[IHB] Is Irvine affordable?

[irvinehomeowner]

Today's post was interesting, because of low interest rates and dropping prices, Irvine is the most affordable (compared to rental parity) it has been in 11 years:
http://www.irvinehousingblog.com/blog/comments/payment-affordability-in-irvine-hits-an-11-year-high/

There are some exceptions like the Turtles and the Quail, but for the most part, if you can afford to rent, if you have a 20% down payment, you can afford to buy.

I'm not sure I agree with that overall because I still see high prices in Irvine... but the math seems sound.

 

[25inirvine]

I can't copy and paste it all but I think the back and forth starting with Planet Reality's comments are very good.  I like Irvine Renter's response:

?Why bother buying until the bleeding has stopped? Rental parity or not. There is still too much pressure on supply and not enough on demand.?

Yes. There is certainly no urgency to buy under those circumstances. Rental parity simply means the red light is no longer red. The green light will be on when it looks like prices have found a natural bottom and prices are still below rental parity. I estimate we are two years away from that.




But yeah, hard to purchase something (especially with 20% down) when two things will likely happen:

A-prices will fall and you could of gotten a better place at the same price
B-you buy, and your downpayment equity shrinks as your house goes down in value

 

[irvinehomeowner]

That's the reasons why IR (and most everyone else) says that if you are buying now, expect a drop in value and make sure you're planning to hold for the long term.

Eventually, prices will bounce back (although bears make fun of the saying "Real Estate always goes up"... they do because of inflation etc)... so even if you lose 10-15% now... that shouldn't be an issue 5-10 years down the road.

If you plan to sell within the next 2 or 3 years... you're going to have a problem... so make sure you're stable and well-employed if you're going to make the leap from renter to buyer. Additionally... the reason why IR focuses on rental parity is if something happens where you do have to move or you can't pay your mortgage, you can rent it out and be even (so you don't have to sell at a loss).

 

[akim997]

Hope you are right.  I would love to buy a newer 2600 sq ft detached SFR in Irvine for $700.

 

[Nous]

That's the reasons why IR (and most everyone else) says that if you are buying now, expect a drop in value and make sure you're planning to hold for the long term.

Eventually, prices will bounce back (although bears make fun of the saying "Real Estate always goes up"... they do because of inflation etc)... so even if you lose 10-15% now... that shouldn't be an issue 5-10 years down the road.

If you plan to sell within the next 2 or 3 years... you're going to have a problem... so make sure you're stable and well-employed if you're going to make the leap from renter to buyer. Additionally... the reason why IR focuses on rental parity is if something happens where you do have to move or you can't pay your mortgage, you can rent it out and be even (so you don't have to sell at a loss).

The only issue I have with this statement is there is no proof why the value will come back in 5~10 years.  Why not 15~20?  Or 25~30?  If no one can really predict the market, how can people come up with a timetable on when the loss will be recovered?  To me, that is the most terrifying thing about buying right now, the buyer has no idea when they'll get their money back.

 

[usctrojancpa]

That's the reasons why IR (and most everyone else) says that if you are buying now, expect a drop in value and make sure you're planning to hold for the long term.

Eventually, prices will bounce back (although bears make fun of the saying "Real Estate always goes up"... they do because of inflation etc)... so even if you lose 10-15% now... that shouldn't be an issue 5-10 years down the road.

If you plan to sell within the next 2 or 3 years... you're going to have a problem... so make sure you're stable and well-employed if you're going to make the leap from renter to buyer. Additionally... the reason why IR focuses on rental parity is if something happens where you do have to move or you can't pay your mortgage, you can rent it out and be even (so you don't have to sell at a loss).

The only issue I have with this statement is there is no proof why the value will come back in 5~10 years.  Why not 15~20?  Or 25~30?  If no one can really predict the market, how can people come up with a timetable on when the loss will be recovered?  To me, that is the most terrifying thing about buying right now, the buyer has no idea when they'll get their money back.

What happens if you buy at rental parity on a gross basis (before the tax benefit)?  I'm looking at buying a home now (I'll discuss it later when the dust settles) where on a net basis the money payment after tax will be a few hundred more than what I'm paying for a 600sf apartment now.  I get the whole financial aspect of buying a home, but at the end of the day the primary purpose of a home is to live in. 

 

[irvinehomeowner]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

 

[Nous]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

 

[Nous]

That's the reasons why IR (and most everyone else) says that if you are buying now, expect a drop in value and make sure you're planning to hold for the long term.

Eventually, prices will bounce back (although bears make fun of the saying "Real Estate always goes up"... they do because of inflation etc)... so even if you lose 10-15% now... that shouldn't be an issue 5-10 years down the road.

If you plan to sell within the next 2 or 3 years... you're going to have a problem... so make sure you're stable and well-employed if you're going to make the leap from renter to buyer. Additionally... the reason why IR focuses on rental parity is if something happens where you do have to move or you can't pay your mortgage, you can rent it out and be even (so you don't have to sell at a loss).

The only issue I have with this statement is there is no proof why the value will come back in 5~10 years.  Why not 15~20?  Or 25~30?  If no one can really predict the market, how can people come up with a timetable on when the loss will be recovered?  To me, that is the most terrifying thing about buying right now, the buyer has no idea when they'll get their money back.

What happens if you buy at rental parity on a gross basis (before the tax benefit)?  I'm looking at buying a home now (I'll discuss it later when the dust settles) where on a net basis the money payment after tax will be a few hundred more than what I'm paying for a 600sf apartment now.  I get the whole financial aspect of buying a home, but at the end of the day the primary purpose of a home is to live in.

That is a different mentality and a valid one too.  Some people need to buy because they simply want a home that is their own.  To them I say "kudos to you, but I'm too Jewish and have been raised not to think like that."  But when you take the loss, don't say you weren't warned.  Out here is OC, that loss can be pretty heavy too, like 'I could have sent a kid to college' heavy.

 

[Liar Loan]

I think if you plan to stay put for the long term it makes absolute sense to buy right now.  For those that are renting, it doesn't make sense to pay 20-30k in annual rent for the opportunity to purchase at a slightly cheaper price.  You also run the risk of facing higher payments when rates come off of these lows.  The decline in interest rates from 5% to 4% has been the single biggest contributor to rental parity over the past 2 years, but that situation could easily reverse itself. 

 

[IndieDev]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

Wait until Bank of America and JP Morgan crumble under the weight of toxic Euro derivatives.

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

 

[irvinehomeowner]

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

I'll bet you $1000 that won't happen.

(you know I'm joking... but it would be nice)

 

[The Motor Court Company]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

Wait until Bank of America and JP Morgan crumble under the weight of toxic Euro derivatives.

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

It will never happen. There's enough cash (assuming people get out their cash before the bank run) on the sidelines that will support price in desirable neighborhoods.

Only thing I think will make $150k a reality is San Onofre pulls Fukushima II.

 

[IndieDev]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

Wait until Bank of America and JP Morgan crumble under the weight of toxic Euro derivatives.

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

It will never happen. There's enough cash (assuming people get out their cash before the bank run) on the sidelines that will support price in desirable neighborhoods.

Only thing I think will make $150k a reality is San Onofre pulls Fukushima II.

Do you really know that many people with $150,000 cash on hand? I'd say the amount of people who even have $25,000 cash free and clear (i.e - $25k above debt obligations) is probably less than 1% of the country.

 

[rkp]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

Wait until Bank of America and JP Morgan crumble under the weight of toxic Euro derivatives.

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

It will never happen. There's enough cash (assuming people get out their cash before the bank run) on the sidelines that will support price in desirable neighborhoods.

Only thing I think will make $150k a reality is San Onofre pulls Fukushima II.

Do you really know that many people with $150,000 cash on hand? I'd say the amount of people who even have $25,000 cash free and clear (i.e - $25k above debt obligations) is probably less than 1% of the country.

i do know many people with that kind of money but also agree with you that very few people in the country have $150K free and clear.  completely not scientific but my brother-in-law was a teller in irvine a couple years ago and he would tell me how he would daily see regular looking joes come in with checking and savings in the $100K-$200K range. 

 

[IndieDev]

Yeah I remember you mentioning that a few months ago.

The thing is, people can have $250,000 in their bank account, but have $800,000 in debt obligations, a teller would really have no way of knowing the latter unless maybe the loans were serviced through the bank. My CPA has 1,500+ clients in the Tustin/Irvine area (both individuals and businesses), and says he can count on two hands the amount of clients he has that have $100,000 free and clear.

 

[usctrojancpa]

Yeah I remember you mentioning that a few months ago.

The thing is, people can have $250,000 in their bank account, but have $800,000 in debt obligations, a teller would really have no way of knowing the latter unless maybe the loans were serviced through the bank. My CPA has 1,500+ clients in the Tustin/Irvine area (both individuals and businesses), and says he can count on two hands the amount of clients he has that have $100,000 free and clear.

Yeah, I kind of all into that category....those damn low interest student loans and car loan. 

 

[Nous]

@Nous:

You're right... it could be longer... hard to tell here. It's just a guess... not a guarantee. I'm just basing it on past real estate cycles, rate of inflation and principal reduction.

If you really want to guarantee when a buyer will get their money back... a better number would be 30 years... after they pay off their mortgage (and even then... no guarantees).

Yeah, I just want people to understand that when we (cuz i do it too) say 5~10 years, it could be longer.  Could be shorter too, but the economy isn't really shaping up to be much better than expectations.  I would just hate to see someone buy based on something I said about making the money back in 5~10 and 20 years from now they are still at a net loss.

Wait until Bank of America and JP Morgan crumble under the weight of toxic Euro derivatives.

You'll probably be able to buy a 4BR detached home in Quail Hill for $150,000.

It will never happen. There's enough cash (assuming people get out their cash before the bank run) on the sidelines that will support price in desirable neighborhoods.

Only thing I think will make $150k a reality is San Onofre pulls Fukushima II.

Do you really know that many people with $150,000 cash on hand? I'd say the amount of people who even have $25,000 cash free and clear (i.e - $25k above debt obligations) is probably less than 1% of the country.

i do know many people with that kind of money but also agree with you that very few people in the country have $150K free and clear.  completely not scientific but my brother-in-law was a teller in irvine a couple years ago and he would tell me how he would daily see regular looking joes come in with checking and savings in the $100K-$200K range.

Something seems so wrong with the notion and "average Joe" would have 100~200k just lying around.  Maybe an average OC'er, but average in OC ain't nothing like the rest of the country/world.

I'm proud to say I'm debt free and banking a few grand every month for my "buy a house/move to Israel, France, Germany (depending on how elections go)" fund.

 

[irvinehomeowner]

I'm proud to say I'm debt free and banking a few grand every month for my "buy a house/move to Israel, France, Germany (depending on how elections go)" fund.

Alec Baldwin? Robert Altman? Tim Robbins?

 

[IndieDev]

Yeah I remember you mentioning that a few months ago.

The thing is, people can have $250,000 in their bank account, but have $800,000 in debt obligations, a teller would really have no way of knowing the latter unless maybe the loans were serviced through the bank. My CPA has 1,500+ clients in the Tustin/Irvine area (both individuals and businesses), and says he can count on two hands the amount of clients he has that have $100,000 free and clear.

Yeah, I kind of all into that category....those damn low interest student loans and car loan.

You're young. You have the rest of your life to make money, and babies.

Some of us are getting slight pains in our knees and lower back now. I know I don't want to be working in the next 10 years. Life is too short to spend all of it working.

The real tragedy is the 60+ seniors who have to work to survive. That's a sad situation.