Irvine is not rich

NEW -> Contingent Buyer Assistance Program
How come there is all this talk about asians buying in Irvine and no mention of the persians? Every time a house goes up for sale in my neighborhood, it seems like a persian family moves in.
 
Persians are all over Irvine. They have consistently been incredibly friendly and gracious to me no matter what the setting has been. They seem to have deep pockets, too. (Oil perhaps?)
 
<p>3 points:</p>

<p><strong>1) Talk of "I'm waiting for the median to approach $500k" is incredibly ignorant.</strong> What about interest rates? Down payment requirements? Terms? Availability of financing? These other items are incredibly important and are the part of the story that dictate pricing. And don't just assume that a 500k price point is a magic entry opportunity.</p>

<p><strong>2) Related to #1, it's the financing, stupid. </strong> Equivalent rents are important, but the assumption is a traditional 30yr fixed with 20% down. The banks do NOT want massive foreclosures; it is highly possible that a 40yr term emerges as an alternative for folks staring down the barrel of an ARM reset. That could make a 40 yr fixed the new norm and change the math on equivalent rent. <em>Laugh if you must, but did you ever think we'd have 72 month car loans? </em>I know... me neither.</p>

<p><strong>3) Deriving median home price via median income is flawed. </strong> The distribution of homeowners is LARGELY on one side of the income curve. The mix of property types is a huge determinant here, as is the geography of homes. </p>

<p>Conclusion: I agree with IrvineRenter's feelings about PE (owner's equivalent rent or whatever you choose to call it) as a good measuring stick at deriving value. However, <strong>it is important to note the underlying assumptions</strong> around the equivalent rent, including tax effect, HOA, HOI, repairs, and cost of money.</p>

<p><em>Disclosure: I am a homeowner in Tustin Ranch and have never worked in anything remotely related to the RE industry.</em></p>

<p> </p>
 
<p>Laing_Lies,</p>

<p>there is a 40yr, but I've never seen it considered in the assumptions for owner's equivalent rent. when you read the fine print, equivalent rents are calc'd using the more-common 30yr.</p>
 
<p>Have you ever done the math on a 40 year mortgage? You save a couple hundred bucks a month and yet you pay hundreds of thousands extra in interest. Look at an amortization table and if you still sign on the line you are nuts. It is the creative loans that anyone who could sign their name on that started this whole problem. Even if you used it for the calculation of rent vs. own it won't make that much difference on the payment anyway. Ask Japan how their 100 year mortgage worked out.</p>

<p><em>"The banks do NOT want massive foreclosures" </em>- You would think that would be the case but they don't have much choice. It is what it is. Some lenders can go back to the borrower and do a modification but other lenders are stuck with the contract of teh MBS pool and are limit to 5% of the current pool balance that can be modified. This really sucks when 15% or more of the pool is deliquent like most subprime and ALT-A pools are.</p>

<p>Deriving from income is not flawed and I have a report from <a href="http://www.realestateeconomics.com">www.realestateeconomics.com</a> that says so. They even take into account interest rates and the mortgage cost. Guess what? It always, always comes down to what people can afford. </p>

<p>Well Im off to the foreclosure thread to post about the recent foreclosures. You might want to check it out later there was one scheduled this week for Tustin Ranch.</p>
 
<p><em>"Look at an amortization table and if you still sign on the line you are nuts. "</em></p>

<p>Case in point: At 8% interest the payment on a 40-yr fixed is 94.5% the payment for a 30-yr fixed <em>at the same interest rate </em>($695.31 vs $733.76 per $100k borrowed). But the 40-yr loan requires a better premium for the lender, i.e., they'll charge a higher rate. Today it looks like you're likely to pay ~1/2% more for the same fee/cost structure loan on a 40-yr, which really brings the payments close together. </p>
 
<p>Daedalus and graphrix,</p>

<p>I'm not arguing FOR the 40yr, at all -- and the amortization table/incremental savings argument holds with the 7 year car loan, too -- I am only suggesting a possible outcome.</p>

<p>My argument is that payment -- which is comprised of terms, interest, availability of financing, and asset value -- are the drivers of affordability. </p>

<p>Second, there will always be a premium on homes that are closer to the coast, no matter the market. Back to the original posts from this thread, Lower Manhattan incomes are way out of whack with home values and always have been. Even with a correction, premium areas remain premium areas. </p>

<p><strong>I agree home values will continue to decline. </strong> Problem is, availability of financing will also decline, as interest rates accelerate and terms become less attractive.</p>

<p>Graphrix, I'm sure you need to get back to your foreclosure forums. I'm not sure how much data will be available on the 10 defaults and 6 foreclosures in all of 92782, but good luck with that. So it climbs, say, 500%? I'm really, really scared. Hmm... still not moving the needle.</p>

<p><a href="http://www.ocregister.com/money/beach-irvine-anaheim-1822477-santa-orange">http://www.ocregister.com/money/beach-irvine-anaheim-1822477-santa-orange</a></p>

<p> </p>
 
<p><em>"That could make a 40 yr fixed the new norm and change the math on equivalent rent."</em></p>

<p>I know it was mentioned above, but the payment difference in practice between a 30 year amortization and a 40 year amortization is so small as to have negligible impact.</p>

<p><em>"My argument is that payment -- which is comprised of terms, interest, availability of financing, and asset value -- are the drivers of affordability. "</em></p>

<p>On this point, we completely agree.</p>
 
<p>Let's just see how affordable a 40 year loan is on a $625k purchase and a $500k loan amount. A 30yr fixed at 6.75% would be $3245 a month and a 40yr at 7% (you have to pay a premium for a 40yr) would be $3107. OMG a $138 a month! So with taxes, HOAs, insurance and misc. debt at a 33% debt ratio on the 30yr you would need an annual income of $171k and for the 40yr you would need an annual income of $166k. Yeah 5k a year makes a huge difference and now .0000001% more of OC can afford to get a mortgage. Plus it really helps that incomes are actually going up in REAL dollars which they still haven't recovered from 2000. Then you need job growth which is not happening right now. Watch for the jobs data next week and you will see some losses. </p>

<p>Yes we pay a premium in OC always have and always will. But we never ever could possibly pay a premium like Manhattan. Comparing the two is ridiculous. It would be like comparing the restaurant French Laundry in Napa to Olive Garden. It is insulting and just plain ignorant. Orange County is a COUNTY and Manhattan is a burrough of a huge CITY of a huge COUNTY. There are 8.2 million residents cramped into 322 sq. miles and that is the equivolent of Irvine, Tustin and Orange combined. Sometime in 3050 we might have that many people here in OC so I think it can handle the growth much easier than Manhattan. By the way have you been to NYC? You know that they have lots of subsidized housing where people pay $400 to $800 a month in rent so when you look at the income there are plenty of low income people who can afford to live there.</p>

<p>As for foreclosures one of my sources, which doesn't track all of the foreclosures in OC, has 5 homes that are scheduled for the auction in the next month. That may not be a lot but there has been 12 foreclosures and about 27 that are in default. The OCR is already outdated. If you want I can find more in 92780 and 92705 with just the homes that are near 92782 you can chalk up another 25 foreclosures and about another 70 or 80 in default. </p>

<p>You wouldn't be the flipper at 2569 Tea Leaf would you? If you are drop the price $200k if you want to sell it.</p>
 
Oh and I forgot 92602 is just across Jamboree there and it is like a bloodbath in foreclosures there. It's getting pretty ugly out there and 2008 is setting up to be worse than 96 in the foreclosure record book.
 
<p><em>Graphrix sez, "You wouldn't be the flipper at 2569 Tea Leaf would you? If you are drop the price $200k if you want to sell it".</em></p>

<p>The Master has spoken. Heed his warning. </p>
 
<p>Simple rule, if you can't afford it with a 30 year fixed loan, you can't afford it. </p>

<p>Some would argue, that if you can't afford it with a 15 year fixed, you can't afford it, but that would put affordability at about 3% instead of mid-teens.</p>

<p>The speculative loans, IO 10 yr, 1,3,5 yr ARMs, Option ARMs are good for people that can afford the place on a 15 yr loan and believe they have better things to do with their capital. If you need to use these or a 40 year loan to make the payments work, IMHO, you really can't afford it.</p>

<p> </p>
 
<p>Persian = Iranian, whats with this Persian crap who are you talking of Xerxes?</p>

<p>Im not German/Austrian- IM Teutonic. no Im Holy Roman?</p>

<p> </p>
 
You must log in or register to reply here.
Back
Top