Is there any way prices can appreciate from here?

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<p><em>"Another thought on human psychology: Why do most rational people buy really expensive new cars knowing that their prices will drop in the future? I don't really know the answer to that."</em></p>

<p>My knees get weak around well-designed high-performance cars.</p>

<p>That said... What an amazing way to burn capital.</p>
 
I for one, have elected to purchase a new X5. I take delivery in about two weeks. Am I rational? No, I had a moment of weakness and I never found the Irvine Auto Blog. Oh well, it will still be fun to drive. Maybe I'll post a picture...
 
<p><em>"Another thought on human psychology: Why do most rational people buy really expensive new cars knowing that their prices will drop in the future? I don't really know the answer to that."</em></p>

<p><em>My knees get weak around well-designed high-performance cars.</em></p>

<p><em>That said... What an amazing way to burn capital.</em></p>

<p>I guess we all realize that cars are (almost always) destined to only DEpreciate. Their value gets consumed through use, which isn't supposed to be the case with real estate. The house may require maintenaince and refurb, but the underlying land doesn't get "used up."</p>

<p>Looks like we have a few closet car enthusiasts on the board! Add me to the mix. My wife and I are a rear-drive, stick shift only family.</p>

<p>SCHB</p>
 
<p>Haha. We bought a Highlander hybrid - we've got two kids, need to storage space, yet wanted the MPG and SULEV. We are greenies. Our condo doesn't have recycling so we cart all of our recyclables to my in-laws every week, and cause a lot of consternation because we fill up their entire bin. Ha ha! nyah inlaws. </p>

<p>We got the full tax deduction (when they had it) and with gas prices the way they are, will recoup the cost of the hybrid system 4 years from now (if you don't include the tax deduction) ... and we love the car.</p>
 
<em>"I hope you have patience if you are planning to buy in Irvine as HBs are locked into an agreement where the Irvine Co. must agree to any price reductions."





</em>Well... yes and no. In most of Irvine TIC has to approve price reductions (so I've heard), but in two places that is not the case. One is Villages of Columbus because Lennar and Lyon bought the land, and the second is the former El Toro Marine Base because (again) Lennar bought the land. Keep your eyes on those places because I think they have the ability to help regulate the home prices in Irvine. Although Lyon is now private, Lennar has shareholders (and analysts) to answer to.
 
<p>socalhousingbubble: <em>"I guess we all realize that cars are (almost always) destined to only DEpreciate. Their value gets consumed through use, which isn't supposed to be the case with real estate. The house may require maintenaince and refurb, but the underlying land doesn't get "used up."</em></p>

<p>I agree with your statement that the land does not get "used up" unlike a car. However, I think the real estate market is going to behave like the depreciation on a car over the next 2-5 years, in that you will end up with a negative amortization if you buy today at inflated prices and low interest financing. Regardless (or <em>irregardless</em>, as Tony Soprano would say) of the financial comparisons, I think people now are approaching the home purchase decision the same way they approach a luxury car purchase - it's the endorphins talking and rational thought takes the proverbial back seat: i.e. consider the following emotions found on this thread and other threads in this same site: "It feels good," "I am sucker for high performance cars," "My knees get weak..." "I had a moment of weakness..." "my dream home", "...(near) dream home," "I love the floorplan!" "We popped in here today after hitting up Verandas today, and all I can say is "Oh my!" "(i love circles in houses)".</p>
 
<p>I'm paying cash. Thus no "neg am" on the X5. But still, and I will confess, a moment of weakness - that has lasted for several weeks, and undoubtedly will reoccur everytime I hit the gas!</p>
 
<p>Thread hijack alert! I've decided to start paying cash for cars from here on out as well. Trouble is, when faced with the loss of interest income, I'll probably chicken-out and not buy anything. I just got my 1099's from Emigrant and from TreasuryDirect and these pennies from heaven are addictive.</p>

<p>The car I drive now is one that I can essentially rebuild forever... There are no $5000 powertrain components that would justify junking the car when they fail, unlike most modern cars. I really have no [good] excuse to ever get rid of it.</p>
 
Guys (gals) don't get me wrong - I like high performance cars, hybrid technology and all - as much as the next guy, and burn enough of my hard earned cash to stay warm in the comfortable leather-covered cocoon of my luxury steel trap, but I still look at TCO (total cost of ownership) and historical residual lease values from ALS, and consumer reports when arriving at my vehicle purchase decision. I just wish other people would step back and do similar analysis and research when purchasing a house in the OC, especially in Irvine. (This forum, and oc-fliptrack's wonderful blog being excellent starting points...)
 
<p>Here's the <a href="http://www.ocregister.com/ocregister/money/homepage/article_1556536.php">link</a> to the most recent OC Register article on the slump in housing-related industries. Also, here is an incisive comment on this article by <a href="http://calculatedrisk.blogspot.com/2007/01/oc-register-on-subprime-lenders.html">calculatedrisk</a>...</p>
 
New Century lost 36% of its value... HSBC, world's third largest bank, reported a $10B bad debt charge from subprime loan defaults...and someone asked if prices can appreciate from here?
 
<p>Here is one of my favorite articles of late... some "poor" flipper that is caught in the tide of a retreating housing market... boo hoo. I know it isn't an Irvine story... but it was both amusing and instructive all the same.</p>

<p>http://money.cnn.com/2007/02/08/real_estate/corey/index.htm?postversion=2007020815</p>
 
<p>we have been talking about whether prices can appreciate from here. what do you all think about prices holding/stagnating from here on out for the next 5 years?</p>

<p> </p>
 
Some commenters fear that may be the case (me, too, sometimes), if you read between the lines of their comments. It's possible, but I think that would require lending standards rates to remain the same and/or interest rates to remain the same or go lower. There are also quite a few vacant properties that were bought by speculators. When they get tired of having their money tied up or can no longer afford the carrying costs (especially in light of the fact that costs are higher than rental income), they will sell. For those folks with ARMs, as those reset, many will have to refinance (if possible due to lending standards changes) or sell. More inventory w/desparate sellers = (hopefully) lower prices. You can find some good financial discussions





here: http://socalbubble.blogspot.com/





here: http://piggington.com/ and





here: http://calculatedrisk.blogspot.com/
 
"what do you all think about prices holding/stagnating from here on out for the next 5 years?"





This is the "soft landing" scenario. There are two main problems I see with this scenario: first, the large number of foreclosures looming on the horizon will put a great deal of "must sell" inventory in the market. If there are not sufficient buyers to take all these houses, prices will fall; second, 5 years of stagnating prices does not bring fundamentals back in line. Right now, the cost of ownership is double the cost of rental. Rents would have to go up about 15% a year for the next five years to bring the cost of ownership in line with the cost of rental. That is not likely to happen.





<strong>The overriding belief required to accept the soft landing scenario is that the cost of ownership will <em>not </em>realign with the cost of rental. </strong>This would be an unprecedented historical event. Whenever markets "correct" or "crash" or whatever term you want to use, values drop until they realign with fundamentals. This happened in the mid 80's and again in the mid 90's in residential real estate in California. This happens in stock markets, bond markets, commercial real estate, etc. Every financial market does this. In some asset markets the fundamentals are more difficult to calculate and thereby they have more volatility, but with real estate it is relatively easy because the alternative to ownership (rent) is easy to figure out and it is relatively stable.





IMO, the real question to ask is whether or not you believe residential real estate is permanently detached from its fundamental valuation and will remain overvalued forever.
 
I sure as hell hope things don't get any more expensive here. Both my work and my wifes work are finding it nearly impossible to hire anyone. We have both had openings for over a year. These are for mid level white collar jobs in IT and in marketing. The type of jobs that are typically held by people in their late 20s to early 30s. The #1 issue with prospective employees is the cost of living here.
 
I do question how out of line is it the cost of ownership right now in IRVINE? is it really double like you said?





Let's take the La Casella Plan1 at $700k. If a buyer has 20% down, and doing the 7-year ARM IO only at 6%.





Interest is at $2800


Tax is $1000


HOA $400


TOTAL $4200





Assuming he can tax deduction of $1200 per month, he'd be paying net of $3000.





Now if you rent La Casella plan 1, will it cost you $3000? I dont know but I think it is very close...





We can argue who can afford 20% downpayment to buy a house in Irvine? So that could be the argument not neccesarily whether ownership is pemanenetly detach from fundamental.









 
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