5% interest rate

[IndieDev]

. if price on my product is weakening due to the economy or competitors and lowering my profit, I either add new features to the product or restrict supply... that's pretty fundamental to me.

Didn't you say you didn't like economics? 

But seriously, you kind of have a grasp on it with your last sentence. You're wrong when you say it's fundamental to stop selling the product, but sort of right when you say you change something about the product to make it more attractive to buy.

The whole "Constricting supply" argument is something only the best monopolist have been able to do in this world, and not fantasy land. (De Beers). At best, TIC can expect some sort of collusion with other developers and the resale market, but the chance of that happening is also in the realm of fantasy land. Regardless, there are plenty of real world articles on rent seeking behavior, and the firms who were successful with it, and those who were not. TIC doesn't fit the model for a firm that can accomplish what you're proposing. Like I said, fundamentals.

 

[irvinehomeowner]

Irvine is the Unicorn of OC cities... fantasy land is the reality.

BTW: I'm not as attached to home values as bones... I would prefer them to go down... get me a QH Tapestry home at 2004 prices ($700k) and I'll be good.

 

[iacrenter]

. if price on my product is weakening due to the economy or competitors and lowering my profit, I either add new features to the product or restrict supply... that's pretty fundamental to me.

The whole "Constricting supply" argument is something only the best monopolist have been able to do in this world, and not fantasy land. (De Beers). At best, TIC can expect some sort of collusion with other developers and the resale market, but the chance of that happening is also in the realm of fantasy land. Like I said, fundamentals.

TIC has a lot more flexibility to control supply given their strong balance sheet, private corporate structure, and actually owning the land. When other developers were too afraid or unable to get financing for new projects, TIC forged ahead on their own dime and executed the 2010 Collection. By most measures, they were highly successful.

Now looking forward to 2011--they will build to meet demand. If the buyers are not there, they will simply create smaller phase releases and/or delay future releases. I highly doubt you will see a repeat of what Lennar did to close out Columbus Grove in Tustin Legacy--large price cuts. They may offer more buyer coop fees, design center credits, and/or special financing if things look bad.

I am more interested in overall supply in Irvine for 2011. Will we finally see more shadow inventory hit the market? Even if the economy improves, there are probably many sellers on the sideline who will unload their homes in the coming years, keeping prices flat to anemic growth at best.

 

[irvinehomeowner]

I guess I should respond better:

But seriously, you kind of have a grasp on it with your last sentence. You're wrong when you say it's fundamental to stop selling the product, but sort of right when you say you change something about the product to make it more attractive to buy.

Reducing supply to retain value isn't fundamental? I guess I really don't understand economics.

The whole "Constricting supply" argument is something only the best monopolist have been able to do in this world, and not fantasy land. (De Beers). At best, TIC can expect some sort of collusion with other developers and the resale market, but the chance of that happening is also in the realm of fantasy land. Regardless, there are plenty of real world articles on rent seeking behavior, and the firms who were successful with it, and those who were not. TIC doesn't fit the model for a firm that can accomplish what you're proposing. Like I said, fundamentals.

In Stonegate, Laguna Altura or Cypress Village... you can only buy a NEW home from TIC. Each of those areas have premiums that the only other new Village (Portola Springs) in Irvine does not have: local elementary school, local middle school, local 3rd place or gated community. And even then, TIC has some say in what the PS builders can do. That's probably as close as you can get to a monopolistic builder and since Irvine is one of the few cities that has new homes and is central... you also have a captured crowd... thus the model fits... at least to me.

And to touch on collusion with other developers or the resale market... I don't think there has to be... it's only natural that other builders want to make a profit and that sellers of resale want to maximize their sale... if TIC is selling 87 SFRs for $900k, you're not going to get 87 close-by newer resale homes selling for $700k. TIC's benchmarks has significant pull over the resale market... and that's done by seller/buyer psychology... not collusion.

But... that's not to say that other developers are not a concern... which is why I do think TIC has fast tracked these projects to stay ahead of the Great Park.

 

[IndieDev]

Maybe I'm looking at this the wrong way, but as an Irvine homeowner, like it or not, I feel like I'm in bed with TIC.  Their success is directly related to my home value.  The moment TIC starts slashing prices drastically is a sad day for Irvine homeowners - regardless of when/where/how you bought your property.  If you bought during the bubble, you're probably SOL anyway right now, but even more so.  If you bought cheap 10 years ago, your paper profit just disappeared.  I can care less about how "ungreat" a great room is - as long as prices hold.  If you ask me, Laguna Altura is priced too low.  Ha!

We get to it at last. 

It's natural to feel that way. Most of the middle class in America have their "wealth" heavily invested into their homes. But thinking that way, based on emotion and ignoring market fundamentals never made anyone wealthy, or even financially stable.

Agree.  Although I wouldn't use the word "heavily" to describe my situation, but I would think a large portion of the population is.  Most people don't buy stocks hoping its value goes down (unless you're shorting them).  The same logic would apply to my housing investment.
Bottom line is I don't want to be that fishfinder guy who needs help and advice - I'm not looking to get rich and conquer the world with my ONE TIC house.

That's a logical viewpoint.

But are you sure you won't conquer the world? Irvine real estate can only go up. Buy now or be priced out. 

 

[IndieDev]

Reducing supply to retain value isn't fundamental? I guess I really don't understand economics.

It's not fundamental, what you're describing is called in economic terms, "rent seeking behavior." It's a manipulation of the market. It can be effective under certain circumstances, but TIC can't hope to manipulate the market like you think it can in this environment. Price cuts will come, which is good for you since you've said before that you're actually looking for a home. Be happy, don't fret. 

In Stonegate, Laguna Altura or Cypress Village... you can only buy a NEW home from TIC. Each of those areas have premiums that the only other new Village (Portola Springs) in Irvine does not have: local elementary school, local middle school, local 3rd place or gated community. And even then, TIC has some say in what the PS builders can do. That's probably as close as you can get to a monopolistic builder and since Irvine is one of the few cities that has new homes and is central... you also have a captured crowd... thus the model fits... at least to me.

And to touch on collusion with other developers or the resale market... I don't think there has to be... it's only natural that other builders want to make a profit and that sellers of resale want to maximize their sale... if TIC is selling 87 SFRs for $900k, you're not going to get 87 close-by newer resale homes selling for $700k. TIC's benchmarks has significant pull over the resale market... and that's done by seller/buyer psychology... not collusion.

See what you're describing is your own personal value of TIC communities. You like Laguna Altura, you like the other TIC communities, so you value them more, more so than some resale communities, or other cities. Unless you can show me that your personal value towards Laguna Altura  or Stonegate is reflective of the market as a whole, then it's hard for me to even comment on your own personal opinion on what something is worth.

As for "seller/buyer" psychology, that's marketing, not fundamentals. I don't make decisions based on market psychology if the fundamentals don't fit.

But I think you said it best when you said this:

But... that's not to say that other developers are not a concern... which is why I do think TIC has fast tracked these projects to stay ahead of the Great Park.

TIC isn't going to stop building homes. 

 

[irvinehomeowner]

See what you're describing is your own personal value of TIC communities. You like Laguna Altura, you like the other TIC communities, so you value them more, more so than some resale communities, or other cities. Unless you can show me that your personal value towards Laguna Altura  or Stonegate is reflective of the market as a whole, then it's hard for me to even comment on your own personal opinion on what something is worth.

Actually... I was just pointing out the facts... the only homes you can buy in Irvine new are TIC communities. Therefore, TIC currently has a monopoly on NEW homes in Irvine. Portola Springs has already shown that it's not as desired an area based on the sales pace the last few years (maybe due to higher MRs and HOAs and the other things I mentioned... which are also facts) so that's an advantage that I think TIC is going to leverage with the "2011 Collection".

As for "seller/buyer" psychology, that's marketing, not fundamentals. I don't make decisions based on market psychology if the fundamentals don't fit.

But like we agreed... market pricing isn't totally based on fundamentals... or else bubbles would never happen.

But I think you said it best when you said this:

But... that's not to say that other developers are not a concern... which is why I do think TIC has fast tracked these projects to stay ahead of the Great Park.

TIC isn't going to stop building homes. 

They could. If the economy tanks... they'll put it on hold just like they did in Woodbury and Portola Springs (you did not respond to me saying that no new projects opened up prior to 2010). And if they stop... Lennar could pull another Tustin Legacy and claim that the value of the Great Park was overstated and they want to get out.

I guess my point is that it's happened before... so why could it not happen again?

 

[IndieDev]

Actually... I was just pointing out the facts... the only homes you can buy in Irvine new are TIC communities. Therefore, TIC currently has a monopoly on NEW homes in Irvine. Portola Springs has already shown that it's not as desired an area based on the sales pace the last few years (maybe due to higher MRs and HOAs and the other things I mentioned... which are also facts) so that's an advantage that I think TIC is going to leverage with the "2011 Collection".

That's true, for this year at least, but new homes are only a small sliver of Irvine inventory. Throwing out terms like "monopoly" doesn't make sense here because TIC doesn't have one.

But like we agreed... market pricing isn't totally based on fundamentals... or else bubbles would never happen.

True, but that doesn't mean things don't return to normalcy, because they do, and have done so in the past.

They could. If the economy tanks... they'll put it on hold just like they did in Woodbury and Portola Springs (you did not respond to me saying that no new projects opened up prior to 2010). And if they stop... Lennar could pull another Tustin Legacy and claim that the value of the Great Park was overstated and they want to get out.

My point was TIC has built new homes every year since 1998 (as far as I was able to check). Sure they didn't debut "new communities" every year like they're doing now, but the fact is they built and sold new homes and never stopped any year since 1998. The economy tanked pretty badly in 2007, and new Woodbury homes were still being built, in fact you can find many of them on the MLS for $100,000 under their original purchase price. I don't see the economy taking home prices another 30% in Irvine, but even if they did, I don't see TIC stopping because they didn't before.

I guess my point is that it's happened before... so why could it not happen again?

Are you talking about housing crashing and returning to fundamental valuations? Then yes, I agree. 

 

[irvinehomeowner]

There is a slight difference between 2007 and now... TIC wasn't the main builder then... they are now.

 

[irvinehomeowner]

I guess my point is that it's happened before... so why could it not happen again?

Are you talking about housing crashing and returning to fundamental valuations? Then yes, I agree. 

Do you think housing in Irvine returned to its fundamental valuations after the late 80s/early 90s pop? And if the mid 90s is where you think the Irvine market was healthy... do you think Irvine will return to that period of pricing?

 

[IndieDev]

According the Shiller, the difference in affordability between 1980s and early-90s (last pop) were roughly the same. So yeah, I think housing was normal during that period. Will Irvine return to that level of affordability? The market exempt of artificial props, and subsidies, it's almost assured.

Of course, 100,000 wealthy "Chindians" could immigrate to Irvine and turn everything upside down.

 

[usctrojancpa]

I wonder if anyone has thought about taking TIC to court for Anti-Trust violations with what they are currently doing.  Sure seems like they are walking a tight rope. 

 

[IndieDev]

I wonder if anyone has thought about taking TIC to court for Anti-Trust violations with what they are currently doing.  Sure seems like they are walking a tight rope.

Just the thought of facing off with Donald Bren in a court room sends shivers up my spine.

 

[iacrenter]

I wonder if anyone has thought about taking TIC to court for Anti-Trust violations with what they are currently doing.  Sure seems like they are walking a tight rope.

Just the thought of facing off with Donald Bren in a court room sends shivers up my spine.

I wouldn't mind doing that. Then I can ask him what is going on with the postage stamp lots, recycled floor plans, and monotonous Italian architecture!

 

[IndieDev]

I wonder if anyone has thought about taking TIC to court for Anti-Trust violations with what they are currently doing.  Sure seems like they are walking a tight rope.

Just the thought of facing off with Donald Bren in a court room sends shivers up my spine.

I wouldn't mind doing that. Then I can ask him what is going on with the postage stamp lots, recycled floor plans, and monotonous Italian architecture!

What? Didn't you see IHO's poll? Everyone who has bought is "very satisfied" with their purchases.

 

[scfan]

TIC may not be able to raise prices as fast if and when rates are allowed to rise but i don't see them lowering them - they will slow down or stop releasing new product until supply/demand meets their pricing model.  You are talking about a very patient, strong developer, that is focused on profit from land and building operations.  I don't see Mr. Bren needing to meet a certain deadline - if it takes his company 20 years for buildout like they have expressed before that is probably fine by him.

It will be interesting to see what "Lennar II" does with the "Great" Park and how that impacts TIC's plans - they haven't had any competition for the longest time.  I hope the competition can bring some innovation and quality product to the table to raise the bar but I have my doubts based on how miserably the "Great" Park project has been run so far.

 

[IndieDev]

20 years? Bren is peeing 10 times a night, and looking for his TIC successor. He'll be lucky to last another 5.

 

[irvinehomeowner]

Bren is peeing 10 times a night...

Pause.

How do you know this?

 

[IndieDev]

Bren is peeing 10 times a night...

Pause.

How do you know this?

I don't kiss and tell.

 

[iacrenter]

Bren is peeing 10 times a night...

Pause.

How do you know this?

A man Bren's age would certainly have some BPH: Benign prostatic hyperplasiahttp://en.wikipedia.org/wiki/Prostate#Benign_prostatic_hyperplasia