Housing Analysis

[irvinehomeowner]

@kenkoko:

Thanks for the detailed response. I don't remember asking you if you rented before because I assume you owned.

BTW: FWIW, late 20s to me is around that first time buyer age. I think maybe you are talking about people who are 22-25 at which point I'm not sure I would encourage them to buy a house at that age either. This also covers your concern about financial responsibility.

And yes, there is a definitely a segment of the population that will and should never own... but that's not the audience of this forum.

 

[Mety]

Someone like Kenkoko should buy a home even if you're in 20s. Someone like Kenkoko is mentoring should not buy a home. But then again they don't need to. They're youngsters who need guidances for now. They should venture out. They can save wisely until they have grown and mature enough to handle big financial decisions.

 

[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.

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

I didn't own in 2006 so I can't speak from that perspective. Anyone owned and regrets for buying then?

 

[Mety]

@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.

You don't need to own anything to be "happy." In fact, less you own, more likely you would be happier because you would have less anxiety of losing of your "own" stuff. A home is not for happiness. A home is (either own or rent) where your family can feel secure and comfortable even when the world outside goes crazy. It's where your kids can come and ask you parents for the truth even if the school forces them to watch CNN or FOX News. It's where your wife is loved. It's where your husband is respected. It's where you shouldn't worry about MAXROI.

 

[momopi]

The issue with buying in Irvine vs future mobility is the risk that, your Irvine home may be cash flow negative as a rental.  You can mitigate this somewhat by carefully choosing homes with low HOA and mello roose, such as West Irvine (by Jamboree near Tustin Marketplace) built 20 years ago ($60/month HOA).  I think it's in Tustin school district, but still pretty nice and not too old.

If you're willing to buy south of Irvine, it's much easier to find SFR's during market lows that will cash flow as a rental.  Again you have to be careful with HOA fees, age, condition of the property and school district.  The quality of schools in South OC can vary greatly, for example in Saddleback Valley Union district you have elementary schools rated from 3/10 to 10/10.

Depending on your planned holding period, you also want to consider area demographic and socio-political-economic trends.  In areas with widening wealth gap, growing population, and increasingly unaffordable rents, you can expect anything from rent control to eminent domain for redevelopment.

As for rent vs buy, well, owning might protect you from things like high inflation and rapid rise in rent.  If you bought early you won?t have to pay $$$$ to rent a 200 sq ft shed later.
https://abc7.com/society/would-you-pay-$1050-to-rent-a-shed-in-a-san-diego-backyard/5585147/

 

[irvinehomeowner]

Personally, I'd rather have spent the last 10 years in a home that I owned keeping a stable atmosphere for my family than renting who knows where for the last 10 years even if it cost me more and I have less money than I would have if I invested in an S&P 500 index fund.

Some things have a better ROI than just dollars.

 

[jamesKirk]

The issue with buying in Irvine vs future mobility is the risk that, your Irvine home may be cash flow negative as a rental.  You can mitigate this somewhat by carefully choosing homes with low HOA and mello roose, such as West Irvine (by Jamboree near Tustin Marketplace) built 20 years ago ($60/month HOA).  I think it's in Tustin school district, but still pretty nice and not too old.

If you're willing to buy south of Irvine, it's much easier to find SFR's during market lows that will cash flow as a rental.  Again you have to be careful with HOA fees, age, condition of the property and school district.  The quality of schools in South OC can vary greatly, for example in Saddleback Valley Union district you have elementary schools rated from 3/10 to 10/10.

Depending on your planned holding period, you also want to consider area demographic and socio-political-economic trends.  In areas with widening wealth gap, growing population, and increasingly unaffordable rents, you can expect anything from rent control to eminent domain for redevelopment.

There is value to HOAs and MR though. We came to grips with it after not finding anything we liked in the areas. We don?t like that our money disappears into the HOA/MR ether, but in the end we are fine paying it as we are planning to stay in the home for a while. Perhaps indefinitely if we don?t have more children. We?re basically giving up ROI for the place we want to live and know that whatever gains we receive in the future will be severely dented by the MR and HOA we?ve paid over the years.

Not everything should be about ROI unless you are only buying property for investment purposes. To us the extra costs is money well spent for the home we wanted and being able to get a new home which saves us money up front compared to an older resale.

We were determined to find a place with low HOA and no MR if possible, but after months we just didn?t like the options in that category. We?re not typical buyers though I fee in that we?re confident we want to stay in our home for a while.

 

[irvinehomeowner]

Also, on the rent vs. own... right now I think if you compare buying a 1-bedroom or 2-bedroom place vs renting the same, with 20% down the monthly may be close.

If you lower the down to 3-5% range, you're probably looking at a difference of $600-$1000 per month more to own.

This is based on $425k 1-br vs $2k/mo to rent in Irvine and a $600k 2-br vs $2700/mo to rent in Irvine.

I based the sales price on what I see available in Redfin and I took the average rental numbers from here:
https://www.rentjungle.com/average-rent-in-irvine-rent-trends/

Back when I bought my first home, I think it cost a little more to own than to rent (and that was when interest rates were high) but it was worth it.

 

[irvinehomeowner]

For the average person who bought in California, the home value is about the same or slighter high now than in 2006.

Do you have a link for this?

At least in Irvine, I think prices today are more than slightly higher than in 2006.

The price of the home I sold a few years ago was higher than what it was in 2006 and today it's even more than that.

And I don't think I can buy a 3CWG home today for the same prices in 2006. Back then, they were $900k to $1m, today they are $1.1m to $1.3m.

 

[jamesKirk]

I guess it interests rates were a lot higher renting would be more appealing. We got a really good rate on our attached unit. I?ll also say though our monthly payment is well above what we would be renting. We got a 3 BR condo so not a good comparison, but if we rented we?d not want to go above about $2500. That?s way below what our monthly payments are including HOA, MR, insurance, etc. We?re making a big step up since we want to accelerate things a bit as we sort of procrastinated in terms of starting a family. In the best case we would have gotten a 2 bedroom. Since we don?t want to move again we are paying for an extra bedroom basically we won?t be using, but hope to.

 

[irvinehomeowner]

I guess it interests rates were a lot higher renting would be more appealing. We got a really good rate on our attached unit. I?ll also say though our monthly payment is well above what we would be renting. We got a 3 BR condo so not a good comparison, but if we rented we?d not want to go above about $2500. That?s way below what our monthly payments are including HOA, MR, insurance, etc. We?re making a big step up since we want to accelerate things a bit as we sort of procrastinated in terms of starting a family. In the best case we would have gotten a 2 bedroom. Since we don?t want to move again we are paying for an extra bedroom basically we won?t be using, but hope to.

Best of luck. You know your finances more than any of us so I'm sure we all hope it works out for you.

And you'll start using that 3rd bedroom very quickly... man cave... she shed... in-law/guest room.

 

[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

Orange County declined less than 1% over the same time, and that was with Irvine's poor numbers skewing the total!!  That means the rest of OC is doing better than Irvine.  So what the hell is happening??  Why is Irvine dropping faster than the rest of OC?!?  Enquiring minds want to know.

 

[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?

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

Do you think the music is slowing down?

 

[meccos12]

For the average person who bought in California, the home value is about the same or slighter high now than in 2006.

Do you have a link for this?

At least in Irvine, I think prices today are more than slightly higher than in 2006.

The price of the home I sold a few years ago was higher than what it was in 2006 and today it's even more than that.

And I don't think I can buy a 3CWG home today for the same prices in 2006. Back then, they were $900k to $1m, today they are $1.1m to $1.3m.

I dont, but do a simple google search and it should be easy to find. 

 

[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. 

I didn't own in 2006 so I can't speak from that perspective. Anyone owned and regrets for buying then?

There is probably not many people who felt buying a house in 2006 was a good idea.  As I mentioned, many people have just now recouped the value of their homes 13 years later.  Nomimal prices may have recovered but inflation adjusted, they are still way behind.

 

[irvinehomeowner]

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

Orange County declined less than 1% over the same time, and that was with Irvine's poor numbers skewing the total!!  That means the rest of OC is doing better than Irvine.  So what the hell is happening??  Why is Irvine dropping faster than the rest of OC?!?  Enquiring minds want to know.

The Great Slowdown was less than 1%? What happened to prices follow volume? It's been over a year and a half!

 

[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!

Do you think the music is slowing down?

Everyone knows its slowing down.  its just a matter of how much at this point.

 

[meccos12]

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

Orange County declined less than 1% over the same time, and that was with Irvine's poor numbers skewing the total!!  That means the rest of OC is doing better than Irvine.  So what the hell is happening??  Why is Irvine dropping faster than the rest of OC?!?  Enquiring minds want to know.

The Great Slowdown was less than 1%? What happened to prices follow volume? It's been over a year and a half!

Less than 1%?  LL has repeatedly shown you prices dropped more than that even our inhouse realtor (USC) says something to the tune of 5% or so (correct me if I am wrong).  Furthermore, look at the costs of a house now vs last year.  Price is one part of the equation, but one must consider rates as well to figure out costs.  As I mentioned before, if you consider todays rates into this equation and you can buy the same house for double digits cheaper than last year. 

Oh by the way, we still have some ways to go.  You are premature here, just as you probably are with other things in your life.  I wouldnt be surprised to see more price adjustments coming. 

 

[momopi]

The issue with buying in Irvine vs future mobility is the risk that, your Irvine home may be cash flow negative as a rental.  You can mitigate this somewhat by carefully choosing homes with low HOA and mello roose, such as West Irvine (by Jamboree near Tustin Marketplace) built 20 years ago ($60/month HOA).  I think it's in Tustin school district, but still pretty nice and not too old.

If you're willing to buy south of Irvine, it's much easier to find SFR's during market lows that will cash flow as a rental.  Again you have to be careful with HOA fees, age, condition of the property and school district.  The quality of schools in South OC can vary greatly, for example in Saddleback Valley Union district you have elementary schools rated from 3/10 to 10/10.

Depending on your planned holding period, you also want to consider area demographic and socio-political-economic trends.  In areas with widening wealth gap, growing population, and increasingly unaffordable rents, you can expect anything from rent control to eminent domain for redevelopment.

There is value to HOAs and MR though. We came to grips with it after not finding anything we liked in the areas. We don?t like that our money disappears into the HOA/MR ether, but in the end we are fine paying it as we are planning to stay in the home for a while. Perhaps indefinitely if we don?t have more children. We?re basically giving up ROI for the place we want to live and know that whatever gains we receive in the future will be severely dented by the MR and HOA we?ve paid over the years.

Not everything should be about ROI unless you are only buying property for investment purposes. To us the extra costs is money well spent for the home we wanted and being able to get a new home which saves us money up front compared to an older resale.

We were determined to find a place with low HOA and no MR if possible, but after months we just didn?t like the options in that category. We?re not typical buyers though I fee in that we?re confident we want to stay in our home for a while.

I'd agree that low HOA is not always good.  If the association is running a deficit, or did not maintain sufficient reserves, the homeowners may be hit with special assessment.  This can get quite scary and run up to 5 figures.

What I'm most concerned with is condo associations with high HOA, which indicates higher liabilities and maintenance costs.  In a RE downturn, if you have significant number of owners in the association that owe more than what their property is worth (upside down), they may decide to stop payment or walk away.  When the property is foreclosed I think the bank is only responsible for payment from when they assume title.  So the remaining homeowners, even if they aren't upside down, become HOA assessment fee knife catchers.

 

[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?

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

Do you think the music is slowing down?

Everyone knows its slowing down.  its just a matter of how much at this point.

I am seeing price reductions throughout so cal.