Is $250 Per Sq. Ft. a Fair Price for a SFR in Irvine?

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You guys are all quoting wrong numbers. Median household is 99k and median family income is 111k.



I really think IR is spot on with his targets, 225 on the low end up to 300 for higher end stuff. I imagine places with a view and super-duper upgrades will sell for a bit more (the nicer turtle ridge homes) and maybe even some of the fancy np/woodbury places.



The good news is once and a while you find places in this price range, unfortunately, they're being snatched up before I even get a chance to go schedule a time to check it out. :-)
 
[quote author="acpme" date=1222776469][quote author="blackvault" date=1222757369]

So you can be right...homes will be 700K 3 years from now, but the guy flipping burgers at McDonaldns will also be making 75K a year vs 25K.



Something has to give IPO.</blockquote>


who says the guy flipping burgers needs to afford living in irvine? that's what got us into this mess in the first place.



the national median household income is $48k and median home value is $185k. i don't necessarily think the 3-4x income rule of thumb necessarily applies in irvine because the city's large commercial, industrial, and retail sectors (i.e. large renter population.)



in irvine, only 56% of housing units are owner-occupied vs 67% national avg. with median household income at $85k, a median SFR at $500k (2000 sq ft SFR at $250/sq ft) isn't too much of a stretch.



<a href="http://factfinder.census.gov/servlet/ACSSAFFFacts?_event=Search&geo_id=16000US0651182&_geoContext=01000US|04000US06|16000US0651182&_street=&_county=irvine&_cityTown=irvine&_state=04000US06&_zip=&_lang=en&_sse=on&ActiveGeoDiv=geoSelect&_useEV=&pctxt=fph&pgsl=160&_submenuId=factsheet_1&ds_name=ACS_2006_SAFF&_ci_nbr=null&qr_name=null&reg=null:null&_keyword=&_industry=">Census data comparison for Irvine vs National</a></blockquote>


Thanks for the link. Most people that work in NY can't afford to buy there either. This has nothing to do with income.



Median household income: $47,030

Median home price: $1,000,001



<a href="http://factfinder.census.gov/servlet/SAFFFacts?_event=Search&geo_id=16000US0645400&_geoContext=01000US|04000US06|16000US0645400&_street=&_county=manhattan&_cityTown=manhattan&_state=04000US36&_zip=&_lang=en&_sse=on&ActiveGeoDiv=geoSelect&_useEV=&pctxt=fph&pgsl=160&_submenuId=factsheet_1&ds_name=DEC_2000_SAFF&_ci_nbr=null&qr_name=null&reg=null:null&_keyword=&_industry=">Census data comparison for Manhattan vs National</a>
 
[quote author="ipoplaya" date=1222777567][quote author="WestparkRenter" date=1222769054]



Wouldn't rent go down to? I notice rent on some houses have been down.</blockquote>


I assume so, but I made an assumption of steady rents. It all depends on why home prices are going down I guess. If home prices were falling as the result of higher unemployment, lower wages, etc. then I'd expect rents would have to go down.



If home prices were falling for other reasons, e.g. tightening of credit diminishing or prohibiting buyers from creating demand, what would be the catalyst for rent decreases? Surely rents have not fallen in any material fashion of late but home prices sure have... That would suggest there doesn't have to be a direct correlation between the two. I don't remember rents falling during the last housing recession when I was a renting either... Maybe they did and I just didn't notice it.</blockquote>


During the last tech bubble, people that were working for me did have their rent decrease in SV.
 
[quote author="ipoplaya" date=1222777567][quote author="WestparkRenter" date=1222769054]



Wouldn't rent go down to? I notice rent on some houses have been down.</blockquote>


I assume so, but I made an assumption of steady rents. It all depends on why home prices are going down I guess. If home prices were falling as the result of higher unemployment, lower wages, etc. then I'd expect rents would have to go down.



If home prices were falling for other reasons, e.g. tightening of credit diminishing or prohibiting buyers from creating demand, what would be the catalyst for rent decreases? Surely rents have not fallen in any material fashion of late but home prices sure have... That would suggest there doesn't have to be a direct correlation between the two. I don't remember rents falling during the last housing recession when I was a renting either... Maybe they did and I just didn't notice it.</blockquote>


Sigh....How do you think unemployment happens? lower wages? etc? its because businesses can't get loans to do simple everyday operations. The two are tied together my friend. Unemployment happens when businesses can't function and shut down.
 
[quote author="acpme" date=1222776469][quote author="blackvault" date=1222757369]

So you can be right...homes will be 700K 3 years from now, but the guy flipping burgers at McDonaldns will also be making 75K a year vs 25K.



Something has to give IPO.</blockquote>


who says the guy flipping burgers needs to afford living in irvine? that's what got us into this mess in the first place.



the national median household income is $48k and median home value is $185k. i don't necessarily think the 3-4x income rule of thumb necessarily applies in irvine because the city's large commercial, industrial, and retail sectors (i.e. large renter population.)



in irvine, only 56% of housing units are owner-occupied vs 67% national avg. with median household income at $85k, a median SFR at $500k (2000 sq ft SFR at $250/sq ft) isn't too much of a stretch.



<a href="http://factfinder.census.gov/servlet/ACSSAFFFacts?_event=Search&geo_id=16000US0651182&_geoContext=01000US|04000US06|16000US0651182&_street=&_county=irvine&_cityTown=irvine&_state=04000US06&_zip=&_lang=en&_sse=on&ActiveGeoDiv=geoSelect&_useEV=&pctxt=fph&pgsl=160&_submenuId=factsheet_1&ds_name=ACS_2006_SAFF&_ci_nbr=null&qr_name=null&reg=null:null&_keyword=&_industry=">Census data comparison for Irvine vs National</a></blockquote>


Nice link. I used information from it to derive to this. Care to explain?



1999: Median Home Price = 316,800

Median Household Income = 85,624

Ratio of <strong>3.69</strong>



2006: Median Home Price= 738,900

Median Household Income = 103,604

Ratio of <strong>7.13</strong>



Are you telling me that the price increase in homes in Irvine is justified? Are you telling me that because of the bubble Irvine workers pay 50% of their income on mortgage? One of the highest in nation, and that makes sense to you?

Look, I won't disagree that Irvine is a great place to live and far superior to others and because of it price per sq foot will be higher. But nothing justifies the current price of homes because income doesn't support it. This is why its declining and will continue to do so for at least 2 more years. Then prices will probably flatten out as long as it takes till peoples incomes catch up to the home prices.
 
I think what we have here is a failure to communicate. I don't think Ipo is arguing that prices will not drop down to historic measures of affordability. He has argued that this price level is higher than what you think it is. I think he is right. If you do the math on where you break even as an owner-occupant, the price is somewhere around $225/SF in Irvine. Some more desirable properties will be higher, and some less desirable ones will be lower.
 
[quote author="IrvineRenter" date=1222835463]I think what we have here is a failure to communicate. I don't think Ipo is arguing that prices will not drop down to historic measures of affordability. He has argued that this price level is higher than what you think it is. I think he is right. If you do the math on where you break even as an owner-occupant, the price is somewhere around $225/SF in Irvine. Some more desirable properties will be higher, and some less desirable ones will be lower.</blockquote>


I won't be arguing anything with bv as he hasn't been making much sense, at least to me, on his posts... Blessed be the Ignore button.
 
[quote author="blackvault" date=1222823484]Care to explain?



1999: Median Home Price = 316,800

Median Household Income = 85,624

Ratio of <strong>3.69</strong>



2006: Median Home Price= 738,900

Median Household Income = 103,604

Ratio of <strong>7.13</strong>



Are you telling me that the price increase in homes in Irvine is justified?</blockquote>


i guess i wasn't clear. i didn't say the bubble prices were justified. i said if prices/sf come down to the range being thrown around ($225-250), i don't think a median SFR priced at $450-500k would be out of line. the price/income ratio might still be higher than historical but one could argue irvine is a diff town demographically and commercially than it was 10 yrs ago.
 
[quote author="acpme" date=1222842696][quote author="blackvault" date=1222823484]Care to explain?



1999: Median Home Price = 316,800

Median Household Income = 85,624

Ratio of <strong>3.69</strong>



2006: Median Home Price= 738,900

Median Household Income = 103,604

Ratio of <strong>7.13</strong>



Are you telling me that the price increase in homes in Irvine is justified?</blockquote>


i guess i wasn't clear. i didn't say the bubble prices were justified. i said if prices/sf come down to the range being thrown around ($225-250), i don't think a median SFR priced at $450-500k would be out of line. the price/income ratio might still be higher than historical but one could argue irvine is a diff town demographically and commercially than it was 10 yrs ago.</blockquote>


I guess I don't see it the way some of you guys see it and I base things on Rent to Home price ratios and income to home price ratios. I understand that irvine isnt the same it was 10 years ago, but at the same time things havent changed so much since 1999-2000 that justifies a 7.13 ratio.



Anyways, I will be more open minded and do more research as to why IPO and graphx believe that 225-250 is a good price and perhaps see something that I dont right now. But for now, I'm waiting for prices to drop to a income/price ratio that is more inline as well as rent/price ratio. Another calculation that I look at is taking the average $/sqft in 1999 and calculating scenarios that portray a 3%, 5%, and a 7% annual growth rate to this point in time.
 
[quote author="blackvault" date=1222907581][quote author="acpme" date=1222842696][quote author="blackvault" date=1222823484]Care to explain?



1999: Median Home Price = 316,800

Median Household Income = 85,624

Ratio of <strong>3.69</strong>



2006: Median Home Price= 738,900

Median Household Income = 103,604

Ratio of <strong>7.13</strong>



Are you telling me that the price increase in homes in Irvine is justified?</blockquote>


i guess i wasn't clear. i didn't say the bubble prices were justified. i said if prices/sf come down to the range being thrown around ($225-250), i don't think a median SFR priced at $450-500k would be out of line. the price/income ratio might still be higher than historical but one could argue irvine is a diff town demographically and commercially than it was 10 yrs ago.</blockquote>


I guess I don't see it the way some of you guys see it and I base things on Rent to Home price ratios and income to home price ratios. I understand that irvine isnt the same it was 10 years ago, but at the same time things havent changed so much since 1999-2000 that justifies a 7.13 ratio.



Anyways, I will be more open minded and do more research as to why IPO and graphx believe that 225-250 is a good price and perhaps see something that I dont right now. But for now, I'm waiting for prices to drop to a income/price ratio that is more inline as well as rent/price ratio. Another calculation that I look at is taking the average $/sqft in 1999 and calculating scenarios that portray a 3%, 5%, and a 7% annual growth rate to this point in time.</blockquote>


You might find this interesting bv, I did it earlier this year:



<img src="http://www.ipoplaya.com/casecpi.jpg" alt="" />



Some of us do math, create graphs, etc. in an effort to share information, stimulate debate, etc.
 
Wow, declining prices and high inflation sure makes the updated graph look different:



<img src="http://www.ipoplaya.com/casecpi0708.jpg" alt="" />
 
Fair enough. Since the inflation adjusted value is approaching 0 and is actually close to it, are you saying that home values are approaching/close to fair value? Or are you expecting that trend to dip down to -40 as it did in the past?



I guess perhaps there is a communication issue between us, so I just want to know exactly where you stand.



Also, my apologies for any of my offensive remarks.
 
[quote author="blackvault" date=1222912201]Fair enough. Since the inflation adjusted value is approaching 0 and is actually close to it, are you saying that home values are approaching/close to fair value? Or are you expecting that trend to dip down to -40 as it did in the past?



I guess perhaps there is a communication issue between us, so I just want to know exactly where you stand.



Also, my apologies for any of my offensive remarks.</blockquote>


I make no claims about where we are headed as it relates to this information. Just thought the data was interesting.



My supposition is that home prices and rents correlate with wage inflation, not necessarily CPI. As the high inflation we have experienced of late is more the result of higher commodities prices, this has not and will not translate into materially higher wages. I wish I had good data on wage inflation over the same period... I think that would make the graph look very different. Based on anecdotal information and evidence from my work, my gut says wages haven't risen much over the last 2-3 years while inflation as measured by CPI has increased by 10-12%. We aren't paying people much more than we were in 2006.
 
I think that is the key: <strong>wage inflation</strong>





how much has the wage of a starting teacher in irvine increased in 10 years?





I know that the COLA for state workers has ranged from 0% to 2%/year for the past 10 years.





Ipo-what inflation rate did you use in producing those graphs?
 
[quote author="freedomCM" date=1222925550]I think that is the key: <strong>wage inflation</strong>





how much has the wage of a starting teacher in irvine increased in 10 years?





I know that the COLA for state workers has ranged from 0% to 2%/year for the past 10 years.





Ipo-what inflation rate did you use in producing those graphs?</blockquote>


Regular ole CPI...



I'd say that the starting salaries for teachers have increased around 25-30% over the past 10 years. That is based on my wife's starting salary in 1998 as a new teacher vs. what a similarly qualified first year teacher in her same district makes today. CPI measurement of inflation over that same timeframe is 41%.



Oh, and Irvine teachers have had 3-5% COLAs the last couple of years at least. Will be interesting to see how this year's negotiation turns out.
 
[quote author="blackvault" date=1222907581]

I guess I don't see it the way some of you guys see it and I base things on Rent to Home price ratios and income to home price ratios. I understand that irvine isnt the same it was 10 years ago, but at the same time things havent changed so much since 1999-2000 that justifies a 7.13 ratio.

</blockquote>


what's with the fixation on the 7.13 ratio? who said anything about 7.13 being justified? we all agree 2006 prices were out of line, to say the least.



<blockquote>Anyways, I will be more open minded and do more research as to why IPO and graphx believe that 225-250 is a good price and perhaps see something that I dont right now. But for now, I'm waiting for prices to drop to a income/price ratio that is more inline as well as rent/price ratio. Another calculation that I look at is taking the average $/sqft in 1999 and calculating scenarios that portray a 3%, 5%, and a 7% annual growth rate to this point in time.</blockquote>


at 225-250, the income/price ratio and rent/price ratio WOULD be very close to being in line with historical norms.



the avg size american home in 2004 was 2350 sq ft although that number has been trending up for decades. for ex, in 1990 it was just 2080 sq ft. homes in the west have always been larger than national avg so i'm going to guesstimate the avg irvine SFR in 1999 was 2100 sq ft.



if the median price was $316k in 1999, the price/sq was $150. at the following growth rates, the price/sq in 2010 would be:

3% ------- $209

5% ------- $258

7% ------- $317



$225-250 doesn't seem like an optimistic number at all.
 
acpme-



why would you use inflation numbers bigger than wage inflation?

-no more increase in 2 earner households, that maxed out in the early 90s



try 1-2% increase in wages/inflation
 
just using the numbers BV suggested. at 2% growth we're estimating prices end up at $188/sq ft in 2010, or $393k for a 2100 sq ft SFR home. do you think prices will come down that much?
 
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