Best time to buy : Q3-Q4 2008?

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Justin-_IHB

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I'm a potential condo buyer, looking to get out of renting in the next 1-2 years as money allows.





The real question I have for you real estate moguls is when is the optimum time to buy? I've kept tabs on the market in OC for the last year or so and it's undoubtedly in a mild to severe decline.





The graphs listed on the blog's homepage indicate that the biggest drop will be between 08 and 09 roughly speaking, so idealy the best time buy would be end of 08? Prices will be rock bottom or reaching that point and the market will be as weak as possible.





Any comments? You guys know better than I do
 
<p>Justin,</p>

<p>The best time to buy is when inventory is sky high and homes are sitting long on the market (currently inventory is not sky high yet). The best time to buy is when builders are throwing everything at you.</p>

<p>Nice properties are starting to sell well. Just ask around.</p>

<p>If everyone wait until certain time to buy then there will be more demand than supply, then good price is short-lived. I think 2007 year end may be a good time to buy because people have been waiting long enough.</p>
 
Justin,


No one can really say what the market will do, it is unpredictable. IMO, the best time to buy is the time when you are ready and what you want is affordable. If you buy a condo, generally, resale is easier since the price is attainable to more buyers, so you don't have to worry as much about going upside down.





In the resale market, I've noticed that sellers are generally pretty desperate during the winter. But, how many of us want to close escrow around the holidays??? Prices are usually lowest around that time as a result. Prices are highest starting in March or April through September (most people with kids don't want to move during the school year.)





For new construction, find out when the selling companies fiscal year ends. Buy during that last quarter for the best deals. You will still have to negotiate... assuming that the market is still hurting and negotiations are tangible. Also, try to buy something that is "ready for move-in" because generally you can get a better deal on some ready inventory they need to move. Builders don't like for their inventory to sit around. There's been some good buying advice in some of the other forums....
 
Perhaps I mistyped, I'm talking about fundamental valuation prices and not new developments or supply/demand economics.





The supply/demand elements play in favor of price reduction, the last time i checked irvine had added something like +87% inventory over a one year average.





buying in 2007 won't take into account enough changes in the market to warrant buying something.





the cyclical nature of real estate is more to what im referring, not just month to month changes
 
Weonlybuynew :





Your point is well taken, I've looked into developments when they have filled up more than 90% of inventory and the developers loans are already repaid.





At that point every other unit they sale is pure profit and they are more willing to negotiate pricing just to fill those last units up.
 
If you believe RE cycles will repeat itself, my memory is a bit fuzzy, but I think in the last cycle, the market peaked around 1989 or 1990, then went into decline from 1991-1996.





If 2006 was the start of our current decline cycle, we're barely 1 year into it and it's probably too early to assume we're near the low-price point (BM2?).





But as they say in the mutual fund industry, past performances are not necessarily indicators of future performance...





Since prices aren't jumping every month right now, you have the luxery of shopping leisurely. So take your time and look at a lot of properties to find one that you really like.








p.s. My buddy went to Lancaster this week and looked at some new homes. The builder reduced selling price by $40k. My buddy chatted up the agent and they mentioned that those who bought the homes earlier will have a difficult time to refinance. Some purchasers who made deposits for new units have simply walked away instead of accepting the keys.
 
Thanks for the input. I will surely not buy within the next year, I do have the luxury of shopping around.





If 2006 was the start, then roughly 2010 would be ideal.. but i can't wait that long unfortunately so I think the largest drop will come at the mid-end of 08.





At least based upon the blog's analysis and predictions.





Thanks again!
 
Optimal time to buy is a judgment call, but I will offer my opinion: I think the 2<sup>nd</sup> half of 2008 will be the time to get back into the market, and should be fine for the next 2-3 years thereafter. I made my determination based on my assumptions about price level, rent-to-mortgage ratio, and market sentiment.



Price – I think we will see substantial declines in 2007 through the first 9 months of 2008, after which point it will begin to flatten. It won’t truly flatten for another couple of years, I don’t think, but the declines will be much more subdued and mixed. So late 2008 is a matter of whether you are wanting to buy or not. It might be better to wait another 6-18 months, but the cost of buying will not be significant if you don’t want to wait.



Rent-to-mortgage – This level will likely not match up to historical ratios for 3-4 years at the current pace, but I’m wondering if we have a permanent shift in the ratio. Of course, the shift can only occur insofar as the ROI tolerances will allow, but a slight shift might have occurred. After all, we are dealing with the general public, not investment professionals for the most part. And since it depends on the price declines and rent increases, I think we will reach equilibrium (to the shifted ratio) in the next 18-24 months, if we believe the price declines will be substantial.



Market sentiment – We know that this is pretty low right now, and should continue downward for another 18-24 months, if not longer. I think we want to catch it near its lowest, and then be willing to wait another 12 months before the sentiment turns from negative to neutral. But anytime during this negative to neutral public sentiment is a good time to buy.



The 15-24 months timeframe is also pretty consistent with the time period it will take for the sub-prime fallout to shake itself out. When we stop hearing about the consequences of that in the media, I think we have reached the point of the end of substantial decreases in price. And thus the beginning of the period when it is okay (but not necessarily good) to buy.
 
<p>Justin,</p>

<p>Condos come in many forms. The worst is when you live in a unit with two neighbors on the left and right when you can hear the banging headboards. The same unit that has also has another unit directly above that has imitation wood floor that echoes every footsteps and every now and then a water leak from the washer or the toilet will forever stain your ceiling. The neighbor who live directly below comes up knocking on your door asking you to wear only slipper instead regular shoes and only operate your vacuum during weekdays. Directly across from your front apartment or motel 6 looking door you see headlights of cars parked at a multi-level shopping mall style parking structure and your passer by Peeping Tom neighbor starring into your windows that is adjacent to the public catwalk. Your only privacy are the windows at the rear of your unit but you have to keep your drape closed all the time because another 900 unit building is 20 feet directly across from you. Your girl friend or wife should always carry peper spray and do not walk too close to the thick concrete columns in the parking structure with too many creepy stairewells or trapped in a parking structure elevator that is dirty from the vehicular soot and dried up old gum that you paid $500 in maintanance fee to keep clean. The only good thing is to BBQ at the balcony outside your living area but you have to spend an hour moving your bike, some extra folding chairs and junks out of there since that is your only storage area. </p>

<p>Compare the prices and really look at the detached condos that has an attached garage and windows on all four sides. It lives like a single family detached home but mapped as a condo due to a technicality. The price is 10% more but you eliminate all the aformentioned problems. </p>

<p>I do not recommend buying an attached condo at anytime. You will move again when you decide to have a child. Attached condos have too many construction problems due to way too many complicated framings, sound attenuation and fire rated walls and exiting corridors. At the end these building are prone to have greater number of defects and many lawyers know this and like to prey on these building type for class action law suit. You can not sell your unit while there is a pending judgement on the project. Pending cases may take a couple of years. If one unit has termite then the entire building has to contribute monetary to the eradication. At the end, you will spend more than 10%.</p>

<p>Irvine Renter is better at giving you the advice for the timing to buying the detached condos. I would not recommend buying the current projects in Portola Springs and Woodbury. The plans are old and tired. The projects have been repeated many times and there are way too many resale out there with the identical floor plans. </p>

<p>Always buy in a phase one of a brand new floor plan. it is the nature of the builders to raise prices slightly in the latter phases and more if the project get repeated in another location. I am not quite sure with the current bubble climate. </p>
 
Gepetoh : well put points, I think the pscyhological factor or market sentiment you describe is right on the money, here in 2007 we are slightly more educated as a whole on recession-like periods of time, especially in the housing market.





Therefore I think 24 months is a fair estimate, also you have to take into account most of the subprime fallout will actually make a rise in the rent-to-mortgage ratio, those subprime buyers will be relegated to renting at least for another real estate cycle until credit and income can repair themselves.





So roughly the three factors determining when to buy in OC are listed in chronological order:


1. high volume of foreclosures, mainly driven by the subprime meltdown and the consequential increase in semi-permanent renters


2. price decreases, fueled by external factors such as overall housing market conditions as well as some mild supply increases (esp. in 92612)


3. the last but most important variable is when the market will flatten, this is pushed mostly by psychological conditions, being this is the 2nd post-modern era real estate bubble bursting, it should be 24 months past the decline when people swing back around.
 
bkshopr :





Thanks for the advice, I am becoming less and less a fan of attachted condos for the problems you mentioned above.





Idealy, I want a small 1000-1200 sqft condo sharing at most one wall with nobody above or below.





To add to your argument, this is southern california, we shouldn't have to live side by side in any situation, we have land-o-plenty. I think in the coming 1-2 years that 10% increase you speak up will be wiped clean. A return to fundamental valuations would mean that most condos will go for under 400,000, even nice newer floor plans.





I can wait, therefore I can profit in the long term. I don't plan on having kids for a while and I have 0 revolving debt, only 1 installment loan and a 750 fico. In 2 years, I should be able to get almost any condo around OC.





Delaying gratification seperates prime from sub-prime/alt-a buyers :)
 
<p>Justin,</p>

<p>Waiting and not impulsive are the key. Go see the detached condos by California Pacific Homes. Familiarize yourself with the advatages and disadvantages. Never buy an old and tired repeated plan. Many home builders get the financial mileage on repeated plans. The plans currently out there are old and too many desperate sellers who have the same plans are selling them cheaply. I would not recommend buying a new one for full price. If you like a new home then you should wait for the new plans. Under the current bubble climate I think many home builders are phasing out or terminating their existing inventory and start fresh with better and more clever plans. </p>

<p>During the high demand era, architects and builders were scrambling to put roofs over walls they were not concentrating on better design. Many of the builders and architectural firms are laying off the dead wood in their operation now. I think we will see a greater number of innovative designs all across the board.</p>

<p>When you purchase a home do not just look at the overall area. It is key to have minimal hallway and big rooms. In any condo or townhomes the hallways consumed most of the footage and that leaves very little area for the important rooms. Good architects often solve the plans with very efficient (little) circulation and maximize room counts and sizes. The brochures never seem to indicate the furnishing and the proper TV and dresser locations. Often many floor plans lack both and furnitures are forced into compromised positioning and make the plan flow awkwardly when furnished (after you Moved in)</p>

<p>Both Irvine Housing Blog and Forum are both very informative from a financial and economic tecnical level however both fall short on delivering the message on what constitute a well designed home worth buying other than this is too expensive for this footage and really reasonable for this size of a home. </p>

<p>I wish the commentaries could relate to both of the quality of design for certain projects and the price value economy as well so consumers could benefit from the expertize of this forum in both design and financial insights.</p>

<p>I am impressed by Irvine Renter's thesis and validate his prediction by logic, researched charts and data. His positive presentation of the various neighborhoods in Irvine really shed light for all of us. However, I think there should be a negative commentary side to the same neighborwoods as well. IMO it should be done like the movie rating show Ebert and Roper. It keeps the audience engaged if there is good and bad side presented then let the audience decide whether to watch the movie or in the case of this forum to buy or not to buy the home. </p>
 
For sure, a good floor plan is essential. Especially considering the additional costs to upkeep a larger home and the fact that the average home size is actually declining over the decades.





I never thought about the fact that most builders will want to cut out the "dead wood" and focus on well laid out and built homes. The problem with most of those condo's you speak of, especially the CPH ones are price right now, even with builder incentives. Eventually, the prices will go down even further, then you will get a really well built and proper floor plan and also a value based price, not over inflated.





Just out of curiousity, what do you think of the new style of mixed-use layout condo developments in Irvine, Orange and Anahiem? Also, where do you currently live? I'm trying to narrow down the specifics, parking garage, dingy roof, squeeky ceilings... that pretty much names all the new attatched developments in Irvine :P
 
Hi Justin,





It's not difficult to find town-homes in Irvine where you only share one wall, or condo that sits above garages with no one below. Exit 5 FWY on Jamboree, drive toward Tustin (pass Tustin Marketplace) on Jamboree, pass Portola Pkwy, turn right on Hillsdale, Right on Bellevue, Right on Bradford, Left on Ardmore. The community is Sheridan and you can find 3 bed townhomes attached by one wall, and 2 bed condos that sit above garages there. HOA is $140+$85/month. Other posters on this forum can also guide you to other areas that fit your requirements.





California has plenty of land, but there will always be a premium on desirable locations where lots will be tight. Actually, in comparison to other countries I've visited, I think we're obsessed (or lucky?) with the suburban lifestyle with yard space. The kind of "high density" construction we have in Irvine would probably be considered luxery property in Taipei, Tokyo, Singapore, or Manila. Only in Kuala Lumpr did I see something similiar to our suburban homes, but without the garage (they park cars in the gated front yard or drive way).





Our not-so-dense urban development here also makes it very difficult to build extensive light rail public transit system, which is a real pity. I wish we had more trains so many of us don't have to sit on the freeway for 2-3 hours daily. :( My car is like a black hole that sucks large amount of money from my wallet every month.





p.s. Our average home (SFR?) size has increased over the decades, 1400 sq ft in 1970 and 2,330 sq ft in 2004. You can google it and get many stats on this.
 
Thanks, I found this :





Despite this new high-water mark, some in the building industry focus on the fact that square-footage growth may be stabilizing; last year's figure is close to the 2004 average of 2,349 square feet.


and


The Benhams didn’t know their move was part of a trend, but the numbers show that it is: Home sizes that rose nationally from an average of 1,500 square feet in the 1970s to nearly 2,500 square feet in 2005 are now getting smaller again.








But anyways, that area I'm pretty familiar with, I wish we had light rail system as well, driving really gets old fast!
 
The mortgage reset overhang and resulting foreclosures will not work its way through the system until 2012-2014. Personally, I will start looking when prices are near their rental equivalent for a 30-year fixed-rate mortgage. Prices are currently about 80% too high (needs a 40% decline). If you are looking to time the bottom, I wouldn't count on it before 2010. If you are looking for affordability, late 2008 will be better, and late 2009 will be better still.
 
Please explain your resulting foreclosure conclusion, won't those in foreclosure between now and years end have to rent in 2008?





Granted the foreclosure process is long but this year alone will set some records for foreclosures I'm sure, so won't those people have to rent immediately after being evicted?








As for 2010 that makes logical sense, prices can't fall 80% in a couple of years, but I think the most dramatic price drops will come at the end of 2008, the bubble fully popping if you will.





I'm following what happened in San Diego during the 90's as my example, mixed in with post modern e-commerce and a slightly less psychologically weak public who has already experienced at least one bubble bursting prior and one recession (80's).
 
<p>Most of the projects along the Jamboree corridor are stacked flats and the housing portion wrapped around a multi leveled parking structure like a donut. Bad investment for your money. This type of solution yield 55 units to one acre. It is very dense. You will have way too many neighbors and way too many identical units on the market if you decide to sell. The construction cost is moderately high therefore the selling price is kept relatively high considering all the negatives I said earlier. Donut solution are 10% cheaper than a detached condo. Homeowner due is moderately high. Construction is cheap wood frame skinned with auto junkyard corrugated metal on the facade and painted like a assortment of rainbow colors.</p>

<p>A similar projects by the same K-hovanian builder could not even sell a single unit at the Platinum Triangle in Anaheim therefore the project is now for lease. The evening lighting on this cheap moderm facade and color is like Haloween everynight. The second complex is done with an Italian style and resemble one of the IAC apartments. Why buy an apartment when you can rent one much cheaper with no utility and maintanance headache?</p>

<p>The 2 highrise towers and the residential tower near Park Place are even denser at over 80 or may even be 100 units per acre. The cost of construction is rediculously high and the cost of the unit would be 150% of a detached condo and 3 to 4 times the cost when the flats get closer up to the penthhouse. This is great solution if there is a killer incredible view and the street atmosphere is like Manhattan. What is there to do when you are on the Irvine sidewalk? No Greenwich Village and no Dean & Deluca. Would a Carls Jr. and a Burger king be a good substitute ? Seeing traffic tail lights and head lights are not considered good view. Construction material is very good because of the structural demand. People like the lifestyle because it is rare in the suburb. There are many towers are in the work then it is no longer a rarity 2 years from now. Extremely incovenient to walk from the parking below to the residential unit. Howeowners dues are way too high at over $650 per month or higher. You are buying a cubic foot of airspace.</p>

<p>Harbor Loft at Lincoln and Harbor Blvd. is another disaster. It is priced too high and you can get a resale detached condo for the same price of the bigger plan. I guarentee the bedroom sizes of the detached condos are bigger than the largest units at the Harbor Loft.</p>

<p>I am not aware of a high density condo in Orange. Their planning department is trying the preserve a small town atmoshere of a by gone era.</p>

<p>OC is not really ready for this type of housing solution when land is consider plentiful. Until there are exciting retail and things to do at the sidewalk level like Old Town Pasadena or Manhattan then there is no place for these high density driven formula. When Tiffany, Chanel, and Louis Vitton want to front their stores along the public sidewalk then the time is right.</p>

<p>I do not live in these housing solution because I think they are not appropriate for the current OC landscape. I live in OC with a 60' deep frontyard and 80' deep backyard with 2- 100 years old tree for shade. No two houses are the same in the neighborhood</p>

<p> </p>

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Below is the mortgage rate reset schedule. A great many of these people will be underwater at the time of reset and forced into foreclosure. This schedule pretty much ensures there will be no appreciation in the next 5 to 7 years while this plays out. You have probably heard about the ticking time-bombs out there. This is their detonation schedule.





<img src="http://www.irvinehousingblog.com/wp-content/uploads/2007/04/adjustable-rate-mortgage-reset-schedule.jpg" alt="" />





Also, I am not sure what your question is about people moving into rentals. The people going into foreclosure will have to find a rental, but many of the foreclosed houses will be purchased by investors as rentals, so there should be some balance in the rental market.
 
Thanks Irvine Renter, that makes sense, I forgot to calculate the fact that it will be a rental wash.





People forced out by eviction will be an investors dream, therefore it will remain in equity. As for resetting, the graph does not take into account two things : Stated income forgeries and other lending qualification lies and the fact that most people will be attempting to refi before their ARM's expire only to find out they can't bank on appreciation to carry them into a 30 year fixed program or continue to pay the bills.





So you would estimate that for semi-savvy consumers at least a few months before their ARM expires they want to jump ship and are forced to sell and cut the losses.
 
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