Housing Analysis

[nosuchreality]

The USA has about 5.3 million house sales a year.

From 2006 to 2014, we've had 9.3 million foreosures and short sales.  All that while spending billions to modify and keep people in their homes.  Basically 20%.

 

[irvinehomeowner]

It's easy for somebody that already owns to tell a first time buyer "Hey, go ahead and throw away $200,000 of savings.  Life is too short."  Of course, if you told the existing owners to throw that same amount of money away, they would call you crazy. 

And yet by timing the market, the first time buyers can also afford a much better location.  Irvine may be forever, but so are toxic plumes.

It makes no sense to buy if:

1) Prices are declining.

2) Rates are declining.

3) Rents are declining.

Timing the market is a win/win/win because all three are happening in Irvine as we speak.

I completely agree. I work with a lot of younger people and many of them are getting bad advice to jump in.

"anytime is a good time to buy in Irvine" or "It's almost impossible to time the market so don't even bother" are just nonsense.

Renting has another big of advantage of staying portable. You can also avoid the 5-6% transaction cost when you eventually have to sell or move up.

This is key especially in today's economy where people move and change jobs more and more often. 

There's a little bit of hyperbole and missing context in both of these posts.

1. A first-time home buyer usually isn't buying a $1m home so I don't think anyone is recommending they "throw away $200k of savings". I actually recommend that if they can afford the monthly, to look for lower down financing like FHA. That's what I did on my first home, 3% down. But back then, Irvine starter SFRs weren't in the $800k+ range. This is probably the only time I would look at attached homes... or find the smallest detached one you can afford.

2. If rates are declining, that's actually a good time to buy because as low as they are now, it's more probable they will go up than go down significantly enough to warrant waiting. But no one can guarantee the direction of rates (as we have seen many times by almost everyone here) so I can't really say this qualifies as driver of when to buy.

3. I don't think anyone has said "anytime is a good time to buy" or "don't bother timing" without caveats. Affordability and stability are key drivers for timing. This removes the excuses of transaction costs and mobility. Obviously if you don't think you will be in your job or if you don't know what your finances are, buying is not the best decision... however, that is a personal determination. I know people who have moved jobs but stayed in the same area and each job was higher pay than the previous so in their case, buying would work because they could afford it and they didn't have to sell their home. I think meccos even posted a link that shows most home buyers in Irvine stay put longer than 7 years.

Again, if your finances or job stability is suspect, then waiting is probably more prudent. But if you have the money, have the stability, and are looking to own and tired of renting... buying at the top or the bottom, you will end up okay over the long haul. It's obviously better to buy at the bottom, but at the same time, what kind of stock are you looking at during that time? Most good homes won't be available at the bottom (people will wait to list if prices are low) and competition for any good homes will drive the price higher than you want (I experienced this with a house in Quail Hill, it didn't even get to the open house because it was bid up above asking and went into escrow a few days after hitting the MLS).

And now that I think about it, when prices are low... buying new is probably better than resale, which is one advantage Irvine currently has over surrounding cities (except maybe Lake Forest). You get the price protection of a herd buy-in, you can select model/location/upgrades and there could be favorable discounts from the builder. The cons are it may take a while to build your home unless you get a move-in ready one and Mello Roos (if you're buying in Irvine). If you don't really need to live in Irvine (say you work in the Spectrum), then maybe those new homes in Lake Forest are a better option, but that is also a personal decision only the buyer can make.

@Kenkoko: Here's a question similar to what CV posted. Do you rent or own? Do your friends rent or own? For those who rent and didn't move around, if they could afford it, would they have been better of owning?

 

[Happiness]

3. I don't think anyone has said "anytime is a good time to buy" or "don't bother timing" without caveats.

Of course there are caveats. If you are starting out in life, then of course renting makes the most sense. If you are in your mid 30s or older and are already established in life, waiting for the right time in the cycle is a waste of your life. Do you have a history of cancer or heart disease in your family? How long are you planning to live? You like moving your kids around to different schools? Forget renting, you only have one life to live. Your kids only have one childhood.

 

[Mety]

my grave will have a 3cwg with zero-lot-lines and smell like asphalt

3CWG with zero lot lines is like corn flakes without the milk.

I think I'm the only one who doesn't really mind the smell of asphalt. Garbage on the other hand (like near Columbus Grove)... bleh.

Yeah what is that smell? That same smell is also at near University and Harvard. Is that from the creek?

South of Warner in between the District and Columbus Grove is a Waste Management facility... you can smell it ever time you take Warner from Culver towards Costco right before you pass under Jamboree.

Is it really from the WM facility? I was at one of those car service places which was right next to that WM facility and I couldn't smell anything there. I think the smell might be from San Diego Creek since I smell that same odor somewhere in Woodbridge and Rancho San Joaquin where I could see the creek. I could be wrong.

 

[irvinehomeowner]

As far as I know it is. I've dropped off trash there and it smells... not like asphalt.

 

[Mety]

"Anytime is good time to buy" is misleading in my opinion. Let me share my idea for residential properties only, not investment.

If your financial situation can afford a home and if you're comfortable with your family buying a property that you really like and can see staying there for awhile, then I think you should buy no matter what the time/cycle. I think even stretching a little bit is ok also if your income tends to keep going up each year (raise, bonus etc.). But if you're buying just because everyone else is buying, then that's obviously not a good reason. Also I think sacrificing a location is not ideal either. You should buy where your work is close and where your life happens the most (church, synagogue, pre-schools, etc.).

BUT in my opinion, buying with lower than 20% is not a good idea. Having a big chunk of money is the first step. Possibly with 30-40% down payment, then I think the timing doesn't really matter too much. Some people have parents helping, some people just make more money, and whatever, but saving couple years is the most ideal without getting your parents involved. Everyone is different so I can't say what would work best for you though. There are some people who started with the minimum down like 3% or something, but I think that worked better maybe when the homes were like $300k. Now with $800k homes being lower ends (in Irvine), lower down would be too much risk IMHO.

 

[Mety]

As far as I know it is. I've dropped off trash there and it smells... not like asphalt.

If you say it's the same smell you experience when you drive under Jamboree, then maybe you're more correct than I am.
I just wanna figure out why I smell the same odor in these locations -

a. Barranca & Harvard
b. University & Harvard
c. Barranca/Alton & Yale

The only thing common in these areas is that there is that San Diego Creek flowing nearby.

 

[eyephone]

Fox Business Article: NYC housing prices in near 'free fall,' conditions mirror recession era following tax hikes

The median sales price for properties fell 17 percent from the same quarter last year, to $999,950, according to new data from CORE. The average sales price dropped 12 percent, to $1.64 million.

Condo sales fell 8 percent, logging 946 transactions. Co-op sales, on the other hand, were up a modest 2 percent year over year.
https://www.foxbusiness.com/real-estate/nyc-housing-prices-near-free-fall-recession-era-tax-hikes

It might be the new RE tax for NYC and/or salt deduction limit.

a sign?

 

[irvinehomeowner]

BUT in my opinion, buying with lower than 20% is not a good idea. Having a big chunk of money is the first step. Possibly with 30-40% down payment, then I think the timing doesn't really matter too much. Some people have parents helping, some people just make more money, and whatever, but saving couple years is the most ideal without getting your parents involved. Everyone is different so I can't say what would work best for you though. There are some people who started with the minimum down like 3% or something, but I think that worked better maybe when the homes were like $300k. Now with $800k homes being lower ends (in Irvine), lower down would be too much risk IMHO.

What's the risk?

I'll break it down into 2 extremes:

1. Prices escalate: Your 3% investment now has close to 20% equity in the new value and you can move-up by just selling your house.
2. Prices freefall: You can short sell or foreclose and only lose 3%. Or just hold, as you're not as worried with only 3% of skin in the game.

But either way, if you can afford the monthly at 3% down, you don't have to sell and can just live in your home without having to put too much of your savings into it... for people just starting out, that could help.

 

[Mety]

BUT in my opinion, buying with lower than 20% is not a good idea. Having a big chunk of money is the first step. Possibly with 30-40% down payment, then I think the timing doesn't really matter too much. Some people have parents helping, some people just make more money, and whatever, but saving couple years is the most ideal without getting your parents involved. Everyone is different so I can't say what would work best for you though. There are some people who started with the minimum down like 3% or something, but I think that worked better maybe when the homes were like $300k. Now with $800k homes being lower ends (in Irvine), lower down would be too much risk IMHO.

What's the risk?

I'll break it down into 2 extremes:

1. Prices escalate: Your 3% investment now has close to 20% equity in the new value and you can move-up by just selling your house.
2. Prices freefall: You can short sell or foreclose and only lose 3%. Or just hold, as you're not as worried with only 3% of skin in the game.

But either way, if you can afford the monthly at 3% down, you don't have to sell and can just live in your home without having to put too much of your savings into it... for people just starting out, that could help.

I think the risk is more that you're frustrated every month to pay that extreme amount of money especially a lot more than rent with such as 3% down payments start.

Sure, they won't give you loan if you're not qualified, but as you know there are always ways to get around.

Sure, the worst case scenario is that the home forecloses and you only lose 3%, but that's just the money you lost. All the efforts, time, emotion, conflicts, stress, family are the factors you need to count.

But like it worked for you, it could work or help others too. If you're making $300k a year and only have 3% savings to down pay, then yeah, it might fine. But if you're making $300k, why don't you save a year or two and have 20% to start your mortgage first?  Every situation is different so I can't say what's absolutely right in RE. Just sharing my opinion.

 

[meccos12]

I wonder how you plan to buy a house when you can afford it and live in it to be consider throwing money away?

Isn?t renting to no ends doing just that?

At least buying is a forced saving.

Compare a person bought at 2006 and renting at 2006 until now, who is better off?

Lets compare a person who bought in 2006 versus renting till now.  For the average person who bought in California, the home value is about the same or slighter high now than in 2006.  During those 10 years, you would have built up about 22% equity ( at 30 year fixed with no extra payments) but most of the payments were made on interest.  Lets also not forget about property taxes, HOA, insurance, maintenance costs.  However, the person who rented could have used the downpayment money and the money saved each month from not owning and invested that in a S&P 500 fund, which would have nearly tripled by now.  So who is the clear winner?  The only way a homeowner would come out ahead in this situation is if there was a significant amount of appreciation.  Unfortunately the appreciation from 2006 till now is literally small to none. 

 

 

[meccos12]

Fox Business Article: NYC housing prices in near 'free fall,' conditions mirror recession era following tax hikes

The median sales price for properties fell 17 percent from the same quarter last year, to $999,950, according to new data from CORE. The average sales price dropped 12 percent, to $1.64 million.

Condo sales fell 8 percent, logging 946 transactions. Co-op sales, on the other hand, were up a modest 2 percent year over year.
https://www.foxbusiness.com/real-estate/nyc-housing-prices-near-free-fall-recession-era-tax-hikes

It might be the new RE tax for NYC and/or salt deduction limit.

a sign?

I saw something on the news today that was shocking.  More than 25% of NYC condos built after 2013 remain unsold.  OUCH!

 

[Mety]

I wonder how you plan to buy a house when you can afford it and live in it to be consider throwing money away?

Isn?t renting to no ends doing just that?

At least buying is a forced saving.

Compare a person bought at 2006 and renting at 2006 until now, who is better off?

Lets compare a person who bought in 2006 versus renting till now.  For the average person who bought in California, the home value is about the same or slighter high now than in 2006.  During those 10 years, you would have built up about 22% equity ( at 30 year fixed with no extra payments) but most of the payments were made on interest.  Lets also not forget about property taxes, HOA, insurance, maintenance costs.  However, the person who rented could have used the downpayment money and the money saved each month from not owning and invested that in a S&P 500 fund, which would have nearly tripled by now.  So who is the clear winner?  The only way a homeowner would come out ahead in this situation is if there was a significant amount of appreciation.  Unfortunately the appreciation from 2006 till now is literally small to none. 

What about a person who's been renting but not invested in a S&P 500 or whatever stocks? At least the person who owns has his/her own home with no money or little lost whereas the renter's monthly payments have been wasted for the last 10 years. There could possibly be someone who rented for 10 years and invested really well on stock options and stuff, but I think that's a very rare case also. I'm not disagreeing with your market top call last year though. I just think owning for 10 years is usually better than renting for 10 years even if the person bought at the peak.

 

[eyephone]

BUT in my opinion, buying with lower than 20% is not a good idea. Having a big chunk of money is the first step. Possibly with 30-40% down payment, then I think the timing doesn't really matter too much. Some people have parents helping, some people just make more money, and whatever, but saving couple years is the most ideal without getting your parents involved. Everyone is different so I can't say what would work best for you though. There are some people who started with the minimum down like 3% or something, but I think that worked better maybe when the homes were like $300k. Now with $800k homes being lower ends (in Irvine), lower down would be too much risk IMHO.

What's the risk?

I'll break it down into 2 extremes:

1. Prices escalate: Your 3% investment now has close to 20% equity in the new value and you can move-up by just selling your house.
2. Prices freefall: You can short sell or foreclose and only lose 3%. Or just hold, as you're not as worried with only 3% of skin in the game.

But either way, if you can afford the monthly at 3% down, you don't have to sell and can just live in your home without having to put too much of your savings into it... for people just starting out, that could help.

I think the risk is more that you're frustrated every month to pay that extreme amount of money especially a lot more than rent with such as 3% down payments start.

Sure, they won't give you loan if you're not qualified, but as you know there are always ways to get around.

Sure, the worst case scenario is that the home forecloses and you only lose 3%, but that's just the money you lost. All the efforts, time, emotion, conflicts, stress, family are the factors you need to count.

But like it worked for you, it could work or help others too. If you're making $300k a year and only have 3% savings to down pay, then yeah, it might fine. But if you're making $300k, why don't you save a year or two and have 20% to start your mortgage first?  Every situation is different so I can't say what's absolutely right in RE. Just sharing my opinion.

Maybe you already mentioned it. But to pay the additional PMI for only 3% doesn?t sound attractive. It?s like an additional HOA fee with no benefit. (Benefit for the bank that is wink)

 

[Mety]

BUT in my opinion, buying with lower than 20% is not a good idea. Having a big chunk of money is the first step. Possibly with 30-40% down payment, then I think the timing doesn't really matter too much. Some people have parents helping, some people just make more money, and whatever, but saving couple years is the most ideal without getting your parents involved. Everyone is different so I can't say what would work best for you though. There are some people who started with the minimum down like 3% or something, but I think that worked better maybe when the homes were like $300k. Now with $800k homes being lower ends (in Irvine), lower down would be too much risk IMHO.

What's the risk?

I'll break it down into 2 extremes:

1. Prices escalate: Your 3% investment now has close to 20% equity in the new value and you can move-up by just selling your house.
2. Prices freefall: You can short sell or foreclose and only lose 3%. Or just hold, as you're not as worried with only 3% of skin in the game.

But either way, if you can afford the monthly at 3% down, you don't have to sell and can just live in your home without having to put too much of your savings into it... for people just starting out, that could help.

I think the risk is more that you're frustrated every month to pay that extreme amount of money especially a lot more than rent with such as 3% down payments start.

Sure, they won't give you loan if you're not qualified, but as you know there are always ways to get around.

Sure, the worst case scenario is that the home forecloses and you only lose 3%, but that's just the money you lost. All the efforts, time, emotion, conflicts, stress, family are the factors you need to count.

But like it worked for you, it could work or help others too. If you're making $300k a year and only have 3% savings to down pay, then yeah, it might fine. But if you're making $300k, why don't you save a year or two and have 20% to start your mortgage first?  Every situation is different so I can't say what's absolutely right in RE. Just sharing my opinion.

Maybe you already mentioned it. But to pay the additional PMI for only 3% doesn?t sound attractive. It?s like an additional HOA fee with no benefit. (Benefit for the bank that is wink)

or an additional Mello-Roos tax  ;D
Also don't you lose all the interests you've been paying if your home forecloses? If that's the case, then it's not just 3% you lose.

 

[Liar Loan]

Here is another data source showing declining prices for Irvine.  The median peaked in December 2018 at $869,600 and now for September 2019 it sits at $849,600, a 2.3% decline over the hot summer selling season!!

See pages 3 and 4:http://ochousingnews.com/wp-content/uploads/2019/09/New-OC-Irvine-Ocotber-Market-Report.pdf

 

[jamesKirk]

We went 10% down and have no problem paying the PMI. Most of our money is in savings and we don?t want to touch it. 10% on our house is around 70k so that was a barrier for us to get into a home in a market like Irvine. We would have had to wait another year or two before we could go 20% down. We?re middle class, but have good jobs and can afford the payments just fine. Even in a downturn I?m confident we?d be ok. Granted we?re not planning to sell anytime soon. We bought to live in the house which seems rare on here or Irvine in general. We aren?t thinking about ROI, but simply what payments could we afford and what?s the ?best? place we can get under that monthly cost.

You have to think of your mortgage as just borrowing money, it?s not just for a house. Instead of sticking 10, 20%+ extra into your house think if your investments or savings are earning as much or more than the mortgage rate + PMI rate. Even if your lazy at the low end you can get a high yield savings account at around 2.2%+. So if your entire mortgage+PMI is about 4% your not actually losing a whole lot by putting a small amount down.

 

[meccos12]

I wonder how you plan to buy a house when you can afford it and live in it to be consider throwing money away?

Isn?t renting to no ends doing just that?

At least buying is a forced saving.

Compare a person bought at 2006 and renting at 2006 until now, who is better off?

Lets compare a person who bought in 2006 versus renting till now.  For the average person who bought in California, the home value is about the same or slighter high now than in 2006.  During those 10 years, you would have built up about 22% equity ( at 30 year fixed with no extra payments) but most of the payments were made on interest.  Lets also not forget about property taxes, HOA, insurance, maintenance costs.  However, the person who rented could have used the downpayment money and the money saved each month from not owning and invested that in a S&P 500 fund, which would have nearly tripled by now.  So who is the clear winner?  The only way a homeowner would come out ahead in this situation is if there was a significant amount of appreciation.  Unfortunately the appreciation from 2006 till now is literally small to none. 

What about a person who's been renting but not invested in a S&P 500 or whatever stocks? At least the person who owns has his/her own home with no money or little lost whereas the renter's monthly payments have been wasted for the last 10 years. There could possibly be someone who rented for 10 years and invested really well on stock options and stuff, but I think that's a very rare case also. I'm not disagreeing with your market top call last year though. I just think owning for 10 years is usually better than renting for 10 years even if the person bought at the peak.

Im sure all those who bought in 2006 think its better to own than rent.   

 

[Kenkoko]

@IHO ? You?ve asked me this before and I answered and then it was dismissed as an outlier. Not sure why we bother to do this again
I currently own but I rented all the way until I got married in my late 20s.
I was ready to buy and almost did buy in 2009. But luckily I did not. I invested my $215k down payment mostly in stocks and now that investment has more than 10x.
People dismiss it because they regard the great recession as once in a life time event. While I do agree that I was lucky in timing, I feel younger people who are in the same situation as I was in 2009 should think long and hard before committing to buying a home. (Full disclosure, I was lucky that my wife already owned a home before marrying me. So my situation is atypical.)
If anything, investment opportunities now , without another great recession, are more fleeting and require you to be even more financial nimble. Buying a home ( at Irvine home prices) essentially locks you up.
I would even go one step further and caution younger people that home buying leads to another trap people tend to fall into ? Job lock. I?ve been doing graduate mentorship programs for my Alma mater for 6/7 years now. This is one aspect that very few people even think about.
Buying a home locks you in both mentally and financially. This is one of the top reasons why many people turn down better and more lucrative job offers.
An average starter home 750k in Irvine would cost 45k to sell. 45k is enough to pay rent for more than a year.
To those who keep harping on ?buying with caveat? , you are making a big assumption. You assume most want-to-be 1st time home buyers are financially savvy and financially literate. I have found that to be the complete opposite in my 6+ years of doing my mentorship program.
In reality most are not financially savvy enough they need to buy home as ? forced saving? like CV suggested. Many cannot even plan their finances correctly they need forced impounds to avoid not budgeting in prop tax.
There are not people, at least in my mind, who we should persuade to buy home.
I also fundamentally disagree with Happiness. I truly believe most people can live a fulfilling and enjoyable life without ever owning a home.

 

[eyephone]

@IHO ? You?ve asked me this before and I answered and then it was dismissed as an outlier. Not sure why we bother to do this again
I currently own but I rented all the way until I got married in my late 20s.
I was ready to buy and almost did buy in 2009. But luckily I did not. I invested my $215k down payment mostly in stocks and now that investment has more than 10x.
People dismiss it because they regard the great recession as once in a life time event. While I do agree that I was lucky in timing, I feel younger people who are in the same situation as I was in 2009 should think long and hard before committing to buying a home. (Full disclosure, I was lucky that my wife already owned a home before marrying me. So my situation is atypical.)
If anything, investment opportunities now , without another great recession, are more fleeting and require you to be even more financial nimble. Buying a home ( at Irvine home prices) essentially locks you up.
I would even go one step further and caution younger people that home buying leads to another trap people tend to fall into ? Job lock. I?ve been doing graduate mentorship programs for my Alma mater for 6/7 years now. This is one aspect that very few people even think about.
Buying a home locks you in both mentally and financially. This is one of the top reasons why many people turn down better and more lucrative job offers.
An average starter home 750k in Irvine would cost 45k to sell. 45k is enough to pay rent for more than a year.
To those who keep harping on ?buying with caveat? , you are making a big assumption. You assume most want-to-be 1st time home buyers are financially savvy and financially literate. I have found that to be the complete opposite in my 6+ years of doing my mentorship program.
In reality most are not financially savvy enough they need to buy home as ? forced saving? like CV suggested. Many cannot even plan their finances correctly they need forced impounds to avoid not budgeting in prop tax.
There are not people, at least in my mind, who we should persuade to buy home.
I also fundamentally disagree with Happiness. I truly believe most people can live a fulfilling and enjoyable life without ever owning a home.

True that you don?t need to own a house to be happy.