Macro Analysis of the Irvine Housing Market
- Thread starter panda
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NEW -> Contingent Buyer Assistance Program
The data is misleading. You need to put FCB into the equation.
I'm sure that I'm mostly dealing with buyers in the upper middle class. But those buyers who make less than $100k/yr bring in big downpayments (some of these downpayments come from savings and some come from parents/family). I don't believe we have a housing bubble in the Irvine for several reasons...1) Loans are thoroughly underwritten (I know this personally)...2) Large % of cash buyers...3) Average downpayments for non-cash buyers are 30-40%...4) Most of Irvine buyers are buying a home they can easily afford and are under buying given their buying power...5) Good economic tailwinds...6) Irvine has a strong brand name due to Irvine Company's marketing efforts. Inventory levels support my claim as well as many homes going into escrow quickly, some with multiple offers.
A typical Irvine home buyer are the top 10% of the pool!!
Not all current Irvine resident are in the market for home and not all the Irvine home buyer are currently reside in Irvine. The median household income of Irvine residents does not correlate the median income of Irvine home buyers, or how else can you explain $800k+ detached condo selling like a hot cake.
Thanks to super low interest rates the current real estate values in Irvine are indeed supported by cash flow from rents - particularly if you benefit from the home interest tax deduction.
The super low interest rates also hurt the return you get putting cash in a CD. If I could get 5% from a CD I'd be more inclined to sell my home and rent.
I am currently seeing 838 active homes listed in Irvine. Can anyone please verify this information is accurate and current? The last peak in inventory is on July 2014 where inventory in Irvine reached 853. This is a critical number that needs to be cracked for the Irvine Kingdom to start seeing some downward pressure. Next critical support is at 1000, then 1200. When the Irvine inventory level surpasses 1200, I am going to estimate that the Irvine Housing Market will correct in range between 10-15% correction. For those you who have been waiting for right entry point to purchase a home in Irvine, there is absolutely no rush. Wait until 2018 for a much better entry point. As a buyer in Irvine, the Inventory level targets you should be looking for is a range between 1200 - 1500. China will be in a full blown recession by 2017 which will drive down commodity prices.
Not sure where Redfin is pulling their inventory numbers from....I know they have a link to MLS since their site will update within about an hour after I've made chances to my listings on MLS. Anyhow, we are getting lower highs and lower lows on the inventory levels if you looked at it for the past 3-4 years. The low point will be right around new years day and the peak will be around July/Aug. For there to be a 10-15% correction in Irvine prices one or more of a few things have to happen....1) moderate/severe US/global recession 2) huge spike in interest rates (above 5%) and/or 3) China imploding
panda
Well-known member
Eathis.
This is including all homes both resale and new in Irvine. The chart generated is up to 01-01-2016. It is possible that inventory Have increased to 600-700 today. I do have my California broker license but do have California Mls access. If would be great if a California agent can verify where we currently stand on Irvine inventory today.
This is including all homes both resale and new in Irvine. The chart generated is up to 01-01-2016. It is possible that inventory Have increased to 600-700 today. I do have my California broker license but do have California Mls access. If would be great if a California agent can verify where we currently stand on Irvine inventory today.
superbobbay
Member
Basically means a terrible time to buy right now? Debating if I should buy now or wait till the end of the year. :-\
panda
Well-known member
Superbobay.
Irvine's housing market has a direct correlation with unemployment rate in orange county. If we have a similar stock market crash like 2007-2009.. my guess is that Irvine builders will stop building and dry up the new housing stock like they did in our last downturn...which made Woodbury 2010 collection a big hit for the hungry buyers on the side lines. If we have a similar downturn and sudden spike in unemployment, I would not be looking for opportunities to buy new but look for opportunities for highly leveraged newer housing stock in irvine built between 2006-2014 at a discount.
Irvine's housing market has a direct correlation with unemployment rate in orange county. If we have a similar stock market crash like 2007-2009.. my guess is that Irvine builders will stop building and dry up the new housing stock like they did in our last downturn...which made Woodbury 2010 collection a big hit for the hungry buyers on the side lines. If we have a similar downturn and sudden spike in unemployment, I would not be looking for opportunities to buy new but look for opportunities for highly leveraged newer housing stock in irvine built between 2006-2014 at a discount.
panda
Well-known member
Superbobaby,
The only two numbers you need to monitor and watch are unemployment figures in Orange County and the inventory of Irvine housing stock. Just sit back, relax, and observe.
Irvine Median Home price : $784,500
Irvine Median Household income: $98,923
Home price to income ratio : 7.93
?Be Fearful When Others Are Greedy and Greedy When Others Are Fearful?
- Warren Buffet
The only two numbers you need to monitor and watch are unemployment figures in Orange County and the inventory of Irvine housing stock. Just sit back, relax, and observe.
Irvine Median Home price : $784,500
Irvine Median Household income: $98,923
Home price to income ratio : 7.93
?Be Fearful When Others Are Greedy and Greedy When Others Are Fearful?
- Warren Buffet
seekingnewhome
New member
yoyo2012 said:
The data is misleading. You need to put FCB into the equation.
panda
Well-known member
Yoyo,
The median income would reflect both homeowners and rents who are residents of Irvine. Source of the income data was pulled from Census 2010 Data.
The median home price vs median house hold income is a metrics you can use for property valuation just like a PE ratio on stocks. The HI ratio spread is much greater in an area like Cupertino, where the HI ratio is around a 12.
An HI ratio between 2 - 4 is considered a healthy range of home affordability to support the demographics of the area.
The median income would reflect both homeowners and rents who are residents of Irvine. Source of the income data was pulled from Census 2010 Data.
The median home price vs median house hold income is a metrics you can use for property valuation just like a PE ratio on stocks. The HI ratio spread is much greater in an area like Cupertino, where the HI ratio is around a 12.
An HI ratio between 2 - 4 is considered a healthy range of home affordability to support the demographics of the area.
usctrojancpa
Well-known member
As of 9:45pm on Saturday, there were 480 active listings on MLS in Irvine (includes a few dozen new homes). That translates to less than 2.5 months of inventory which is a seller's market. Inventory levels and months of inventory are leading indicators for the strength of the market.
Also, the price to income is very misleading. I would say that 95% of my Irvine/Tustin Ranch buyers had household incomes greater than $100k/yr with the majority of those buyers having $150k-$300k/yr in household income. FCBs also represent over 30% of Irvine transactions and Irvine buyers are known to be conservative buyers (i.e. buying a home way under their maximum buying power).
Also, the price to income is very misleading. I would say that 95% of my Irvine/Tustin Ranch buyers had household incomes greater than $100k/yr with the majority of those buyers having $150k-$300k/yr in household income. FCBs also represent over 30% of Irvine transactions and Irvine buyers are known to be conservative buyers (i.e. buying a home way under their maximum buying power).
panda
Well-known member
Trojan,
Census data for median income is probably accounting for the entire population of Irvine for both renters and owners (212k). You are probably working with the top 15% of this pool as I am guessing that the top 10% income earner in Irvine is around $200k. Remember median is the middle number of the entire sample set including staff members of UCI and possibly students.
Cupertino's housing bubble is much larger than Irvine as the median homes price to income multiple is close to a 12.
Trojan.... Are u telling me that you don't see a bubble in Irvine home prices today ?
Census data for median income is probably accounting for the entire population of Irvine for both renters and owners (212k). You are probably working with the top 15% of this pool as I am guessing that the top 10% income earner in Irvine is around $200k. Remember median is the middle number of the entire sample set including staff members of UCI and possibly students.
Cupertino's housing bubble is much larger than Irvine as the median homes price to income multiple is close to a 12.
Trojan.... Are u telling me that you don't see a bubble in Irvine home prices today ?
usctrojancpa
Well-known member
Panda said:
I'm sure that I'm mostly dealing with buyers in the upper middle class. But those buyers who make less than $100k/yr bring in big downpayments (some of these downpayments come from savings and some come from parents/family). I don't believe we have a housing bubble in the Irvine for several reasons...1) Loans are thoroughly underwritten (I know this personally)...2) Large % of cash buyers...3) Average downpayments for non-cash buyers are 30-40%...4) Most of Irvine buyers are buying a home they can easily afford and are under buying given their buying power...5) Good economic tailwinds...6) Irvine has a strong brand name due to Irvine Company's marketing efforts. Inventory levels support my claim as well as many homes going into escrow quickly, some with multiple offers.
qwerty
Well-known member
I would say that Irvine real estate values are not supported by fundamental metrics (cash flow value from rents), which I think is enough to technically call it a bubble (I could be wrong on that). However, a bubble does imply a pop/burst coming, for the reasons USC mentioned I don't think Irvine would see more than a 10% drop in an economic downturn and I don't think a 10% drop would qualify as a burst of the bubble.
So the both of you are probably right
So the both of you are probably right
Panda said:
A typical Irvine home buyer are the top 10% of the pool!!
Not all current Irvine resident are in the market for home and not all the Irvine home buyer are currently reside in Irvine. The median household income of Irvine residents does not correlate the median income of Irvine home buyers, or how else can you explain $800k+ detached condo selling like a hot cake.
panda
Well-known member
Qwerty is correct.
Two ways I assess the valuation of real estate in a city, MSA, or zip code is by 1) rental parity analysis 2) median home price / median house hold income multiple which I call the HI ratio. I would like to note that having a household income that is in the top 10% in Irvine like $200,000 does not necessary mean that you are balance sheet wealthy.
I am also in agreement that if the macro market trends suddenly shifts and we have experience a similar stock market crash like 2007 - 2009, Irvine's real estate market would likely correct only 10-15% while the surrounding cities would correct more. We were able to see exactly what happened in last recession between 2006-2009 where the builders stopped building starving off inventory to maintain the new home prices in Irvine. Most likely a similar situation would occur if we have significant downturn in the economy between 2016 - 2018.
Remember that Socal's real estate market is more cyclical like the Bay Area with 5 years forward and 2 years back, then 5 years forward etc. That being said.... buying in Irvine at today's prices, you are buying a life style, not an investment as the money has already been made and the margins are very thin. For those of your who own rental properties in Irvine can clearly see that cash flowing is very difficult with the high HOA and Mello roos.
In Johns Creek the median home price is $362,000 and the median income is $110,073 with a HI ratio at 3.28. Believe it or not... there was time when Irvine had similar HI ratio back in 1997. As an investor back then who had the foresight to accurately predict the job growth, population growth, demographics changes of Irvine would be retired today had he picked up 5 of these SFRs on this Ad below and still held them today. I was looking at this exact Irvine Ad when Johns Creek Real Estate got completely crushed trading at 1996 levels 5 years ago.
Two ways I assess the valuation of real estate in a city, MSA, or zip code is by 1) rental parity analysis 2) median home price / median house hold income multiple which I call the HI ratio. I would like to note that having a household income that is in the top 10% in Irvine like $200,000 does not necessary mean that you are balance sheet wealthy.
I am also in agreement that if the macro market trends suddenly shifts and we have experience a similar stock market crash like 2007 - 2009, Irvine's real estate market would likely correct only 10-15% while the surrounding cities would correct more. We were able to see exactly what happened in last recession between 2006-2009 where the builders stopped building starving off inventory to maintain the new home prices in Irvine. Most likely a similar situation would occur if we have significant downturn in the economy between 2016 - 2018.
Remember that Socal's real estate market is more cyclical like the Bay Area with 5 years forward and 2 years back, then 5 years forward etc. That being said.... buying in Irvine at today's prices, you are buying a life style, not an investment as the money has already been made and the margins are very thin. For those of your who own rental properties in Irvine can clearly see that cash flowing is very difficult with the high HOA and Mello roos.
In Johns Creek the median home price is $362,000 and the median income is $110,073 with a HI ratio at 3.28. Believe it or not... there was time when Irvine had similar HI ratio back in 1997. As an investor back then who had the foresight to accurately predict the job growth, population growth, demographics changes of Irvine would be retired today had he picked up 5 of these SFRs on this Ad below and still held them today. I was looking at this exact Irvine Ad when Johns Creek Real Estate got completely crushed trading at 1996 levels 5 years ago.
paperboyNC
New member
qwerty said:I would say that Irvine real estate values are not supported by fundamental metrics (cash flow value from rents), which I think is enough to technically call it a bubble (I could be wrong on that). However, a bubble does imply a pop/burst coming, for the reasons USC mentioned I don't think Irvine would see more than a 10% drop in an economic downturn and I don't think a 10% drop would qualify as a burst of the bubble.
So the both of you are probably right
Thanks to super low interest rates the current real estate values in Irvine are indeed supported by cash flow from rents - particularly if you benefit from the home interest tax deduction.
The super low interest rates also hurt the return you get putting cash in a CD. If I could get 5% from a CD I'd be more inclined to sell my home and rent.
panda
Well-known member
I am currently seeing 838 active homes listed in Irvine. Can anyone please verify this information is accurate and current? The last peak in inventory is on July 2014 where inventory in Irvine reached 853. This is a critical number that needs to be cracked for the Irvine Kingdom to start seeing some downward pressure. Next critical support is at 1000, then 1200. When the Irvine inventory level surpasses 1200, I am going to estimate that the Irvine Housing Market will correct in range between 10-15% correction. For those you who have been waiting for right entry point to purchase a home in Irvine, there is absolutely no rush. Wait until 2018 for a much better entry point. As a buyer in Irvine, the Inventory level targets you should be looking for is a range between 1200 - 1500. China will be in a full blown recession by 2017 which will drive down commodity prices.
usctrojancpa
Well-known member
As of Friday June 17th at 4:30pm there are 683 active listings in Irvine (643 homes if you exclude homes built in 2016 which are new homes) and there were 260 homes sold in May 2016. That represents about 2.5 months supply of inventory which is a weak seller's market so prices remain flat to slightly increasing (excluding the $1.2m+ market which has a lot of inventory). I think the peak for inventory levels will be somewhere between 700 to 750 which will happen in July...even then that's still less than 3 months of inventory.
There's no way we are getting a 10-15% price correction with that level of resale inventory on the market today. We'll have to cross 1,200 active resale listings to start seeing any noticeable price declines. Unless sometime dramatic happens, Irvine home prices will remain flat to slightly up. I'll tell you guys this much, if we didn't have any new home inventory today home prices would be up 5-10%.
There's no way we are getting a 10-15% price correction with that level of resale inventory on the market today. We'll have to cross 1,200 active resale listings to start seeing any noticeable price declines. Unless sometime dramatic happens, Irvine home prices will remain flat to slightly up. I'll tell you guys this much, if we didn't have any new home inventory today home prices would be up 5-10%.
panda
Well-known member
Thanks for that info Trojan. Is the Redfin inventory data incorrect then for 838 active listings? If there are 643 homes today, the inventory is slowing growing since December of last year.
Date Inventory
Dec - 2015 484
Jan - 2016 402
Feb - 2016 432
Mar - 2016 505
April - 2016 542
June - 2016 683
So if you are telling me that inventory levels are at 683 today, inventory in Irvine has risen 70% since January 2016. Let's wait and see what happens to inventory by end of this year. My crystal ball is telling me that there will be 10-15% correction in the Irvine housing market by Dec 31st, 2018.
Date Inventory
Dec - 2015 484
Jan - 2016 402
Feb - 2016 432
Mar - 2016 505
April - 2016 542
June - 2016 683
So if you are telling me that inventory levels are at 683 today, inventory in Irvine has risen 70% since January 2016. Let's wait and see what happens to inventory by end of this year. My crystal ball is telling me that there will be 10-15% correction in the Irvine housing market by Dec 31st, 2018.
usctrojancpa
Well-known member
Panda said:
Not sure where Redfin is pulling their inventory numbers from....I know they have a link to MLS since their site will update within about an hour after I've made chances to my listings on MLS. Anyhow, we are getting lower highs and lower lows on the inventory levels if you looked at it for the past 3-4 years. The low point will be right around new years day and the peak will be around July/Aug. For there to be a 10-15% correction in Irvine prices one or more of a few things have to happen....1) moderate/severe US/global recession 2) huge spike in interest rates (above 5%) and/or 3) China imploding