If the home you wanted could be bought today at 30% off the peak price, would you buy?...

NEW -> Contingent Buyer Assistance Program
<p>I know a lot of people who moved out to the IE for affordable housing. I tried and tried to explain that if you "need" to buy then suck it up and downsize your expectations in OC. I explained that the mello roos that they would pay for a new home out there would be 1.6%-1.8%, factor the gas money, HOA dues and you need to value your time. Seriously if you can't work from your car you need to deduct your travel time by what you make an hour because that is what you are worth. Trust me your family thinks you are worth a lot more. You wouldn't be able to buy new here but you could afford the higher mortgage because of the tax break and most of the time I could find homes here with the same payment when you factored the legal tax break.. Of course I mentioned that the IE would be hit hard in a downturn and they looked at me with the glazed over look that says housing never goes down.</p>

<p>The housing subject doesn't come up as much as it used to. If it does they tend to look away in fear that I will say I told you so. As crass as I can be here in real life I am not like that and I say nada. They see that the foreclosure numbers are some of the worst in the state. They see how many homes are for sale and not selling. If I were to rub it in I fear I might be shanked.</p>

<p>A friend of mine mentioned how another friend of ours is thinking about moving back to Irvine by selling his place in Corona. I laughed when he said that our friend thought he could get $590k for his 2200 sqft resale stucco box. I showed him several homebuilders that were selling 3000+ sqft stucco boxes for low to mid-$500s with incentives from $25k-$50k and in a better location. He responded with "Dude our dingle dong friend is screwed!" I can't repeat what he said when I showed him the comps and the homes in foreclosure. </p>

<p>I may be a housing bear but I am and always will be willing to pay a premium to live here. Amazingly sometimes it makes sense and I do think that the IE will suffer more than OC. Just look at the default and foreclosure rate increases. </p>
 
Oh and I forgot to add the schools in the nicer communities out there are performing very well. Why? Because teachers can afford to live out there. I could go into a very long diatribe about how this hurts or will hurt our school system here but that is for another day.
 
<p>It'll get even worse for the IE if gas prices stay high. Tiny cars are like a social disease to Southern Californians. They'll downsize their house and live in OC before they downsize their car.</p>

<p>Unless it's a Prius, of course. The smug factor adds 50% to the size and weight. </p>
 
Oh don't even get me started on Prius drivers. The smug factor makes me think of how I can make my car more James Bond like.
 
"The truth of the matter is prices do not necessarily have to drop to match income. If you have to buy in LA, you will only wish it has the same housing cost in Irvine."



Well NIR, that’s kind of comparing apples to oranges. If you’re going to look at IE home prices, you need to look at IE median income, which is a bit under $43K. In Irvine it is a bit over $85K, and in OC $64K. So, yes, an Irvine resident could buy an IE home at 4-5x, but then they would no longer be part of Irvine median stat, would they? The point was that for the median income of a given area, its prices should be 4x.
 
The home we bought last week was way under 4x our income.





There are several problems with using the median Irvine income for a cost basis on houses. Irvine has a ton of apartments and there are many low income or retired owners who bought ages ago for pennies. These people are not in the market for a home yet they bring down the median income stat. I don't think that we will ever go back to the days where a school teacher can buy a 3000 square foot home in Irvine (exept for those pesky UCI profs with their subsidized homes on campus).
 
<p>irvine_native,</p>

<p>What you said is so true.</p>

<p>You forgot to mention that teachers do have spouses, and with the combined incomes, they can buy a 3000 sq. ft. homes in Irvine. I know this for fact.</p>

<p>In addition, Irvine has many high paying jobs; and both spouses want to keep their careers, pushing the combined annual incomes to the $250K - $400K range. This explains why we have runs up in places like Turtle Ridge and Tustin Ranch Estates. Appearing, TIC is building OH with expensive homes to meet demand.</p>
 
Then why is the median income $85K? Your income range are true for some families, but not for most. If what you say is true, the median income would be much higher than $85K, no? Bottom line, I probably make income similar (or more) to two school teachers, and I can't afford a 3000sf home in Irvine, unless you can find me one for $600K. And if you can, give me a call. And I don't mean those fixer uppers that need extra $150K to fix up either.
 
<p>gepetoh,</p>

<p>Here is the definition of median income:</p>

<p><strong>The median divides the income distribution into two equal parts, one having incomes above the median and the other having incomes below the median. For households and families, the median income is based on the distribution of the total number of units, including those with no income.


</strong></p>

<p>Irvine_native said in well in one of the reasons the median income is flawed when using it for calculate should be home prices. In addition, many Irvine buyers are from other countries, whose income is not included in the statistic. Moreover, consultants are getting more of a typical work force in Irvine, whose incomes are under 1099's or some kind of Corporations, where income is distributed after expenses.... My own personal observation, not reading from somewhere.</p>

<p>I probably will get eggs for saying this. You must have a strong desire to buy first though.</p>

<p>I rank buyers in 3 catagories: A,B,C. A type is ready to buy now. You sound more like a C buyer.</p>
 
Irvine was once a (relatively) inexpensive place to buy a new home, and the people who bought early and stayed will affect median income figures. My buddy's mother, for example, bought a new home (3 bed 2.5 bath) many years ago for $140k on 15 year loan, and it's paid off. That house is probably worth $700k+ at today's inflated prices. She still lives there and is retired/unemployed, her son pays her bills. I think her annual income from social security is what, few thousand dollars?





Someone who is moving into Irvine today and wants to buy a house, need household income that's much higher than $85k/year.
 
nirvinerealtor,





By your reasoning, the median should never have dropped to its low of the mid 90's. I don't think people were buying with only 1 or 2 times income then. Are you saying that people have secretly been making more money over the last 5 years and we just don't know it because it doesn't show up in the statistics?
 
<p>Irvine_native and nirvinerealtor have a point: there are several problems with using incomes to predict how low prices are likely to go. The biggest issue I see is that the desirability of an area is only moderately correlated with the incomes of the people who live there. Different cities have different populations with different preferences about what percentage of income they are willing to spend on housing. For example, Costa Mesa and Irvine have similar prices but very different median incomes. Laguna Beach and Irvine have similar median incomes by very different prices. There are cities in other states that have nearly identical median incomes to Irvine, and prices that are less than half.</p>

<p>Incomes and desireability are obviously correlated, both because people with higher incomes can afford more desireable home locations and because proximity to high paying jobs is an important component of desireability. But as the examples above show the correlation is far from perfect. Ultimately homes sell for what they are worth (how desireable they are relative to substitutes), <strong>not</strong> what people are capable of paying. Not to say that what people are capable of paying is irrelevant, just that it is but one variable among many.</p>

<p>The reason why house prices in Irvine are going to fall by more than 30% is because they are more than 30% overvalued with respect to rents in Irvine, not because they are unaffordable to median households.</p>
 
<p>30%? So, a 700K home should go for 490k? Is that possible? Gasoline was under $2/gallon now it's $3/gallon, would it go back to below $2, again? </p>

<p>From what I have seen, once prices have gone up. They hardly go back down. Sure, real estate is different in many ways. But a 30% drop in Irvine? I will wait and see. </p>
 
<p>I mean, when I was in college. I purchased a new Corolla for $7k. There's no way, I can get a new Corolla for $7k, currently. When we talk of inflated prices for real estate, have we factor in the value of the dollar?</p>

<p>What many consider $700k for a home might be high, true. But if you factor in the declining value of the dollar. $700k might be really $500k. </p>
 
<p>reason,</p>

<p>How much did a new Corolla cost to lease back then? I bet it was a little less than half of what it costs to lease one today...</p>

<p>To answer your question, the reason prices are considered inflated today is because they have gone up so much more than inflation and rent increases.</p>

<p>Let's say I go to a Toyota dealer, and a Corolla cost $10K to buy or $200 / month to lease. Then, I go back 5 years later, and now the Corolla costs $30K to buy or $225 to lease. That would be pretty weird, right? It would cry out for an explaination.</p>
 
reason,





If you want to see the impact of inflation on the value of a dollar, go to <a href="http://www.bls.gov/cpi/">this website on the consumer price index</a>.





Keep in mind, the prices of real estate in Irvine and all over California went up much, much faster than inflation, wages or rents due to the expansion of credit. Prices will come back down to the historic values trending with inflation, wages and rents as credit tightens. The increase in prices had nothing to do with the desirability of real estate and everything to do with the availability and utilization of credit.





And yes, a $700K home will be selling for $490K when credit tightens because the lenders will not be willing to loan more than 3 or 4 times income.
 
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