First Time Home Buyer In Irvine

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RE_fan:





Personal experience:





Wife and I make Approx. $135-$150K a year, pristine credit scores, and limited debt. . . would not be able to afford a home in Irvine.


$700K buys you a small three bedroom townhouse that is straight up and has no yard to speak of. Not to mention a $700K home means a responsible down payment of anywhere between $70K to $140K. Assuming saving $15,000 a year (which in this era is incredible) means we will be able to get into an "average" house in 5 to 8 years. Let me break out my party hats now.





I agree that Irvine is trying to be the next L.A. or S.D. but just because people work here does not mean they'll live here. A lot of the people who work in Irvine live in the IE or Riverside. . .(see 91 freeway).
 
<p>hrm... looked through it... of the posts... the most helpful was from graphrix on july 26th... so banks postponing and sitting on these foreclosures means that they were not sold because none of the bids were high enough? or no bids? </p>

<p>what is the average time for banks/lenders to move foreclosure properties? </p>

<p> </p>
 
Haha! Soul Brother's intuition is correct!





Anyway Re_fan, I know everyone is telling you to do a lot of reading now, and you'll find great stuff on here! You mentioned about the strength of jobs in Irvine, and seem to be viewing real estate through that lens. I'm sure you've seen plenty of growth, and I think that factor needs to be put in a larger context. It's like one of the posts was talking about on here (Irvine Renter's, I think) that the RE shills like to cherry pick about which factors tend to support a bull market, when there are ten times as many (with ten times the statistical strength) in the opposite direction. Overall it seems like too many risky loans have driven the price artificially high and that (1) with these loans resetting many will default, bringing prices down (2) the same loans which enabled this run up are not available anymore. To put it in more "soulful" terms, I ask, "show me the money!" and I don't see where all of that money that needs to sustain this market really is. Happy reading, and welcome.





Janet, I'm glad somebody gets the joke, btw. I like the idea of a James Brown character "gettin' on up" within the Irvine city limits. He would probably get busted faster than I did, when my last stupid act of my teen years got me in grande trouble with the Irvine PD. . .
 
<p><em>"Job growth - minus the mortgage/finance sector, irvine is experiencing tremendous growth in tech, medical, and light manufacturing."</em></p>

<p>Tremendous? Are you serious? I suggest you read my <a href="http://www.irvinehousingblog.com/2007/05/23/the-real-jobs-situation/">jobs analysis</a> post. The job growth stinks. Tech still isn't as employed as it was in 2001. Medical oh yeah lots of doctors who can afford Irvine right? Wrong over half of the medical growth was in ambulatory services. How mant EMTs does it take to afford a condo in Irvine? Manufacturing is flat at best with an uptick from Ceredyne. All the economists from Chapman and Fullerton all said that there is huge growth in professional and technical services this year. Yeah 1000 jobs created woo hoo.</p>

<p>I don't want to seem like a jerk but when I see comments that do not reflect reality I get fired up. I don't know what numbers you are looking at but they don't sound like the BLS numbers. Plus if you look at the numbers you will see that the labor force has shrunk. Oh and retail jobs declided YOY in June and the last time that happened was 1993. Retail is a leading indicator of what is to come and look at retail sales. And don't even get me started on the net-migration OC has had in the 24-36 year old age bracket. </p>

<p>Roughly 1200 NODs this month and 475 foreclosures. August has already seen an uptick in NODs and foreclosures. It isn't contained and the rate of increase is worse than 92. If the rate of increase continues 2008 is going to shatter the 1996 record. </p>
 
<p>graphrix,</p>

<p>If you dont mind, help me to understand this: I read from ocregister the office space vacancy rates are at historical lows, and lease rates are on the rise, that is already taking into account of bunch of spaces going back to landlords from those mortgage companies. There are many office buildings are being built / leased in cities like Irvine, and Aliso Viejo. The unit rate is also on the rise. I guess my questions is WHO is filling the space? </p>

<p>Also, you implied that you believe the forecast of growth in professional and technical svs sector by Chapman , etc's is wrong - "yeah 1000 jobs created ...". I don't know how many have or will be created overall...but I can tell you the company I work is on target to hire 1000 professionals this year locally ( need a technical degree), and our competitors are hiring like crazy locally too. </p>

<p> </p>
 
ISB: thanks for the welcome. I look forward to insights from you and everyone else.

<p>Graphrix: Read your analysis on the job market... Here is another take in regards to the OC employment markets... "Contractions in the mortgage industry may have some negative effect to the county, however such effect should be nominal in the long-term, as the whole finance sector comprises only 8% total employment in Orange County. Overall, the local economy retains substantial assets, including growth in most employment sectors... " <em>REIS Asset Advisor Q2 2007 </em></p>

<p>"Orange County's labor force continues to grow; total employment is forecasted to grow 2.0% over the next two years. Office employment, specifically, has grown by 1.4% over the last year and is projected to add an additional 22,500 jobs during the 2007-2008 period." <em>CBRE</em><em> Orange County</em><em> Market View Q1 2007</em></p>

<p>Hey man, we can all quote from somewhere... forecasting is all about perception... so one source to another is bound to show statistics in a different light (btw, CBRE and REIS both get their underlying data from the BLS as well). Two major real estate research groups have recently stated they believe in further employment growth in OC… I believe most of that growth will be in Irvine. </p>

<p>Certainly, one thing that is undeniable is that Irvine specifically has seen tremendous growth in the last few years. Isn’t it so clear with the housing boom in this market? Or how about all the new office and industrial buildings that have been developed in the IBC and Irvine Spectrum? Furthermore, echoing Irvine123, vacancy rates for commercial space are at all time historical lows for the County and Irvine. People and companies have moved and are still moving here for a reason… they WANT to be here. I don't need a bunch of numbers or stats to tell me if this city has grown or not... just look around. As to the sustainability of this growth… well, perhaps I misspoke a little bit... so allow me to rephrase.. “Irvine has experienced tremendous growth in the past few years and continues to register steady demand and job growth…”</p>
 
Going back to the original post... if someone wants to buy in Irvine and has $700k to spend today, you can have your choice of 3-4 bedroom SFR's with yard. If you're willing to purchase 30-year old homes, you can even find ones on a decent sized (5000-6000+ sq ft) lot. Newer properties will have much smaller lots.





For $600k you can have your choice of 3/2 SFR's, town homes, and condos. Some will have a small-ish backyard or side yard, good enough for a small to medium sized dog.





For low $500k range, your selection would be limited to 3/2 condos.





The above assumes minimum requirements of 3 bed, 2 bath, and 2 car garage. If you can settle for 1 car garage or carports, there's some 3/2 condos avail in the 400k-500k range over at Woodbridge.
 
re_fan:





Regardless of whatever job growth numbers you want to pull, there is not necessarily a positive correlation between this growth (or non-growth) and people being able to afford homes in Irvine as they are currently priced. The only word that is important in this equation is affordability. The "want," "desire," or "job growth" in Irvine is all secondary. It is that simple. Homes in Irvine were not affordable to the average worker last month, and they are certainly not any more affordable now, especially given the recent mortgage shakeup (e.g. new difficulties with jumbo mortgages + rising rates + tightening of standards)! How could anyone in their right mind not think that things are going to get worse?! I don't care if there are 10,000 new jobs in Irvine next year, 1,000 new jobs, or 10 new jobs. If average salaries are not in line with current home prices, which they quite clearly aren't, then people simply won't be able to buy a home in Irvine regardless of how many people are working here. This is not at the core an issue of job growth or the desirability of living in Irvine. Just because people <em>"want" </em>to live in Irvine does not mean that current home prices and people's salaries can or will support that desire, or make living here realistic for the average Irvine worker. There are many places in the world that people <em>"want" </em>to live, but that does not mean that they can or will.





And yes, the city has obviously grown, but all you have to do is look at state of the current credit market to understand that a majority of this growth was built on a house of cards...
 
<p>BLUE FIRE: Econ 101 tells us that when more people (demand) compete for the same amount of resources (supply), prices go up. I'm not saying that's happening in OC (it's not), but job growth can certainly impact housing affordability.</p>

<p>I'm not sure what you mean by the city's growth being built on a house of cards. How would the state of the current credit market have artificially inflated population growth?</p>
 
"How would the state of the current credit market have artificially inflated population growth?"





Housing in Irvine is desirable. When fewer people could afford it, fewer people bought homes and the builder set the pace to the demand. When more people, through the "miracle of easy money," could afford homes in Irvine, they moved here in droves. Hence, population growth.





Please keep in mind, though, that my oversimplistic analysis does not take speculators into account, as I suspect there is a high home vacancy rate in Irvine.
 
<p>irvine123 - I will probably address most most of your questions in my response to re_fan. You mentioned your company and your competitors are hiring like crazy. This is great and I hope it continues to grow but the professional and technical services is a very broad based sector. So while your company hired a 1000 people and your competitors hired 1000 people other sectors may have contracted by 1000. Don't get me wrong there is job growth out there but you need to have the education and skills to be part of it.</p>

<p>re_fan - First it is not just the mortgage finance industry that is contracting. Escrow, title, inspectors, appraisers and many other sectors that were employed by the homebuilders. The builder I worked for has cut their office space to 1/4th of what it was a year ago. </p>

<p>In my analysis I showed how non-RE jobs grew by 68,800 from 2000-2006 at rate of 5.3%. That is 11,467 non-RE jobs a year at a growth rate of .88% a year. Also actual payrolls shrank by $662 million when adjusted for inflation. So while there has been job growth the people are getting paid less. </p>

<p>In the 2007 Q2 CBRE report states that office job growth would be 19,200 in the next two years. The YOY office job growth was 11,600 from Q2 2006. The vacancy rate was 9.4% compared to under 7% a year ago. Total availability was at 14% an increase from 12% YOY. The cummulative net absorption rate for the year is negative nearly -700,000 sqft. There was 1.3 million sqft added in that quarter with 57% pre-committed and 2.7 million sqft in the pipeline for 2007 with 32% pre-committed. That leaves nearly 2.4 million sqft for 19,200 jobs.</p>

<p><a href="http://blogs.ocregister.com/lansner/archives/2007/07/ocs_skimpy_job_gr.html">Lansner also reported</a> how the Fed revision of the 2006 Q4 job numbers were revised a lot lower than the state numbers. I have a feeling the 2007 Q1 numbers will be revised as well as Q2. Also note that wages grew by 2.7% compared to the 4.2% nationwide. </p>

<p>I hope I don't seem confrontational and I truly enjoy the discussion. Believe me I wish I saw a more bullish picture but I am not going to turn a blind eye to a possible serious economic problem for OC. </p>

<p>Bluefire is right it is about affordability just like it was in the 90s. Wash, rinse and repeat.</p>
 
graphrix, I enjoy all the posts you have done, and in particular like those analysis backed by data. I think we are on the same page that even though the employment in the mortgage , escrow, title, inspectors, appraisers etc sectors are shrinking, there are other sectors are expanding. The net results MIGHT not be meaningfully negative.





Also, I would like to point out that the majority of escrow officer, title officers, inspectors, appraisers are not making that much money ( I don't have hard data to back this up, I am saying that based on my interactions with them). Escrow office, title office also occupy very little space - 2000 to 4000 / office? In terms of inspectors, appraisers mostly work from their home. So office space shrinking is mainly from those mortgage companies. Again, there are other industries can step up right now and absorb a lot of those space.





I am not a short term bear; but long term - 10 plus years, there is very little chance SOC real estate will turn into a depreciating asset. If we forget about how much appreciation we had in the past six years, and the depreciation we will fact in the next several years, it is more likely than not, in 2017, avg. real estate value will be somewhere around the value of 1999 / 2000 compounding at around 4 to 6 %. This means that the market probably still have 10 to 15% to drop, but for someone of you wishing 2000 price, it is NOT going to happen unless there is natural disaster or large scale terror attack. I will bet you $1000!





I understand not everyone want to live in Irvine can afford a house. That is what apartments are for! Why do we think Irvine company has built so many apartments here and the vacancy rates are at less than 5% right now? Many professionals living here make $100K plus, true they can't afford a nice house. But, if you are married, and have duel income; That is $200K plus a year of salary. If someone making 200K a year, can't save $50K a year for a downpayment for a house, then either they have decided not to buy, or they are financially naive.
 
<p class="MsoNormal">Marty:</p>

<p class="MsoNormal"></p>

<p class="MsoNormal">Of course job growth can play a certain role in the cost of housing in a local market, but in the case of the current state of housing in Irvine, increased job growth is just not going to be the dominant factor. The most influential issue by far is, and will continue to be, true affordability. This means we will have <em>increasing </em>supply (courtesy of foreclosures) and <em>decreasing </em>demand! We are already seeing it happen. And aside from concepts like supply and demand, Econ 101 also tells us quite a bit about things like affordability and debt:income ratios.</p>

<p class="MsoNormal"> </p>

The real point of clarity further rests in understanding the subtle distinction between the “desirability” of a place and the true “demand.” While it may seem counter intuitive, in certain circumstances they do not necessarily follow hand and hand. This is much like the distinction between <em>wanting</em> something and <em>needing</em> something. It is the difference between <em>dreaming</em> and <em>reality</em>. Just because something is desirable, does not mean that it is automatically in high demand due to the influence of other, much stronger factors. In the case of buying a home in Irvine, there are currently much stronger factors beyond desirability and job growth influencing whether or not people will be able to buy homes here in the near future. These factors include debt:income ratios, access to mortgage capital, and rising inventory. These factors, not job growth and not the desirability of Irvine, are what will most significantly influence whether or not there will be true “demand,” and hence will determine the future home prices. Irvine could be the most desirable place in the world to live, but with the dominant influence of these factors, there will simply not be “more people competing for the same amount of resources.” Clearly this was not the case when there was easy access to capital, low interest rates, and toxic (I mean exotic) loans readily available. This is what caused both the population growth and the housing boom. We are in a different world now.
 
The affordability of homes in Irvine will directly be affected by the on coming credit

squeeze. Inventories of homes have been increasing before the current change in

mortgage availability. Its going to take several months for these effects to play into

the local Irvine market. Now is NOT a good time to be buying a home. Save your money

and realize that prices are going DOWN. How far and how fast is yet to be determined.

Job Growth and Expansion are trivia when businesses are collapsing like New Century

and companies like Country Wide Financial may just disappear in the next few months.

The whole concept of home equity is in for a huge adjustment. How does it make sense that

I can rent In Quail Ridge for $ 1700.00 a month. Yet if I go to buy the same square footage

in one of the new developments with $ 100k Down pay twice as much monthly with a normal

30 Year loan ? Now just getting that loan is going to be a reach with my perfect credit.

A huge percentage of the population has just been priced out of the market.

The only buyers will be Cash and Chinese.
 
Koreans can now invest something like 3 million in foreign countries, up from 1 million. So there should be a flood of Korean money briefly, at least. I don't know who has more moeny between Korean and Chinese, but bk's posts I believe suggest that Irvine catered to rich Chinese over rich Koreans.
 
<p>ISB,</p>

<p>Thank you for remembering my earlier posts. My research indicates that most Chinese in Irvine are employed in the technology and engineering research sectors in the South County. Another interesting data also indicates that the primary Chinese income earner of some households travel extensively outside of the country to Asia. Having business oversea with strong foreign revenue could be one of the reasons why there have been many cash buyers from Hong Kong and Mainland China. </p>

<p>Most Koreans are business owners such as restaurants and retail stores located mostly outside of South County. Some sales data also shows a strong clustering of Irvine Korean residents with business in Garden Grove and Rowland Heights. It is really difficult to define which group is wealthier and has more cash. The wealth of the Koreans is generated from long hours and hard works at their businesses. Koreans take higher risk by having their businesses in economically challeged areas. Their financial reward comes with life threatening risks.</p>

<p>Both groups believe in less debt so the cash down payment is prevalent</p>

<p>Many lenders are not interested in investors because of the high risk of default. The lenders are ok with a second home but the home have to be a least 60 miles from the borrower’s primary home or it can be closer if the house is near a body of water or mountain. With the large sum of cash down payment power it is much easier for both groups to qualify for an investment home. They rent out the home to their distant relatives. </p>
 
<p>bk,</p>

<p>Good observation on Korean taking life threatening risks. Surprisingly, in the middle of downtown Santa Ana on 4th Street. A third of businesses are run by Koreans. </p>
 
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