How Low Can Home Prices Drop?

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giltee_IHB

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When I was a kid in MD in the mid 80s, my mom bought a decent house (~3,000 sq. ft.) for around $90,000. Does anyone foresee home prices for similarly sized homes in Irvine someday going that low or lower? The most extreme opinions seem to indicate that the market will bottom after a 50% price drop from current prices, but why should it stop there?
 
Hello Giltee and welcome to the forum.





Prices might stop dropping when it becomes profitable for cash-flow investors to buy the property. For example, if you can buy the house with 30-year loan, with monthly payment of $1,000, and you can rent it out for $1,500/month, then that makes it very attractive for investors.





Prices are often determined by supply, demand, and affordability. If Irvine RE drops by 50% from its current level, it'd be very attractive to buyers, investors, and many people here would be able to afford it. You may also have a shortage of supply as sellers remove their properties from the market (not willing to take a large loss) vs. increase in buyer demand.
 
what's driving prices lower is excess inventory. read calcualted risk. when inventory is in line with buyers then and only then will prices stablize. in a normal market inventory is 4-5 months of sales. in some price ranges inventory is 16 months +. as people walk from homes and banks foreclose more inventory will be dumped on the market. until all the foreclosures are cleaned up, currently 31% of the OC market (and growing) are distressed (bank owned) properties there will be no bottom in sight. picking a percentage drop from current prices is arbitray and not applicable.
 
<p>While true for the county overall, excess inventory is not the case in Irvine right now. Irvine inventory has actually fallen during February vs. last year when it increased by 8-10% over the same period. By March, we could have a better year-over-year inventory situation and only have 4-5 months on the market in Irvine.</p>

<p><a href="http://www.ipoplaya.com/stats.htm">http://www.ipoplaya.com/stats.htm</a></p>

<p>Will prices in Irvine be stable if our months inventory number drops to 4-5 Alan? </p>
 
i can't see how this isn't a dead cat bounce. I'm still expecting the poop to hit the fan as spring turns to summer.
 
If you look at our updated <a href="http://www.irvinehousingblog.com/inventory/irvine.php">inventory chart,</a> it shows there were 878 homes available for sale on 2-25-2007, and there are 925 homes available as of 2-25-2008.
 
How far do I think prices will drop:





<img src="http://www.irvinehousingblog.com/wp-content/uploads/2007/03/ihb-post-irvine-market-decline-chart.jpg" alt="" />





How far do I think they could drop:





<img src="http://www.irvinehousingblog.com/wp-content/uploads/2007/03/ihb-post-market-decline-extreme.jpg" alt="" />
 
IMO.... i think the people who live in irvine have more money or more access to money thus they will hold out longer and try to stay in the house as long as possible. but once the time fuse run out and it will then there will be more house for sale and thus inventory will go up. and as IR posted in his blog.... you will see that alot of people in irvine took out heloc and thus they will get in trouble later rather then sooner......
 
<p>IR,</p>

<p>You need a third chart showing your two scenarios with the actual median prices as they fall.</p>
 
Awesome. Is there anything that I can do, personally, to make the decline longer and the bottom even lower?



That might sound like a dumb question, but I'd be willing to bet that that's what tentative/on-the-fence buyers in today's market (who aren't on a deadline) are wondering. It seems that the lower the values go, the greater their savings in not having bought during the bubble. So, just like many bubble buyers might have seen their purchases as investments and done whatever they could to keep the values rising, I'm wondering if there are non-investment-focused market forces working to bring about further drops in value.



[EDIT] Actually, non-investment-focused is probably not the right descriptor, since these forces would be focused on increasing their savings by forcing housing prices lower. Anyway...the terminology probably won't change the fact that this is somehow a dumb question =].
 
<i>"Will prices in Irvine be stable if our months inventory number drops to 4-5 Alan? "</i><p>


Yes, if anybody thinking of buying a home in Irvine is not allowed to buy elsewhere.
 
<p>"If you look at our updated <a href="http://www.irvinehousingblog.com/inventory/irvine.php">inventory chart,</a> it shows there were 878 homes available for sale on 2-25-2007, and there are 925 homes available as of 2-25-2008."</p>

<p>Exactly, only 5% more in inventory after 12-months of significant foreclosure activity... If you look at the Case-Shiller figures for Feb-Apr 2007, the price declines were minimal over that period. If our Irvine inventory is fundamentally at the same levels or imagine it, better than, comparative year-over-year inventory figures, I'd expect equally as slow or slower paced price declines in Irvine in the near future.</p>

<p>The largest monthly drop per Case-Shiller appears to be November, which does seem to coincide with the short-term peak in Irvine's months inventory figure. December's price decline was lower than November and I expect we'll see even slower declines in the CS data for January and February.</p>

<p>Many bears have become spoiled by the pace of recent housing price declines. We have seen 10% go away in only four months. While I don't disagree where the bottom will likely be, people have to remember how long it's going to take to get there with half a percent month-over-month declines. Sales dried up to nothing back in October/November. That is not likely to be repeated going forward IMO... </p>
 
GILTEE>Awesome. Is there anything that I can do, personally, to make the decline longer and the bottom even lower?





If your luck is anything like mine, then deciding the bottom has been hit and entering the market is usually a good way to force things to new lows...
 
Yes, bomb threat the schools in Irvine create a sense of fear among parents. School grade could slip and that may cause the price to slip as well. Serial killings like Hillside strangler or Richard Ramirez would hurt the desirability of the area too.
 
"Awesome. Is there anything that I can do, personally, to make the decline longer and the bottom even lower?"



Answer... YES



If you and every potential buyer like you went on strike and refused to purchase a home until prices fell to your desired levels and just rented instead, then no properties would sell and all sellars would have no choice but to mark down their properties.



As if that would actually happen....
 
<p>"Yes, if anybody thinking of buying a home in Irvine is not allowed to buy elsewhere."</p>

<p>That's why I reference a months inventory number awgee. Inventory levels alone are meaningless. If buyers were electing to buy elsewhere, taking sales away from Irvine, Irvine's months inventory number would rise. It appears they are choosing to buy in Irvine in spite of larger price reductions in other neighboring OC cities.</p>

<p>IMO, buyers are readily going to substitute a purchase in Santa Ana or Garden Grove if they are interested in Irvine no matter how low prices get there. I sure as heck wouldn't. </p>
 
<p>ipoplaya - re: sales going lower - how long can the banks go on making loans for 0% to 10% down or so and have their money continue to vaporize...?</p>

<p>http://www2.fdic.gov/qbp/2007dec/qbp.pdf</p>
 
ipoplaya- i would buy in garden grove if the price drop significantly compare to irvine. they have nice houses in garden grove. i would drive my new MB or lexus to work. send my kids to private school, and the wife can stay home and take care of the house.



honestly what is soooooo special about irvine? it is an interior city with good school. you can get that anywhere down in south county for cheaper. you can buy a HB SFR for the same price as a condo in turtle ridge. at least with HB you get to be close to the ocean.
 
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