Nifty home bubble data - must read!!

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garfangle_IHB

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<p>Radar Logic, Inc. has a <a href="http://analytics.radarlogic.com/radar-logic-home/historical-data.aspx">chart tool</a> that displays in 25 MSAs what happened during the 2001-2007 timeframe in price per square foot (psf) and number of transactions. Although it doesn't have data for Orange County you can approximate the results using the LA data point. You can download the individual MSA data as well.</p>

<p>In Jan. 2000 the average price psf in LA was ~$135. Shocking, no?</p>

<p>In Jan. 2001 it had risen to $154, a 14.1% year-over-year (yoy) increase.</p>

<p>In Jan. 2002 it has risen to $174, a 13.0% yoy increase.</p>

<p>In Jan. 2003 it has risen to $211, a 21.6% yoy increase and a 56.3% rise in just three years.</p>

<p>In Jan. 2004 it has risen to $260, a 23.2% yoy increase.</p>

<p>In Jan. 2005 it has risen to $319, a 22.7% yoy increase.</p>

<p>In Jan. 2006 it has risen to $381, a 19.4% yoy increase and a 182.2% rise in just six years.</p>

<p>In Jan. 2007 it has risen to $389, a 2.1% yoy increase. Finally, a slowdown.</p>

<p>In Apr. 2007, prices peaked in LA at just over $401 psf, a 197.0% rise from the start of the decade until its peak point.</p>

<p>As of late Sept. 2007, prices have fallen to $367, 5.7% below the start of the year and 8.5% below the peak of Apr. 2007.</p>

<p>The other chart Radar Logic provides is the number of house transactions. From Jan. 2000 to Jan. 2006, the chart shows a familar transaction bell pattern with the Winter season the nadir period (as low as 8000) and the Spring and Summer seasons the peak periods (upwards of 14,000). However, the Spring of 2006 could not even reach 10,000 sales and it has been falling from there. The Spring of 2007 barely reached 6,000 sales and by Sept. it had fallen far below 4,000 sales.</p>

<p>Most of California follows the LA data in both the price rise since 2000 and the drastic falloff in transactions starting this Spring. </p>

<p>What does this all tell you, IHB reader, about how California, SoCal, OC, and Irvine will fare over the next few years? My guess is that the rollback must fall below $200 psf in order for real estate to recover to the level of transactions in 2000. If not, then the market will be in a period of prolonged stagnation and suffering.</p>

<p>See that $700K, 1700 sqft detached condo in Irvine? Even at half price, $350K, it is still above the $200 psf barrier. A rollback to $175 psf (a 3.7% annual inflation rate, 2000-2008) would put the condo at $297.5K, a 57.5% reduction off its initial offer.</p>

<p> </p>
 
<p>This tells me that Los Angeles needs to fall back to $175 psf, which sounds plausible if considering some of the extremely distressed areas which roll up into that number. But you can't take that LA number and apply it to Irvine without first knowing what the Irvine premium over LA was in 2000. I'm not a data wizard so I don't have those numbers, but just a quick sampling of Irvine homes with a 2000 sale history show they were between $175-$225 psf in that timeframe.....Far from the $135 in LA. So might that suggest an Irvine psf of $225 - $275 psf is the right number when this is all said and done? </p>

<p>In my sampling, here are the two examples that seem closest to the example you give. One was $183 psf in 2000, the other $235 in 2001. And Oak Creek is a pretty "median" neighborhood for Irvine.</p>

<p><a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1028634">http://www.redfin.com/stingray/do/printable-listing?listing-id=1028634</a></p>

<p><a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1263396">http://www.redfin.com/stingray/do/printable-listing?listing-id=1263396</a></p>

<p><a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1028634"></a></p>
 
<p>CK,</p>

<p>The two properties you listed were recent constructions (built in 2000) and I'd guess deserved their higher price psf premium. The LA data covers all properties.</p>
 
<p>Your LA data is fine. The only problem is that Irvine is not LA. I think it is commonly understood that we pay a premium in Irvine over the LA market,which rolls up suburbs like West Covina, or El Monte, or Hawthorne, or --- well, if you have been to those places you would get the picture on why the LA price per square foot --- while a good barometer for overall direction of the market --- can not be applied literally the Irvine market. Even if you had Orange Cty specific numbers, you could not apply those literally to Irvine, but it would be closer. LA, not so much.</p>
 
Which part of LA are those numbers for, Santa Monica or South Central? LOL.
 
Garfangle, at least LA is a better comparative than the earlier posts equating valuation of Irvine to Austin, Detroit, and Greenwich.
 
I would not look at the actual price per sq ft. I would look at the 200% price change since 2000. Then allow for 3 things:

-- 2% drop in prevailing 30yr conventional mortgage rates between late 90s and 2000s. That is worth about 50% of the home price appreciation

-- funny mortgages/speculation -- they are worth about 50% of the price as well, but will go away

-- demographics, O.C. show, etc. My guess is 100% appreciation (works to about 10% per year, not unreasonable given the quality of life and the increase in incomes).



Take away the second item, and the prices will drop about 20% from these levels, taking us back to "fundamentally fair" levels, assuming 2000 prices were "fair", and my generous demografics numbers are "fair".



All my estimates have +/- 10% error and are subjective anyway
 
<p>earthbm,</p>

<p>I doubt it will just be a 20% decline from peak home prices in Irvine., more like 40%. Extrapolating the LA data, my guess is that Irvine saw home prices reach their peak at around $450-500 psf. A 20% drop will take it back to $360-400 psf, while a 40% decline will take it back to $270-300 psf.</p>
 
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