General observation from the front lines about the Irvine housing market...

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[quote author="ABC123" date=1247629443]What exactly is overpaying? What if you want to stay in the same house you bought until your kids finish high school - do you really care if the home price drops twenty percent? How do you know that in the next fifteen years that rent will not increase 30%?</blockquote>


If I care so much about staying in the same home until my kids finish high school, why would I limit my apathy towards price drops to 20%? Why not 30%? or 50%? If I buy a home for $2,000,000 and want to stay in the same home until my kids finish high school, and prices drop another 20%, then I would not care about losing $400,000 in equity? Or $600,000 at 30%? Or $1,000,000 at 50%?



For me, living in the same home until my kids finish high school is not worth $400,000. Or $600,000. Or more. Living in the same neighborhood until my kids finish high school is important to us though. And we are renting in the neighborhood we plan to buy in for half of what the payments would be. And we are not making payments on a depreciating asset.



<em>"How do you know that in the next fifteen years that rent will not increase 30%?"</em>

No one knows the future so the question is a specious straw man argument without merit or logic. But, so far, I have been correct about home prices and rents. Home prices and rents are falling and will continue to fall. A few hours ago, I received a call from the representative of our landlord and found out that our landlord agreed to our request to renew our lease at a decreased monthly rent.



Home buyers are overpaying according to historical metrics of valuation and home prices will continue to fall. I guess I can rationalize any reason to make it worth it to me to not mind losing 20%, 30%, or 50%, but in the end, they would just be rationalizations and I would rather have the money. Interestingly, the vast majority of home purchasers would rather have the rationalizations.
 
[quote author="awgee" date=1247633475][quote author="ABC123" date=1247629443]What exactly is overpaying? What if you want to stay in the same house you bought until your kids finish high school - do you really care if the home price drops twenty percent? How do you know that in the next fifteen years that rent will not increase 30%?</blockquote>


If I care so much about staying in the same home until my kids finish high school, why would I limit my apathy towards price drops to 20%? Why not 30%? or 50%? If I buy a home for $2,000,000 and want to stay in the same home until my kids finish high school, and prices drop another 20%, then I would not care about losing $400,000 in equity? Or $600,000 at 30%? Or $1,000,000 at 50%?



For me, living in the same home until my kids finish high school is not worth $400,000. Or $600,000. Or more. Living in the same neighborhood until my kids finish high school is important to us though. And we are renting in the neighborhood we plan to buy in for half of what the payments would be. And we are not making payments on a depreciating asset.



</blockquote>


Again, buying a home is a very personal decision. The priorities for Awgee is certainly different from me or from many of us on the forum. I assume many people would like to have the whole family and kids to enjoy living and growing up in a home than say "I grew up in this IAC apartment complex" or "I grew up in this 4 bedroom house we rented for 5 years". If someone is holding off to pay 2 million dollar for a home, then, it is not a good time to jump in now. I figure I would probably need to have a net worth of 3-4 million and have a stable yearly income of half a mil to even consider buying a 2 mil home. It is like, do I really need to buy a Bentley?



I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.
 
[quote author="Look4house" date=1247648291][

I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</blockquote>


What is your reasoning that 50% is impossible if you freely admit that 20% or 30% is possible?





What if interest rates go from the current 5% to 12%?



$1M @5% = 5,308.31 (using the IHB calculator)



$600k @12% = 5,325
 
[quote author="Look4house" date=1247648291][quote author="awgee" date=1247633475][quote author="ABC123" date=1247629443]What exactly is overpaying? What if you want to stay in the same house you bought until your kids finish high school - do you really care if the home price drops twenty percent? How do you know that in the next fifteen years that rent will not increase 30%?</blockquote>


If I care so much about staying in the same home until my kids finish high school, why would I limit my apathy towards price drops to 20%? Why not 30%? or 50%? If I buy a home for $2,000,000 and want to stay in the same home until my kids finish high school, and prices drop another 20%, then I would not care about losing $400,000 in equity? Or $600,000 at 30%? Or $1,000,000 at 50%?



For me, living in the same home until my kids finish high school is not worth $400,000. Or $600,000. Or more. Living in the same neighborhood until my kids finish high school is important to us though. And we are renting in the neighborhood we plan to buy in for half of what the payments would be. And we are not making payments on a depreciating asset.



</blockquote>


Again, buying a home is a very personal decision. The priorities for Awgee is certainly different from me or from many of us on the forum. I assume many people would like to have the whole family and kids to enjoy living and growing up in a home than say . If someone is holding off to pay 2 million dollar for a home, then, it is not a good time to jump in now. I figure I would probably need to have a net worth of 3-4 million and have a stable yearly income of half a mil to even consider buying a 2 mil home. It is like, do I really need to buy a Bentley?



I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</blockquote>






There certainly are "<em>a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</em>" Why did you delete the portion of my quote, "<em>Interestingly, the vast majority of home purchasers would rather have the rationalizations.</em>", where we agree on this point? To the majority, many things seem unbelievable and without the majority thinking so, they would not happen. The market moves opposite the way the majority believes. I remember about four years ago when a lot of folks considered buying a home to be a great thing to do for whatever reason. It was personal. I wonder what their personal feelings are now. The fact that there are folks desperate to buy in Irvine and overbidding shows me that there is a real estate bubble currently being blown in Irvine, and like all bubbles, it will pop ... with great pain to those who bought in the midst. What is it that Buffett says? "Be fearful when others are greedy, and greedy when others are fearful?"







Why would now be any different of a time to buy a $2,000,000 than a $500,000 if "<em>Again, buying a home is a very personal decision</em>"? Why is the cost of the home a factor? Are you sure my priorities are different? Maybe I have experienced being upside down on a mortgage and know what it feels like as opposed to some who may project that they will not mind losing 20% so their children will not have to say, <em>"I grew up in this IAC apartment complex" or "I grew up in this 4 bedroom house we rented for 5 years"</em>, but they have never actually experienced being upside down. Maybe I have experienced the rationalizations and recognize them for what they are. Or maybe not. After all, what do I know?







If the majority did not buy at the wrong time, we would not have available to us the wonderfully descriptive phrase, "knifecatchers".
 
[quote author="Look4house" date=1247648291]

I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</blockquote>




The low end has already bled.



The mid-tier, homes that are between $500,000 and $1,000,000 haven't.



I suspect the compression we are about to see in the mid-tier is going to get very ugly.



$500K maybe not. $600K-ish as Gary Watts would say, it's in the bag! As long as interest rates hover around 5% and 20% down isn't needed, it won't.



Frankly, today's million dollar homes aren't million dollar homes. They're not high end. They just big tract homes. They're going for a spanking.
 
[quote author="freedomCM" date=1247649705][quote author="Look4house" date=1247648291][

I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</blockquote>


What is your reasoning that 50% is impossible if you freely admit that 20% or 30% is possible?





What if interest rates go from the current 5% to 12%?



$1M @5% = 5,308.31 (using the IHB calculator)



$600k @12% = 5,325</blockquote>


freedom, good question and intellectually stimulating. I am no economist. But I think if the interest rate go above 10%, the world economy will fall off the cliff, the Dow will fall below 5000, banks will be nationalized, unemployement rate will go to 20%, Mr. Obama will be murdered, and China will take over the world. No jokes.
 
We sold in 2005, and have been renting ever since. Interestingly, none of my children have ever said, "We are growing up in a 4 bedroom house that we rented." Because of conversations with my wife, my girls have asked and now know the difference between renting and owning, but I have never heard them complain or express any dissatisfaction with our living conditions. I wonder what children would. It seems to me, home for my children is wherever their parents are, nothing more, nothing less. And I can not help but further to wonder how many people who think their children may feel slighted by living in a rented home instead of a home owned by the bank, are not actually projecting their own feelings of lack upon their children instead of taking a look in the mirror.











Sorry, I lied a bit. We have not exactly rented ever since. After the lease ran out on our first home, we took advantage of not having any rent payment, mortgage payment, utility bills, property taxes, HOAs, etc, and went on a vacation in an RV across the United States for the entire summer. I guess some may feel my children are deprived of living in one home for their entire childhood, especially for those two months, or maybe living in an RV for the summer may have been too transitory. Oh well, I guess they can tell their therapist when are older.
 
[quote author="No_Such_Reality" date=1247652043][quote author="Look4house" date=1247648291]

I have no question that the market is still on the way down, but to say that we will be 50% down at the bottom for the general market seems unbelievable. The house that are going for $1 mil now will not be selling $500,000 at the bottom IMHO. So, loosing 20%-30% buying now vs at the bottom is a possiblity. The recent trends and market activities prove that there are a lot of buyers out there consider the enjoyment and satisfaction of owning a home now is worth loosing 20-30% for homes that are less than $1mil.</blockquote>




The low end has already bled.



The mid-tier, homes that are between $500,000 and $1,000,000 haven't.



I suspect the compression we are about to see in the mid-tier is going to get very ugly.



$500K maybe not. $600K-ish as Gary Watts would say, it's in the bag! As long as interest rates hover around 5% and 20% down isn't needed, it won't.



Frankly, today's million dollar homes aren't million dollar homes. They're not high end. They just big tract homes. They're going for a spanking.</blockquote>


The lower end has bled and will bleed much more. Price was not the reason the lower end bled first. The shortened interest payment only period for subprime borrowers was the reason the lower end bled first, but there are just as many Alt-A and prime borrowers in the lower end market who are underwater and going further every day. They are defaulting and will continue to default through 2016 and the lower end market will continue to bleed.
 
awgee, please forgive me if you feel my post was attacking your views. I am in no mood of arguing with anyone and have no intention to do so. I understand there are difference in opinions and I respect your expertise.



[quote author="awgee" date=1247651668]Why would now be any different of a time to buy a $2,000,000 than a $500,000 if "<em>Again, buying a home is a very personal decision</em>"? Why is the cost of the home a factor? Are you sure my priorities are different? </blockquote>


Briefly, based on what you said, I assume your priority of waiting to buy a house is because the prices are "way too expensive" from your point of view. Correct me if I am wrong. For many, prices alone is not the sole deciding factor. I emphasized again if someone is itching to spend 2,3 mil to buy a house, it is a very bad financial decision to make a purchase now in Irvine. Why is the cost of a home a factor? Simply, you cannot loose $500k buying a $500k home, but you can easily loose $500k on a $3mil home. So, if you say you don't want to loose $600,000, it would apply to Shady Canyon homes, but not to the majority of homes that are around $1mil based on the current trends.



[quote author="awgee" date=1247653026]And I can not help but further to wonder how many people who think their children may feel slighted by living in a rented home instead of a home owned by the bank, are not actually projecting their own feelings of lack upon their children instead of taking a look in the mirror.</blockquote>


Like yours, my kids did not complain. But I feel like as parent, I should provide them a home which they can call it is their space when I can afford to do so. If renting a home is always a better financial decision, then I should rent for the rest of my life and take the money with me to the grave.



Finally, the current jack up in prices could be a mini bubble brewing. I think, the smog will clear a bit by the end of the year.
 
Here is what I have learned by working with several buyers....every buy has their own "must have" and "want to have" list along with their own reasons why they are looking to buy now. I tell all my buyers that there is a substantial risk of the property being worth less than what they may pay for it, but there are other intangible aspects that they value vs. a possible unrealized loss. As a buyer's agent, I'm there to provide my buyers the information that they need to review and analyze before making a decision to bid or pass on a property. I'm also there to negotiate on their behalf and try to make the home buying process as painless as possible. Some buyers are a little more anxious to find that right property while others have the luxury of sitting on the sidelines and waiting for their property to come along at the price they are willing to pay for it.



All that being said, the sellers of both properties that I'm in escrow on are both folks who moved out of their properties and had their homes staged. So I guess you can say that both were somewhat motivated sellers as compared to some of the other organic sellers who don't have to sell and are just looking for a sucker to accept their WTF asking price that above all current comps.
 
[quote author="IrvineRenter" date=1244581538]I attended the Building Industry Association of Orange County (BIA OC) event last night, and I spoke with many people. Several told me that new home sales, particularly new condo sales, were up dramatically in May. The combination of low prices, low interest rates and a $10,000 tax break from the State of California have had an impact.



Of course, these stimuli are temporary, but it was good news for an industry that has shrunk 90% over the last three years. (BTW, I am not exaggerating about the 90% decline in the homebuilding industry).



Nobody mentioned the sudden change in interest rates; if any are aware of it, it is something they would rather not think about. I cannot adequately convey to you the despair in the homebuilding industry; even the survivors are traumatized.</blockquote>


I don't think the interest rates will hike soon.
 
[quote author="Look4house" date=1247656181]awgee, please forgive me if you feel my post was attacking your views. I am in no mood of arguing with anyone and have no intention to do so. I understand there are difference in opinions and I respect your expertise.



[quote author="awgee" date=1247651668]Why would now be any different of a time to buy a $2,000,000 than a $500,000 if "<em>Again, buying a home is a very personal decision</em>"? Why is the cost of the home a factor? Are you sure my priorities are different? </blockquote>


Briefly, based on what you said, I assume your priority of waiting to buy a house is because the prices are "way too expensive" from your point of view. Correct me if I am wrong. For many, prices alone is not the sole deciding factor. I emphasized again if someone is itching to spend 2,3 mil to buy a house, it is a very bad financial decision to make a purchase now in Irvine. Why is the cost of a home a factor? Simply, you cannot loose $500k buying a $500k home, but you can easily loose $500k on a $3mil home. So, if you say you don't want to loose $600,000, it would apply to Shady Canyon homes, but not to the majority of homes that are around $1mil based on the current trends.



[quote author="awgee" date=1247653026]And I can not help but further to wonder how many people who think their children may feel slighted by living in a rented home instead of a home owned by the bank, are not actually projecting their own feelings of lack upon their children instead of taking a look in the mirror.</blockquote>


Like yours, my kids did not complain. But I feel like as parent, I should provide them a home which they can call it is their space when I can afford to do so. If renting a home is always a better financial decision, then I should rent for the rest of my life and take the money with me to the grave.



Finally, the current jack up in prices could be a mini bubble brewing. I think, the smog will clear a bit by the end of the year.</blockquote>
Forgive you? Huh? For attacking my views? Seriously?

I can not imagine how boring the forums would be and how worthless the forums would be if everyone agreed with one another.

Or are you being sarcastic?

"<em>For many, prices alone is not the sole deciding factor.</em>"

Who said prices are the sole deciding factor? I have never read a comment in the IHB in which anybody ever said price was the sole deciding factor.

Nor have I ever read where anyone ever said that renting was always a better financial decision.

Both are strawman arguments and whether it is your intention or not to argue, that is what you are doing. I do not mind. What is wrong with disagreeing?

I also would prefer to own a home and would like my girls to be able to paint and decorate their rooms in the manner they prefer.

I have heard, (read), about a thousand times, (exaggeration), a writer comment how they do not mind if they lose 10%, 20%, or whatever, and I doubt it. Many times they put the onus on their children so they sound noble, but I am cynical and am suspicious when folks blame their children for their poor financial decisions. And the truth is, if they were willing to look at the truth, that they will not lose 10% or 20%, but will actually lose 100% of their equity. But it sounds so much more reasonable to say 20%.
 
[quote author="Look4house" date=1247648291][quote author="awgee" date=1247633475][quote author="ABC123" date=1247629443]What exactly is overpaying? What if you want to stay in the same house you bought until your kids finish high school - do you really care if the home price drops twenty percent? How do you know that in the next fifteen years that rent will not increase 30%?</blockquote>


If I care so much about staying in the same home until my kids finish high school, why would I limit my apathy towards price drops to 20%? Why not 30%? or 50%? If I buy a home for $2,000,000 and want to stay in the same home until my kids finish high school, and prices drop another 20%, then I would not care about losing $400,000 in equity? Or $600,000 at 30%? Or $1,000,000 at 50%?



For me, living in the same home until my kids finish high school is not worth $400,000. Or $600,000. Or more. Living in the same neighborhood until my kids finish high school is important to us though. And we are renting in the neighborhood we plan to buy in for half of what the payments would be. And we are not making payments on a depreciating asset.



</blockquote>


Again, buying a home is a very personal decision. The priorities for Awgee is certainly different from me or from many of us on the forum.</blockquote>


Most people on the forum would agree with awgee. They're not gonna be supportive of your decision to buy now.
 
<blockquote>Simply, you cannot loose $500k buying a $500k home, but you can easily loose $500k on a $3mil home.</blockquote>


i think what awgee was trying to say was you can lose 100% of your investment.



in my experience what i've found is when people are looking to buy, they rationalize any potential losses as acceptable. they just keep thinking about that million dollar home... and conveniently forget the fact that you won't really own a million bucks of anything - you might have $250k in equity and $750,000 of debt, conservatively speaking.



as a homeowner in a declining market, those numbers become very real. a 20-30% decline means would have lost the entirety of your investment. a mere 10% decline in prices from this point (almost a given) means losing almost half of the money that many families spend a decade of after-tax savings to accumulate. when you think of it that way, even the smallest decline in home values is not so trivial.
 
[quote author="traceimage" date=1247704234][quote author="Look4house" date=1247648291][quote author="awgee" date=1247633475][quote author="ABC123" date=1247629443]What exactly is overpaying? What if you want to stay in the same house you bought until your kids finish high school - do you really care if the home price drops twenty percent? How do you know that in the next fifteen years that rent will not increase 30%?</blockquote>


If I care so much about staying in the same home until my kids finish high school, why would I limit my apathy towards price drops to 20%? Why not 30%? or 50%? If I buy a home for $2,000,000 and want to stay in the same home until my kids finish high school, and prices drop another 20%, then I would not care about losing $400,000 in equity? Or $600,000 at 30%? Or $1,000,000 at 50%?



For me, living in the same home until my kids finish high school is not worth $400,000. Or $600,000. Or more. Living in the same neighborhood until my kids finish high school is important to us though. And we are renting in the neighborhood we plan to buy in for half of what the payments would be. And we are not making payments on a depreciating asset.



</blockquote>


Again, buying a home is a very personal decision. The priorities for Awgee is certainly different from me or from many of us on the forum.</blockquote>


Most people on the forum would agree with awgee. They're not gonna be supportive of your decision to buy now.</blockquote>


This is meant to clarify, not to be picky.

I am congratulatory of someone when they tell me they are buying now or any other time. I wish them the best, truly.

I understand the desire to own rather than rent. I would rather own than rent ... well, most of the time. Sometimes it is nice to have less responsibility.

I understand wanting to raise children in one neighborhood. I see many advantages to such.

I understand someone buying and knowing full well they are going to lose their equity.

But, I am calling nonsense when they say they will not mind. I have been there. I am not different than anyone else, and they will mind. It will hurt. It may be worth the pain, but they are fooling themselves if they say they will not care. And the difference between going into a purchase with eyes wide open or in denial is huge. It may be the difference between purchasing or being willing and able to wait out the downturn and being underwater.

If I was a real estate agent, that is what I would tell my clients.
 
[quote author="traceimage" date=1247704234]



Most people on the forum would agree with awgee. They're not gonna be supportive of your decision to buy now.</blockquote>


Did I tell anyone to buy now? If so, I would like to know. I know I have point to the fact that many people are buying and prices alone is not the only factor. Again, I feel stupid to go back and forth picking on certain things people said. If any of you found this enjoyable, then count me out. If anyone think buying a house now=overpaying=fools, then I guess there are a lot of fools in this world. If the real estate agents don't stop people from buying homes now, they are fools too, I guess.
 
[quote author="Look4house" date=1247717141][quote author="traceimage" date=1247704234]



Most people on the forum would agree with awgee. They're not gonna be supportive of your decision to buy now.</blockquote>


Did I tell anyone to buy now? If so, I would like to know. I know I have point to the fact that many people are buying and prices alone is not the only factor. Again, I feel stupid to go back and forth picking on certain things people said. If any of you found this enjoyable, then count me out. If anyone think buying a house now=overpaying=fools, then I guess there are a lot of fools in this world. If the real estate agents don't stop people from buying homes now, they are fools too, I guess.</blockquote>


Maybe my previous statement came out wrong. I just meant that most people on this forum don't think now is the time to buy. Good luck with whatever you decide to do.
 
In absorbing most of the posts on this forum and the blog the sentiment is "do what suits you and your family needs".



Most advice or points made by senior members seem to indicate



1. Prices are going to drop further just based on fundamentals (income ratio, unemployment, shadow inventory etc.)

2. Assess the value home ownership brings vs projected price drops and pick your choice. If you are comfortable with losing $1,000,000 (as pointed earlier by Look4House) in equity for sake of providing your kids the satisfaction of staying in 1 neighborhood so be it. A lot of people would just prefer to wait and rent in the same neighborhood and buy from people who will eventually be underwater as is the case currently in a lot of neighborhoods now and would want to walk (depending on a variety of factors).



I know 2 couples who said similar things, bought during the bubble, make good money, can still afford their houses but are now thinking of defaulting just to get an adjustment from the bank because they are 20% underwater even with a 15% downpayment.
 
[quote author="Look4house" date=1247717141]If anyone think buying a house now=overpaying=fools, then I guess there are a lot of fools in this world. If the real estate agents don't stop people from buying homes now, they are fools too, I guess.</blockquote>


Consider a more nuanced look at this: anyone who is buying a house right now <em>for financial reasons</em> is overpaying and making a foolish decision. There are non-financial reasons people buy, and these are legitimate reasons.



Real estate agents are pressuring people to buy right now because they are telling them prices are at the bottom and that if they do not buy now they will be priced out forever. This is manipulative bullshit, and those people that do it are either fools or worse.



If you look back at the real estate bubble there were a lot of fools in the world who were encouraged by real estate agents, so it isn't like there isn't recent precedence that supports the belief you are mocking.
 
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