Are People getting immuned to high prices?

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OCMan_IHB

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I hear bad news on housing (ie Case Schiller index...) all the time but haven't really seen price decrease in Irvine and Tustin Ranch area to the level of somewhat affordable. Descent houses in good neighborhoods are still 2004/2005 price level and I don't see them coming down fast esepcially in West Park II or Tustin nearly by the golf course.



Do you think we are already getting immuned to such high price level that when we see 7% drop, it's a bargain? $2 mil cutting to $1.5 mil is 25% drop but still $1.5 mil for 3000 sq ft house! I know the location, school district, and other amenities play in but I don't see how people can still bid up and think that $600k for 1800 sq ft glorified condo in Tustin is a good deal.



Are people that much well off or have such high income in OC? What about credit crunch? What about slow growth of economy? I'm just dumb founded. Even though I have 20% downpayment (for a typical 4 bed house in Irivne) and household income of $150k I still don't think I'm rich enough to go for it or can afford monthly mortgage payment + tax.



What am I missing? Is there secret deal going on regarding loans and foreclosures that I don't know about? Please shed some light on me. Thanks.
 
I don't think it's immune, I think numb is a better word. An even better description is <a href="http://en.wikipedia.org/wiki/Denial">denial</a>.
 
I think it's just a higher-end neighborhood lagging on the way down. Prices continue to plummet out in the IE, and as IR pointed out yesterday condos are now selling at less per sq ft. than small yard singlefamily, which is unusual. Also, Irvine's biggest draw is its job market, meaning it has an unusually high concentration of people who have money to spend (that they've just made). I do think current buyers are inured to high prices, but that's normal human behavior anyway (I saw a mention of a psychology study where getting people to write down some digits from their phone number made them guess Attila the Hun's invasion occured near the year matching what they wrote down.) I think the fundamentals will catch up with Irvine in the fall panicking season.
 
You have to understand that a home is not a liquid asset. It's value won't change as fast as its market value. Meaning that even if you think a home should be 40% off right now, it is only 25% off. As time goes, 1, 2, or 3 years, it will come down to appropriate levels. By the way, a 30% drop in 1 year would be unheard off. The annualized Q1 Case-Shiller data is around 30%. You must be patient and wait for things to correct themselves. Don't blame people for buying homes, after all there has been 2000 sales in OC in April, let them make a mistake. Every time someone buys a home, it should lower the comps and drive prices down. After the first round of buyers, you will see a major drop.



The higher things go, the more it has to fail. Also, the bigger the fall, the harder it is to stop it. I wouldn't be surprised if prices comes down much lower than what some bears are thinking.



Wait patiently, put money aside and buy when the time is right for you.
 
[quote author="OCMan" date=1212188641]I hear bad news on housing (ie Case Schiller index...) all the time but haven't really seen price decrease in Irvine and Tustin Ranch area to the level of somewhat affordable. Descent houses in good neighborhoods are still 2004/2005 price level and I don't see them coming down fast esepcially in West Park II or Tustin nearly by the golf course.



Do you think we are already getting immuned to such high price level that when we see 7% drop, it's a bargain? $2 mil cutting to $1.5 mil is 25% drop but still $1.5 mil for 3000 sq ft house! I know the location, school district, and other amenities play in but I don't see how people can still bid up and think that $600k for 1800 sq ft glorified condo in Tustin is a good deal.



Are people that much well off or have such high income in OC? What about credit crunch? What about slow growth of economy? I'm just dumb founded. Even though I have 20% downpayment (for a typical 4 bed house in Irivne) and household income of $150k I still don't think I'm rich enough to go for it or can afford monthly mortgage payment + tax.



What am I missing? Is there secret deal going on regarding loans and foreclosures that I don't know about? Please shed some light on me. Thanks.</blockquote>


Affordability is relative. For people thinking of buying in 2006, and capable of doing so then, prices have gotten much more affordable with rollbacks in Irvine and Tustin to 2004 price levels... They still might not be affordable by many, but overall, affordability has been improving of late by leaps and bounds.



<a href="http://www.ipoplaya.com/iposhiller.pdf">IPO's Case-Shiller</a>



The buying binge of late has caused prices to move up a tad in May. That might continue for a few more months...
 
It's not Irvine, but back in '05 all we could have afforded here in CM is a condo. In '04 I thought housing prices were too high, but that was relative to the previous years. Now we just bought an SFR at Q3 rollback not adjusted for inflation and it seemed like a bargain. The rapidly rising prices persisted for so many years that our mind set changed to one where we believed houses are expensive and we're lucky if we can have an SFR. Again, it was relative to what we had been seeing for so many years.... the possibility of homeownership slipping and then disappearing all together for a while. I did wonder if other people felt the same way.
 
To be honest, some days I do not think I'll ever be able to afford a 3 bedroom SFR in Orange County unless I move into a cheaper area that I do not like as much.



Of course people tell me I'm young and my income will go up. But I have doubts thinking that it would ever go up enough to afford what seems to be a decent sized house.



But I will admit, this board has made me see how renting has its pluses too :)
 
[quote author="24inIrvine" date=1212212053]To be honest, some days I do not think I'll ever be able to afford a 3 bedroom SFR in Orange County unless I move into a cheaper area that I do not like as much.



Of course people tell me I'm young and my income will go up. But I have doubts thinking that it would ever go up enough to afford what seems to be a decent sized house.



But I will admit, this board has made me see how renting has its pluses too :)</blockquote>


24 is really young for homeownership. If you started with a townhome in a year or two and then were able to step up into an SFR after 5 years, it would be still be a success story. If I had done that at your age, we would have launched into an SFR at just the right time to have brought some incredible equity with us. Imagine being in your early to mid 30's during the rapid price increases, especially when you were prudently saving for the 20% down. Talk about discouraging!
 
Since we on the topic of affording, what percentage of your income would many of you feel comfortable going into your mortgage and taxes. For example I am looking into getting a mortgage for $417,000 and a 30 year fixed at 6% is about $2500. If I wanted to live in a newer development like PS or Woodbury, the sub/master association and all inclusive tax will bring that number up to $3750 a month. If 30% of my income is going into my monthly payment that would make one's household income of $150,000. Do many of you think that 30% of your income is a good number for your monthly mortgage to be comfortably affordable?



Thanks.
 
24, here's what you can do if you want to have a good idea if you will ever afford a 3 bedroom SFR in Irvine. Trend your salary in the future at 5% (little high, but your income is likely to increase higher than the typical 3-4% since you are young). Assume a 20% drop from a current "dream" 3 bedroom, trend this number at 3%. This should give you an idea if you will ever be able to afford this in the future. Keep in mind that buying a condo (at the right time) will help you build a lot of equity. Are you single? If you ever get married, this will really help also.



Panda, the rules of thumbs are 28% of gross on housing and 36% of gross on debt (college debts, housing, cars, credit cards, ...). This should leave enough to put 10% aside for retirement and still live comfortably. Another rule of thumb is to buy a home 4 times your salary with 20% down. These two calculations should get to similar results, but taxes, HOA, PMI, interest rate, mello-roos, insurance and other things can tweak the results.



Homes are still unaffordable if you compare salary to house price. Wait and see.
 
I have to agree with no_vas above in part as it applies to today?s buyers and sellers. If your heart is totally set on S. Cal for whatever reason and you?ve been waiting to buy for the past five years, current prices may seem a bargain. From the sellers point of view, the past few years have created a certain expectation that their home (or investment property) is now somehow intrinsically worth 2-3 times what is was five years ago. Whatever.



Unlike what some others may believe, affordability sometimes has little to do with it. Value for the money is the real issue. The definition of that value is what is in contention. Buying just because you can buy is often foolish.
 
[quote author="PANDA" date=1212215034]Since we on the topic of affording, what percentage of your income would many of you feel comfortable going into your mortgage and taxes. For example I am looking into getting a mortgage for $417,000 and a 30 year fixed at 6% is about $2500. If I wanted to live in a newer development like PS or Woodbury, the sub/master association and all inclusive tax will bring that number up to $3750 a month. If 30% of my income is going into my monthly payment that would make one's household income of $150,000. Do many of you think that 30% of your income is a good number for your monthly mortgage to be comfortably affordable?



Thanks.</blockquote>


Our story is backwards, but the house we bought with the intention to move into two to five years from now was 20% down with PITI at 18% of gross, but we are older and having to put 15% into retirment. We were going to continue to rent here until we could move there, but got the itch to own here in the meantime. I know, it may have been stupid, but it's done and we're happy in the now.



The house that we actually live in now, PITI is ~24%% of gross and that's tight with savings and retirement. But, in a sense we did 95% financing because we borrowed some equity from the other house towards the DP on this one. I'm not comfortable with debt, so this is scary. It's based on two incomes, but I suppose even one income would be scary at these numbers because the paycheck egg is in one basket. We're not in Irvine and couldn't be at those percentages there.



I really don't know how people in their mid 30's + are able to do 30+%, carry debt and save for retirement, regular savings and EF.
 
<blockquote>



Our story is backwards, but the house we bought with the intention to move into two to five years from now was 20% down with PITI at 18% of gross, but we are older and having to put 15% into retirment. We were going to continue to rent here until we could move there, but got the itch to own here in the meantime. I know, it may have been stupid, but it's done and we're happy in the now.



The house that we actually live in now, PITI is ~24%% of gross and that's tight with savings and retirement. But, in a sense we did 95% financing because we borrowed some equity from the other house towards the DP on this one. I'm not comfortable with debt, so this is scary. It's based on two incomes, but I suppose even one income would be scary at these numbers because the paycheck egg is in one basket. We're not in Irvine and couldn't be at those percentages there.



I really don't know how people in their mid 30's + are able to do 30+%, carry debt and save for retirement, regular savings and EF.</blockquote>


People in their 30's can do it, they just need to save alot beforehand. I regurarly put in 20+% for retirement, but before hand i've put as much as 50% in some years. So while everybody was buy, buy, buy... I was save, save, save. Goes against the norm, but it seems to be working as of late.

good luck

-bix
 
Prices in all of Irvine will fall to 1999-2000 levels, it is only a matter of how long you are will to wait. Right now the well of "wealth" in Irvine is being drained. There is a hope and prayer by home sellers that something will change............



Let me put it differently........a commitment to pay a bank 500,000 dollars is huge,and the commitment to pay a bank 1,000,000 is off scale. Without the security of appreciation, fewer and fewer will risk their financial future on buying a home in Irvine......prices will fall.......and fall dramatically......it is only a matter of time.



Look for condo prices in the 170 PSF range and homes in the 200 PSF range by 2012.



This may or may not help you younger people(I am 52). Don't focus on where you live, focus on your family, focus on the time you spend with them. Believe me, kids do not want granite counter tops, and back yard kitchens, they want to be with their parents. You are far better of renting a 1200 sf apartment and havening time with your families, than living in a 3200 sf home. I've said this before, one of the great aspects of smaller homes is that it allows(forces) families to spend more time together.
 
"Look for condo prices in the 170 PSF range and homes in the 200 PSF range by 2012."



I don't know if you are talking about Irvine or Garden Grove. Irvine village homes in the 3000 sq ft range were selling very close to $200 PSF in 2000. I was looking for my first home then, and decided not to buy in Irvine due the high $PSF. Instead I bought in south county. I regretted for my decision.



Irvine will likely always carry a high premium then certain areas in OC. Just look at today's high school rank: irvine has four of the top ten high school rankings by OC Register. We can debate about OC Register's method, etc , but then you are missing the point. Few of us believe 2000 price is a bubble. Just by pure inflation, the trend is not pointing towards 200 PSF in Irvine Village homes. I can be wrong on this, but hey sun one day might rise from the west too.
 
Has anyone run the numbers on the cost of putting your kid(s) in private vs the premium you pay in irvine, including factoring in addl prop taxes, MR and HOA?
 
thanks for all the advice. Trust me, after I pay off my car (hopefully by end of year, and I plan to never finance a car again) I will be putting around major savings towards this.



I am not sure what all is going to be back there, but once I heard there was construction of that orchard hills school, I went to check it out. I was shocked to see they have that whole main road completed (extenstion of culver) and I drove back there a good 30 minutes just looking around and I fell in love with the area. The view from up there is amazing. So I am not sure what I will be able to afford then, but Im pretty set on that area with a purchase in 2011-2012. But who knows, we will see. But I suggest everyone take a drive over there, its really awesome how the road goes up and around Northwood high school. There are other areas I will check out (like east of orange), but I would like to see how they are built out first.



I'm really conservative so I would fell comfortable with 33% of net at most, but even thats pushing it. I would probably want closer to 25 or 28%. I also would like to stay close 4x income at most. I am definetly not a fan of being heavily leveraged.
 
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