+ said:
Its interesting to try and guage the psychology of the market. I've noticed a lot of the homes i'm tracking have actually raised their prices lately, i'm assuming in anticipation of the summer 'buying frenzy'.

The thing is, I don't think a summer buying frenzy is coming. Things have picked up again, but it seems only the really rich or the bargain hunters are biting. There are a lot more forclosures in the works too...

So, my wishful thinking is that once summer comes and goes, all those people that were wishing and dreaming for higher prices are going to have to face 'reality' and just sell at market value. Not to mention the banks, (who seem more inclined to dump properties).

Or does everyone else continue to see a really gradual (stretch that word out for emphasis) declines over the next 4 years?
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A buying frenzy may come, but I doubt it.

Pricing by next rents with a 120 x monthly multiplier and the price must drop like a rock.

Prince by medium household income $85,000 * 0.30 / 12 for housing payment give $450k to 500k. plus $150k down payment 600 to $650k for the medium house.

The question comes up as to the average rents. I hear that it was increasing at the start of the year, but has gone down the last two months. I've seen one Turtle Rock house/condo go from $3400 asking to $3000 asking for 2000 sf with no takers. When you factor in the HOA est. 250 that's included in the rent 2500 x 120. A higher multiplier than is justified if housing prices are dramatically increasing to off set a negative cash flow.

Or am I missing something.

Newbie
 
Roo said:
I am not sure you understand why prices are rapidly falling. Demand would still be high if all the bubble factors were still in place. However, speculation and easy financing are no longer there causing the big downswing we are witnessing. There is nothing that can keep all the homes falling a lot lower than they have ever been. You might think a lot of people would start buying homes if they were 25% cheaper tomorrow, but it couldn't happen because people can't qualify for homes. There are way too many homes on the market (and coming to the market) than the potential pool of credible buyers. Interest rate will only make things worst as they will increase foreclosure driving prices even lower.

The bigger the bubble, the more it will burst. Meaning that prices won't just come down where they should be, but much lower. The market is always overreacting and this time won't be any different.
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I understand what you are saying, but theres a big disparity with whats happening in the subprime market and the higher end Irvine. Believe me, I have no incentive to be a bull. I have a fat downpayment fund, a nice job, and no property to my name.

I've been watching the foreclosures and preforclusres in Irvine. They just arn't happening in the high end. The condos are getting killed, and the shacks in quail hill and turtle ridge are going to eat it hard. But the high end premium homes are going to slide down, not crash.

Look at the houses closing on IPO's site alone! The majority of people buying those houses are not going to be affected by tigther lending standards or a few increases on their ARM.

I'm hoping and praying that after the summer, we'll see widespread 'panic' and a lot more bargains. But 'panic' for me, means NP, quail hill, and turtle rock finally hitting 300 a sq.ft and older homes maybe around 280. So yes, thats probably about 40% off peak.

But 80% off? 100 dollars a sqft? That'd be nice. So would winning the lottery...

newbie2008 said:
A buying frenzy may come, but I doubt it.

Pricing by next rents with a 120 x monthly multiplier and the price must drop like a rock.

Prince by medium household income $85,000 * 0.30 / 12 for housing payment give $450k to 500k. plus $150k down payment 600 to $650k for the medium house.

The question comes up as to the average rents. I hear that it was increasing at the start of the year, but has gone down the last two months. I've seen one Turtle Rock house/condo go from $3400 asking to $3000 asking for 2000 sf with no takers. When you factor in the HOA est. 250 that's included in the rent 2500 x 120. A higher multiplier than is justified if housing prices are dramatically increasing to off set a negative cash flow.

Or am I missing something.

Newbie
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Yeah, I think you are missing something. (no offense). The 120 multiplier has never been valid in Irvine. Irvine rents have always held up well. And the median household income is around 100,000 not 85,000.
 
by median HI: $85k * 3 = $255 + 20% down ($50k), so $300k, not $600-$650. but the median HI buyer will be buying the 33% house, so the median house may go for ~$400k when it all balances out.
 
25w100k+ said:
Yeah, I think you are missing something. (no offense). The 120 multiplier has never been valid in Irvine. Irvine rents have always held up well. And the median household income is around 100,000 not 85,000.
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Ahem, I suggest you check your 1994-1998 history.
 
25w100k+ said:
I understand what you are saying, but theres a big disparity with whats happening in the subprime market and the higher end Irvine. Believe me, I have no incentive to be a bull. I have a fat downpayment fund, a nice job, and no property to my name.

I've been watching the foreclosures and preforclusres in Irvine. They just arn't happening in the high end. The condos are getting killed, and the shacks in quail hill and turtle ridge are going to eat it hard. But the high end premium homes are going to slide down, not crash.

Look at the houses closing on IPO's site alone! The majority of people buying those houses are not going to be affected by tigther lending standards or a few increases on their ARM.

I'm hoping and praying that after the summer, we'll see widespread 'panic' and a lot more bargains. But 'panic' for me, means NP, quail hill, and turtle rock finally hitting 300 a sq.ft and older homes maybe around 280. So yes, thats probably about 40% off peak.

But 80% off? 100 dollars a sqft? That'd be nice. So would winning the lottery...
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Take a step back and look at what is happening. Everything below $400k is getting hit hard, real hard. This is the first step. Next will be the $400k-$600k, then it will be the next level, etc. I don't have any statistic on this, but I am sure that most homes purchased for $600k+ are not first time home-buyers, but move-up buyers. I don't think there's a lot of move-up buyers who can actually move from their condos or smaller homes into the "decent" home they would normally be supposed to. If people can't move up to buy these homes, well these people can't buy the "nicer" homes anymore. On and on and on.

I don't think 80% off is possible, but I would not be surprised if you can find 50% off.

Also keep in mind that banks don't earn money on bank-owned properties. Therefore, keeping a home 1 year is equivalent to a 5%-6% loss even if prices break-even. Therefore, they have to lower prices and sell homes, which is very different than "normal" home-owners.

Side note: There's a nice "Check Spelling" feature when you post.
 
Hummm 85k that would me a home between 170 to 250. A typical home would be 110ish? Sound good?

Its just a guess, and i'd be the first to admit I was wrong. Good luck

-bix
 
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