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[quote author="stepping_up" date=1210134651]"its very likely the declines will overshoot rental parity, just like prices went far higher than anyone could have predicted during the bubble. a number of factors could keep potential buyers on the sidelines even if homes are fairly priced. job losses, stagnant income, lack of credit, losses in other retirement accts, and FEAR could cause people to think twice regardless of price. "



That makes sense. I always thought the rational argument was totally irrational. The average Joe doesn't run complicated models to form his expectations and information is assymetrical, making markets imperfect. So, I'm looking at the bubble graph and wondering about the time lines. What month and year are saying that the perceived value based on the expectation of rising prices began? Also, is the graph to scale? I'm trying to figure how much time elapses between the period where prices drop below rental parity and then cross above it again the first time and how much time between the first dip below it and the seccond rise above it where the curve starts to head back to appreciation again.</blockquote>


stepping, if you're asking about when the mkt is going to turn around again, and specifically when all the little bear traps and dead cat bounces will occur, that's anyone's guess. a lot of it will be tied to how quickly this the end comes for this recession which apparently to some folks hasnt even begun yet.



moody's economy.com held an economic outlook conference last week and mark zandi's outlook was 1q was already in recession. he sees this recession as very short, with stabilization coming in june of this yr. there was a lot of grumbling from most of the other economists that this was far too optimistic. he noted however that housing mkt nationwide could expect another 20% decrease before hitting a bottom in spring 2009. this is fairly common because macroeconomic mvmts take time before the avg consumer feels the effect. many are still consuming far beyond their means and grossly overestimating expectations about their incomes, home equity, and access to credit. slowly but surely people will start to get burned. once the economy turns around, it will take time for people who have been burnt to build up their downpayments or merely get over their fears.



so even an <strong>optimistic </strong><em></em>forecast in which the general economy turns around some time this year means the housing bottom doesn't come for some time after, maybe in 2009. the longer the recession, the further off the recovery for housing. better rule of thumb might simply be to keep your eyes and ears open. when you're at a dinner party and every bonehead there is talking about how much housing sucks, that's when you know the bottom is here.



<em>"Be fearful when others are greedy and greedy when others are fearful."

Warren Buffet</em>
 
"stepping, if you?re asking about when the mkt is going to turn around again, and specifically when all the little bear traps and dead cat bounces will occur, that?s anyone?s guess. a lot of it will be tied to how quickly this the end comes for this recession which apparently to some folks hasnt even begun yet. "



Yep, that's exactly what I'm asking :)



" when you?re at a dinner party and ever bonehead there is talking about how much housing sucks, that?s when you know the bottom is here. "



Ha ha... my husband says that when we go back to the days when every bonehead at the dinner party has their RE license is when we sell :)
 
<<its very likely the declines will overshoot rental parity, just like prices went far higher than anyone could have predicted during the bubble. a number of factors could keep potential buyers on the sidelines even if homes are fairly priced.>>



That's a very general statement and everything depends on location, location, location. IMHO if Irvine gets to rental parity they will be paying you if you offer to take a Temecula REO McMansion. With $200 oil down the pike I can see that happening anyway.



In the 80s RE crash I purchased rental properties that cashed flowed immediately even with 5% down and sold years later for 200% profit. Unfortunately in this present RE crash these same areas are being impacted badly with 16month 50% price declines. Investment areas that drop below rental parity often suck and stay sucky for decades for obvious reasons such as gangs and graffiti.



Irvine will always be above rental parity. Those Asian scholastic four eye gangs are way too scary.
 
oh yeah.. i was speaking in very general macro terms. irvine should always command a nice premium. i certainly hope so.
 
[quote author="emoh88" date=1210148459]

Irvine will always be above rental parity. Those Asian scholastic four eye gangs are way too scary.</blockquote>


You way can't say that. There's graph floating around here that shows just the opposite.



High-end Apartment and House rents are almost to condo parity right now. PPSF.
 
[quote author="ipoplaya" date=1210121752]Get that tongue out of your cheek! You may scoff now, but if we somehow get to 4-5 months inventory in Irvine and price declines disappear in the short-term I expect a hardy "IPO, you are my hero!"...</blockquote>


Oh heck, Playa, I'll give you that. I fully expect some occasional leveling and mild price rises over the next four to five years. That said, I think the overall trend will be down between 1/07 and 1/12.
 
[quote author="EvaLSeraphim" date=1210160780][quote author="ipoplaya" date=1210121752]Get that tongue out of your cheek! You may scoff now, but if we somehow get to 4-5 months inventory in Irvine and price declines disappear in the short-term I expect a hardy "IPO, you are my hero!"...</blockquote>


Oh heck, Playa, I'll give you that. I fully expect some occasional leveling and mild price rises over the next four to five years. That said, I think the overall trend will be down between 1/07 and 1/12.</blockquote>


I think we are about to see how useful the 6-months inventory rule-of-thumb really is. Not all inventory is created equal. I believe we will discover that 4 months inventory, if it is mostly REOs, will still send prices lower. Also, the inventory numbers are somewhat misleading because many REOs are not currently for sale, and the rate of loan default continues to grow which means we will have even more REOs. The lenders need to get moving on these properties while there is still some delusion of buying in the market. If they have to start really unloading these properties in the fall and winter -- which seems to be what will happen -- we will get our next steep drop then.
 
[quote author="IrvineRenter" date=1210197012][quote author="EvaLSeraphim" date=1210160780][quote author="ipoplaya" date=1210121752]Get that tongue out of your cheek! You may scoff now, but if we somehow get to 4-5 months inventory in Irvine and price declines disappear in the short-term I expect a hardy "IPO, you are my hero!"...</blockquote>


Oh heck, Playa, I'll give you that. I fully expect some occasional leveling and mild price rises over the next four to five years. That said, I think the overall trend will be down between 1/07 and 1/12.</blockquote>


I think we are about to see how useful the 6-months inventory rule-of-thumb really is. Not all inventory is created equal. I believe we will discover that 4 months inventory, if it is mostly REOs, will still send prices lower. Also, the inventory numbers are somewhat misleading because many REOs are not currently for sale, and the rate of loan default continues to grow which means we will have even more REOs. The lenders need to get moving on these properties while there is still some delusion of buying in the market. If they have to start really unloading these properties in the fall and winter -- which seems to be what will happen -- we will get our next steep drop then.</blockquote>


That's probably what will happen. Someone somewhere posted a graph of the spring bounces after the last bubble... I don't remember where but it someone else does I'd love to see it again. Basically, there were spring bounces during the early ninties so it should also be expected somewhat here too. I'd be curious to see spring inventory level changes as well.
 
[quote author="IrvineRenter" date=1210197012][quote author="EvaLSeraphim" date=1210160780][quote author="ipoplaya" date=1210121752]Get that tongue out of your cheek! You may scoff now, but if we somehow get to 4-5 months inventory in Irvine and price declines disappear in the short-term I expect a hardy "IPO, you are my hero!"...</blockquote>


Oh heck, Playa, I'll give you that. I fully expect some occasional leveling and mild price rises over the next four to five years. That said, I think the overall trend will be down between 1/07 and 1/12.</blockquote>


I think we are about to see how useful the 6-months inventory rule-of-thumb really is. Not all inventory is created equal. I believe we will discover that 4 months inventory, if it is mostly REOs, will still send prices lower. Also, the inventory numbers are somewhat misleading because many REOs are not currently for sale, and the rate of loan default continues to grow which means we will have even more REOs. The lenders need to get moving on these properties while there is still some delusion of buying in the market. If they have to start really unloading these properties in the fall and winter -- which seems to be what will happen -- we will get our next steep drop then.</blockquote>


We will see soon enough. 890 units on the market in Irvine right now, equivalent to March of last year. Inventory is running almost 20% below YOY. If sales move up for April/May, we are probably at 5 month inventory already... If the banks continue to be motivated, I can still see some price decreases as you suggest. If they think a near-term bottom is in place, they won't be as aggressive with the discounting as they have been of late.
 
How long does it take from NOD to the final foreclosure? For example, 66 windingway at Woodbury got their NOD first week of Jan 08. There is no one living there, and is still listed as pre - foreclosure on RealtyTrac and not in MLS.



Same with 50 windingway, not in MLS, listed as bank-owned for more than several months now. I still see a guy living there as of last week.



Several of you have mentioned that banks are "motivated". I know the banks are not in the business of owning homes, BUT: since the banks have written down the loan amount and taken the write off on their balance sheet, why would they be in a hurry to sell?? The only thing I can think about might be the large property tax bill? - do the banks have to pay property tax after they take over a foreclosure??



Also, selling the already written down asset at low price will for sure affect other homes in the area, which in turn causes financial distress for the surrounding homes ( not able to refi). That will in turn cause more foreclosures, and the banks have to write down more.



I am not in the real estate finance business. But it makes little sense for the major banks to really sell low for the already written down assets to cause further ripple effects.
 
Anecdotally - I have noticed a bunch of South County REO properties on the market in the past few weeks that are priced significantly lower than I would have expected and are way lower than the non-REO competition...sometimes 20-30% off even 2004 prices. Granted, there are still a number of REOs that are not yet up for sale (as IR has said), but it seems we are witnessing some progress.
 
[quote author="irvine123" date=1210204724]How long does it take from NOD to the final foreclosure? For example, 66 windingway at Woodbury got their NOD first week of Jan 08. There is no one living there, and is still listed as pre - foreclosure on RealtyTrac and not in MLS.



Same with 50 windingway, not in MLS, listed as bank-owned for more than several months now. I still see a guy living there as of last week.



Several of you have mentioned that banks are "motivated". I know the banks are not in the business of owning homes, BUT: since the banks have written down the loan amount and taken the write off on their balance sheet, why would they be in a hurry to sell?? The only thing I can think about might be the large property tax bill? - do the banks have to pay property tax after they take over a foreclosure??



Also, selling the already written down asset at low price will for sure affect other homes in the area, which in turn causes financial distress for the surrounding homes ( not able to refi). That will in turn cause more foreclosures, and the banks have to write down more.



I am not in the real estate finance business. But it makes little sense for the major banks to really sell low for the already written down assets to cause further ripple effects.</blockquote>


Banks need cash. They don't make anything on a non-performing asset such as a house, especially in a declining market. They make their income on capital so generating capital is paramount, even more so if they have already taken the hit via a write down.
 
[quote author="caliguy2699" date=1210205765]Anecdotally - I have noticed a bunch of South County REO properties on the market in the past few weeks that are priced significantly lower than I would have expected and are way lower than the non-REO competition...sometimes 20-30% off even 2004 prices. Granted, there are still a number of REOs that are not yet up for sale (as IR has said), but it seems we are witnessing some progress.</blockquote>


Anecdotally as well, I just bumped in to the area guru realtor for my neighborhood. He was setting up for a broker preview. Just listed a house last week at a price $50K above the last model match REO that closed in April one street over. He already has multiple offers, the best being almost $50K over the that recent REO comp. He expects to sell for $60K or so more than that REO's price. This will be the first sale over comps in the neighborhood since early 2007 or late 2006.



Additionally, he just put another property into escrow in West Irvine for a price over recent comps...



Make of it what you will but in my book this does not bode well for continued large price drops.
 
[quote author="ipoplaya" date=1210209291]Make of it what you will but in my book this does not bode well for continued large price drops.</blockquote>


This is also called a "dead cat bounce", or a "bear market rally". One or two properties selling modestly above comps does not make a trend, just like you admitted earlier, your statement is "anecdotal". We should remind ourselves that we are in the middle of the prime spring selling season, so some seasonalilty is to be expected. And let us not forget that the near prime (alt-A) and the prime ARM resets are ahead of us in the next 12 - 24 months.
 
[quote author="crucialtaunt" date=1210211845][quote author="ipoplaya" date=1210209291]Make of it what you will but in my book this does not bode well for continued large price drops.</blockquote>


This is also called a "dead cat bounce", or a "bear market rally". One or two properties selling modestly above comps does not make a trend, just like you admitted earlier, your statement is "anecdotal". We should remind ourselves that we are in the middle of the prime spring selling season, so some seasonalilty is to be expected. And let us not forget that the near prime (alt-A) and the prime ARM resets are ahead of us in the next 12 - 24 months.</blockquote>


Indeed, it is likely a bear market rally aided by less seasonal inventory. I'm not suggesting we are anywhere near market bottom. Just reporting info from the trenches and postulating on how it might impact pricing in the very near term...



This might be a good time to try again to convince my wife to sell and rent.
 
"One or two properties selling modestly above comps does not make a trend"...



If we agree with that, then "one or two foreclosure properties" selling below comps should NOT also consider a trend"?
 
[quote author="irvine123" date=1210218121]"One or two properties selling modestly above comps does not make a trend"...



If we agree with that, then "one or two foreclosure properties" selling below comps should NOT also consider a trend"?</blockquote>


Not surprisingly, I agree with you there. In a "normal" market, which is not too hot, nor too cold, foreclosed properties are probably considered statistical "outliers", few and far between enough so that they do not exert a significant valuation pressure on comps. (On a side note - in the previous bull market that ended in 2006, fixer uppers priced below comps were also statistical outliers that presented an arbitrage opportunity for house flippers, oops, residential investors.)



So if you ask the question - when do foreclosures exert a meaningful pricing pressure on comps? The anwer might lie in the Pareto Principle (http://en.wikipedia.org/wiki/Pareto_principle).
 
I've got to disagree with that one, ct. Pareto analysis is an incredibly poor fit for real estate currently. While good for TQC or other issues on much larger scales, it fails to give an accurate representation where the sample size is so small.



In a fast-moving economy (up or down), a single sale does not make a market. In a (semi?)stagnated economy with fewer comparables to pull from, appraisals are forced to integrate even "relatively-close" alternatives to arrive at their best-guess valuations. Even solo REO closings have put a significant downward pressure regarding both pricing and # of closings.



Most simply put: fewer sales (1) increases uncertainty and (2) favors the buyer, who ultimately sets price in any market.
 
As far as I can tell, in most Irvine company villages, foreclosure single family homes ( pre or already bank owned) are no where close to even 5%.
 
[quote author="irvine123" date=1210204724]How long does it take from NOD to the final foreclosure? For example, 66 windingway at Woodbury got their NOD first week of Jan 08. There is no one living there, and is still listed as pre - foreclosure on RealtyTrac and not in MLS.



I am not in the real estate finance business. But it makes little sense for the major banks to really sell low for the already written down assets to cause further ripple effects.</blockquote>


Jim the realator's site (www.bubbleinfo.com) has a whole lot of nice (but still anecdotal) information for the N. SD region, showing banks repeatedly delaying the NOD->foreclosure process, so that it is lasting a year or more, for higher end properties.



I wonder if this is happening in Irvine too?



Does IPO have this information?
 
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