Forget escrows, here's what prices in Irvine are doing...

NEW -> Contingent Buyer Assistance Program
[quote author="25inIrvine" date=1249438455]I'll give you an example of what happened to my dad. Granted its in Mission Viejo and not Irvine, but heres the story.



He bought new construction in late 1993, moved in early 94 I believe. They got a 3 year Adjustable Rate loan, not an interest only, so he was still paying down some principal.

In late 06 or early 07, the ARM was up and he wanted to refinance, however he couldn't due to the LTV issues. Price values went down too much. So he had to keep those payments for about another year or so then they eventually refinanced.



On a side note, he says the builder went BK in either 95 or 96 (kinda parallel to those Woodbury/Portola Springs builders). I can't find the BK data to confirm the data but he says he thinks the builders name was Signature Homes. So maybe someone else can confirm this. But another builder or two had to finish the remaining parts of the development just like they will have to do in PS and Woodbury.



So yes, prices continued to go down even after that recession was over. Luckily, it was just an ARM and not one of Interest Only or Option ARM BS loans.



In looking at the Case Shiller, looks like they held steady or even went up a little in the first 8 months of 1994, then the decline started again</blockquote>


Your dad is the perfect example of what it is like to buy in the dead cat bounce of the housing cycle. It must have sucked for him, but it is really great that you are willing to share the story. I will give you a double thanks after I am done posting this. It is interesting that he got a 3yr ARM back then, because it was a time when rates were at historical lows, but also when the MSM and mortgage schleps were touting the really low rates of short term ARMs. It is also the reason why foreclosures jumped in 95 and 96 when those ARMs adjusted and people couldn't afford the payment, or couldn't afford the refi payment, or were underwater or all of the above. Back then a lot more people, like your dad, sucked it up and got through it. This cycle more people are bailing because they are much more underwater than that cycle. When the refi boom came in 04 and 05, I met many people like you dad who thought getting an ARM in a low interest rate environment is stupid, because they had been burned once before. I'd be willing to bet you lunch that your dad now has a low rate 30 or 15 year fixed loan today.
 
[quote author="SoCal78" date=1249441217][quote author="25inIrvine" date=1249438455]... its in Mission Viejo ...he thinks the builders name was Signature Homes. So maybe someone else can confirm this. But another builder or two had to finish the remaining parts of the development .</blockquote>


Was it in the Canyon Crest neighborhood -- Signature Homes built the Belcrest and Lake Aire tracts. I don't know whose name would be listed if another builder took over, though. If you know what tract the house was in, you can find the builder <a href="http://www.insidetract.com/search.html">here</a>.</blockquote>


Yes it is Canyon Crest. Belcrest sounds familar but I can't really compare with whats online since those are all Lake Aire tracts. Pieces of them all look familar but there are also many differences which make me think Belcrest. I will confirm later though



From google searching it looks like Signature didn't file BK until 2002 or so? Or is the one FL a different company?



Either way, they are definitely not BK approved :) Stairs are 10 feet straight ahead from the front door. I'm sure BK could look at those Lake Aire listings and point out 100 other errors.





And yes, he does have a 15 year fixed now. Although he will admit he didn't like the ARM or them in general, he says he wouldn't of qualified for the house without it. Then luckily his income went up enough to handle the recasted rate adjusted until he could refinance.
 
[quote author="CapitalismWorks" date=1249436117][quote author="Geotpf" date=1249432836][quote author="xoneinax" date=1249430454]For sake of argument, lets say the worst of this Recesssion is past and the economy improves (even marginally) from here and early 2009 is the trough.



Didnt the early 90s recession end around 92 ? I know California had more localized problems than the rest of the nation in the early to mid 1990s, but didnt housing also bottom nationwide around 1996-98 ?



How could housing prices be so different this time around, so V-shaped ?</blockquote>


There will not be a V shaped recovery in housing prices. Housing will be near the bottom for years. However, in many areas, including Irvine, the bottom is already here or is very, very close.</blockquote>


Nice trolling.</blockquote>


I'm not trolling. Look at Redfin's $/per square foot graph for Irvine.



<a href="http://www.redfin.com/city/9361/CA/Irvine">Graph</a>



Sold prices for single family houses (filter out condos-they bottomed later) in Irvine have been basically flat for ten and a half months. On Sept 15th, 2008, Irvine houses sold for $334 a square foot, according to Redfin. As of yesterday, they were selling for $337 a square foot. The low between those two points was $320 on March 2nd, 2009; the high was $343 on May 25th, 2009. That's a bottom, ladies and germs.



I suspect prices might drop towards the low end of that scale ($320/sq ft-ish) during the winter and rise again come spring time 2010. But that's it.



Can anybody make an argument how stable prices for 10.5 months is <strong>NOT</strong> a bottom? You may not use the words "shadow inventory" in your answer until said inventory actually comes out of the shadows. "Ghost inventory" is more like it.
 
[quote author="irvine_home_owner" date=1249440420][quote author="Geotpf" date=1249432836]

There will not be a V shaped recovery in housing prices. Housing will be near the bottom for years. However, in many areas, including Irvine, the bottom is already here or is very, very close.</blockquote>
So an 'L' shape? Like "Loser"?</blockquote>


Yup. And I'm not the loser in the scenerio-anybody who bought a house in Irvine is, since it looks like prices will be stable and below rental parity for many years to come.
 
[quote author="Geotpf" date=1249450040][quote author="irvine_home_owner" date=1249440420][quote author="Geotpf" date=1249432836]

There will not be a V shaped recovery in housing prices. Housing will be near the bottom for years. However, in many areas, including Irvine, the bottom is already here or is very, very close.</blockquote>
So an 'L' shape? Like "Loser"?</blockquote>


Yup. And I'm not the loser in the scenerio-anybody who bought a house in Irvine is, since it looks like prices will be stable and below rental parity for many years to come.</blockquote>


I don't follow you, you say homes will stay stable and are at bottom and now you say prices are below rental parity.



I don't see many homes below rental parity. Did you mean above rental parity?
 
[quote author="Geotpf" date=1249450040][quote author="irvine_home_owner" date=1249440420][quote author="Geotpf" date=1249432836]

There will not be a V shaped recovery in housing prices. Housing will be near the bottom for years. However, in many areas, including Irvine, the bottom is already here or is very, very close.</blockquote>
So an 'L' shape? Like "Loser"?</blockquote>


Yup. And I'm not the loser in the scenerio-anybody who bought a house in Irvine is, since it looks like prices will be stable and below rental parity for many years to come.</blockquote>


Okay, I know it's hot and everyones cranky, but c'mon, QUIT TROLLING.
 
[quote author="Geotpf date=1249449895]Can anybody make an argument how stable prices for 10.5 months is <strong>NOT</strong> a bottom?</blockquote>Can we see how this graph would have looked circa 1993-95?
 
[quote author="xoneinax" date=1249457645][quote author="Geotpf date=1249449895]Can anybody make an argument how stable prices for 10.5 months is <strong>NOT</strong> a bottom?</blockquote>Can we see how this graph would have looked circa 1993-95?</blockquote>


Redfin didn't exist then. But that period proves my point-prices were stable during that period. In fact, they were more or less stable from 1993 until 1997, after collapsing in 1990-1992. That's what I'm predicting-2006 was 1990, 2007 is 1991, 2008 is 1992, so 2009 is 1993. So I guess that means prices should be stable until 2012. I am specifically <strong>not</strong> predicting a quick recovery, just stable prices for several years.



<img src="http://www.marginalrevolution.com/marginalrevolution/files/house_his.gif" alt="" />
 
Actually, it looks like they dropped until 1997/1998:



<img src="http://www.socalbubble.com/wp-content/uploads/2009/06/2socalbubbles.gif" alt="" />



Edit: Source is socalbubble.com
 
[quote author="Strom" date=1249473488]Actually, it looks like they dropped until 1997/1998:



<img src="http://www.socalbubble.com/wp-content/uploads/2009/06/2socalbubbles.gif" alt="" /></blockquote>


I think the drop in SoCal was longer than the drop nationally.



Edit: My prediction on the current bottom, however, is Irvine-specific. Riverside may still be dropping slightly, for instance, and it will be more affected once the eight grand tax credit expires on Dec 1.
 
Here's the article:



<a href="http://www.socalbubble.com/2009/07/when-is-the-bottom-myth-debunking-2.html">http://www.socalbubble.com/2009/07/when-is-the-bottom-myth-debunking-2.html</a>
 
[quote author="Geotpf" date=1249473627]



I think the drop in SoCal was longer than the drop nationally.</blockquote>


It was, but I thought we were talking about SoCal - specifically Orange County and Irvine...
 
[quote author="Strom" date=1249473793][quote author="Geotpf" date=1249473627]



I think the drop in SoCal was longer than the drop nationally.</blockquote>


It was, but I thought we were talking about SoCal - specifically Orange County and Irvine...</blockquote>


Fair enough. In any case, prices were falling on your graph-they weren't stable for 10.5 months.
 
[quote author="Geotpf" date=1249449895]

I'm not trolling. Look at Redfin's $/per square foot graph for Irvine.



<a href="http://www.redfin.com/city/9361/CA/Irvine">Graph</a>

</blockquote>


That's funny, to me the graph of the first half of 2009 looks very much like the first half of 2008.

If you cover the part of the graph after June 30 2008, does it look like prices were stabilizing in the middle of 2008?
 
Irvine median price 92-96 per DataQuick:



http://i27.tinypic.com/ouv6m0.jpg



Fixed mortgage rates:



http://mortgage-x.com/images/graph/historical_rates.gif



Taking a look at that, the bottom was in 96 since the rates were only slightly higher than 93, and adjusting for inflation prices were better. In other words, the prices were volatile, but they were flat from 92 to 96 if you smooth it out, rates remained in the same range, and wages went up... meaning you could buy more house if you waited until 96 from 92/93. I remind you all, we are very much in a similar situation as we were in 93... Low rates, sales picking up, and even more foreclosures looming. The ones who can do the math and understand the effects of inflation that they learned in econ 101, know that the real bottom is not in when prices remain flat or stable, but before they go up. Trying to catch up with inflation is a losers game. And for those who say you can't time the market... well... there are people smarter than you that can. Don't hate! Not everyone took econ 101, or if they did... did they understand it. It's cool, I'm sure there is something you do in life better than me, maybe we can share some time.
 
I remember that in 1994 the dollar weakened significantly and short term interest rates spiked, almost doubling it looks like. Could this have adversely lengthened out the stabilization period to five years, 1993-97 ? Without that, would the stabilization period have been shorter ?
 
Interest rates and prices are seperate, although connected. Obviously, if interest rates go up, prices will tend to fall (and vice versa), assuming all other factors are the same. But it doesn't look like interest rates are going to go up significantly in the short to medium term. If they do, that would change things, just like if the mythical shadow inventory actually appears.
 
[quote author="xoneinax" date=1249499013]I remember that in 1994 the dollar weakened significantly and short term interest rates spiked, almost doubling it looks like. Could this have adversely lengthened out the stabilization period to five years, 1993-97 ? Without that, would the stabilization period have been shorter ?</blockquote>


I have been looking at this same question. Why did prices continue to decline from 1994 to 1997?



When you look at the economic indicators, prices should not have fallen during this period. Unemployment peaked in 1993, and from 1994 through 1997 the economy was improving and people were going back to work. These conditions are supposed to produce increased demand and home price increases. Why didn't it?



When I have a good answer, I will write a post. A glimpse at this time period will foreshadow the next 3 years in our market.



The spike in interest rates in 1995 may have killed off the rally started in 1994 when the market in Irvine saw its lowest monthly median price (if you smooth out the numbers, the low is in late 1996). Interest rates rise when the economy picks up, so the 5% interest rates we are seeing now will go away just as the low interest rates in 1994 went away.



There had to have been a point, perhaps in 1995 when interest rates went up, that people changed their view about the value of a house. The psychology change made the market overshoot fundamental valuations to the downside in 1996 and 1997. What made the market psychology change? Was it 5 years of declining prices?



I want to understand what went on during this period because if history repeats itself, 2010-2012 will be much like 1994-1997.
 
[quote author="IrvineRenter" date=1249511580][quote author="xoneinax" date=1249499013]I remember that in 1994 the dollar weakened significantly and short term interest rates spiked, almost doubling it looks like. Could this have adversely lengthened out the stabilization period to five years, 1993-97 ? Without that, would the stabilization period have been shorter ?</blockquote>


I have been looking at this same question. Why did prices continue to decline from 1994 to 1997?



When you look at the economic indicators, prices should not have fallen during this period. Unemployment peaked in 1993, and from 1994 through 1997 the economy was improving and people were going back to work. These conditions are supposed to produce increased demand and home price increases. Why didn't it?



When I have a good answer, I will write a post. A glimpse at this time period will foreshadow the next 3 years in our market.



The spike in interest rates in 1995 may have killed off the rally started in 1994 when the market in Irvine saw its lowest monthly median price (if you smooth out the numbers, the low is in late 1996). Interest rates rise when the economy picks up, so the 5% interest rates we are seeing now will go away just as the low interest rates in 1994 went away.



There had to have been a point, perhaps in 1995 when interest rates went up, that people changed their view about the value of a house. The psychology change made the market overshoot fundamental valuations to the downside in 1996 and 1997. What made the market psychology change? Was it 5 years of declining prices?



I want to understand what went on during this period because if history repeats itself, 2010-2012 will be much like 1994-1997.</blockquote>
 
[quote author="hedgehog" date=1249481207][quote author="Geotpf" date=1249449895]

I'm not trolling. Look at Redfin's $/per square foot graph for Irvine.



<a href="http://www.redfin.com/city/9361/CA/Irvine">Graph</a>

</blockquote>


That's funny, to me the graph of the first half of 2009 looks very much like the first half of 2008.

If you cover the part of the graph after June 30 2008, does it look like prices were stabilizing in the middle of 2008?</blockquote>


First, make sure you switch the graph to houses only, and not them combined with condos. Condos are an inferior product that flatlined later, and may fall further, in a seasonal pattern as you suggest-it's too early to confirm a bottom for condos. My bottom call is for houses only and I was referring to the graph for such.



If you do that and look at houses only, prices were stable from the beginning of March to the beginning of July 08-only four months. But they were falling from the beginning of the graph in August 07 until March 08, and from July 08 until mid-September 08, and then flat until today-10.5 months, almost a full year. It's too long a period for seasonal factors to be part of it, although I would not be surprised if there was a slight drop in the winter and recovery in the spring.
 
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