Orange County Median Home Prices -- Past, Present & Future?

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IrvineRenter_IHB

IrvineRenter_IHB

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<a href="http://www.irvinehousingblog.com/wp-content/uploads/2007/03/ihb-post-market-decline-charts-orange-county.jpg"><img width="800" height="344" alt="Orange County median - past, present, future." src="http://www.irvinehousingblog.com/wp-content/uploads/2007/03/orange-county-median-prices.jpg" /></a>
 
<p>IrvineRenter, </p>

<p>Assuming I am reading your chart right: you are saying in Jan 2001 the media housing price is 230K, and the “fundamental value” in Jan 2014 should be $298K. This gives an average annual appreciation rate of 1.99% within the 13 years. </p>

<p>Historically, real estate assets always to min, even in mid west, etc can beat inflation by several points, especially if we can all agree that Jan 2001 real estate value can be considered at “fundamental value” in your language. </p>

<p>Would you share with us why you think 1.99% is the right appreciation rate? </p>

<p>I hope I read you chart right.</p>
 
I wonder if the recent subprime implosion will drive the median UP in the near term since the low-end of the market is likely to suffer more of the fallout.
 
<em>I wonder if the recent subprime implosion will drive the median UP in the near term since the low-end of the market is likely to suffer more of the fallout.</em>





That is possible, but I wonder if the elimination of the bottom tier of the market will prevent all the move-ups and cancel out this effect.








BTW, I was thinking about the current state of the market, and Wile E. Coyote came to mind: <a href="http://www.dailymotion.com/visited/search/wile%2Be%2Bcoyote/video/xdmfa_wildchase-scene-2">An allegory for our times.</a> The greedy FB's chasing their fortunes leading to their destruction. I found it particularly poignant the moment of realization when Wile E discovers he has a serious problem.
 
<p>Is a "sub-prime" loan defined by the borrower being below a certain credit worthliness level, or is it also defined by "no paperwork / documentation loans?"</p>

<p>I'm a little confusing how to read lender statements, news stories, and press releases that (some) lenders will no longer do "stated income" loans, or that FannieMay will no longer underwrite (or buy) "sub-prime loans"... and now Countrywide is no longer doing 100% financing.</p>

<p>Is this all part of the sub-prime market re-shuffle? Or are these three distinctly different retreats in lending practices?</p>
 
<p>GrewUpInIrvine - A "sub-prime" loan would have some sort of credit problems. I say problems because one ding on the credit such as a late payment to a credit card or an very old collection won't necessarily make you sub-prime. You would have at least one mortgage late within two years or even more. You could have multiple collections or late payments on your credit cards. You could even be currently late on any of your credit debt and a sub-prime lender would loan you money.</p>

<p>Stated income is designed for people who are commission based, business owners or someone who has large inconsistent bonuses. Tax returns usually are a problem because these type of people have complex returns or you could say they write off anything they can legal or not. You have to prove assets and if you have a good credit score the rates should be the same or close to what would be if you could provide income documentation. Now sub-prime loans have and are doing stated loans the difference is they designed it so that you can state what ever income you want to make it work. Of course it should make sense and the underwriter shouldn't approve a loan for a blockbuster clerk making $9k a month but they have and that is why they have the buy backs and going BK. They charge a premium on the rate for these loans unlike the "A" loans and they used to not require assets, today I am sure they do. </p>

<p>"No-Doc" loans are just that. You fill out a form with your SSN, the loan info and your address and that is it. This loan is designed for someone who is in a situation where they may have a job change or low business cycle. They don't have much in assets or they don't want to prove where they come from and the income is very difficult to prove. You have to have a high credit score and sub-prime lenders do not offer this type of loan. It really isn't easy to qualify for this loan and you have to have a down payment or equity. </p>

<p>I can give you a real example of where stated or no-doc loans make sense and I can give you examples of where it doesn't make sense if will help paint a better picture. The whole thing has been abused and that is where the problems started. In my opinion stated or no-doc loans are great loans for people who need them and will pay them back. It is not good when these loans are made for people who need them to qualify and couldn't ever possibly pay them back. </p>
 
<p>graphrix - thanks for the info!</p>

<p>So what the financial headlines have been touting lately is not just a single form of lending that is contracting (sub-prime loans) but also "no doc" and "100% financing" loans. The removal/restriction of THREE previously existing forms of financing seems like it would have a measurable affect on the SoCal housing market in the near future...which seems like it would benefit those of us who are more conventional 80/20 borrowers that are merely waiting for things to settle a bit.</p>

<p>But what about lenders that have a working affiliation with new builders? For example, Stonetree (in Woodbury) works with JLH lending, which is "powered" by Countrywide Mortgages. Recently Countrywide said "No more 100% loans." So, who has the final say on whether they (JLH Mortgage) would offer 100% financing? JLH Mortgage? Countrywide who is "powering JLH?" The builder (John Laing) who may help insure/fund the loan in some manner? Perhaps the underwriters who will ultimately buy the bonds that secure the loans.</p>
 
<p>GrewUpInIrvine - 100% financing isn't dead yet for "A" borrowers but it could go away, Chase is one that does. I know that they are underwriting them with higher standards and are tweaking the guidelines. One of the problems is the lenders are hacking the appraisals. They just don't think they are worth what these appraisers state.</p>

<p>JLH Mortgage is Countrywide and will have the same guidelines and rules as any other Coutrywide affliate. But they are allowed to broker the loan at JLH if Countrywide can't do it. So they still can do 100% financing. John Laing may support Countrywide and say if you can't do the loan we don't want it or they could drop them and get a new lender or create their own if it becomes a propblem selling homes. The most important thing for Laing is to sell homes and the lender better not get in the way of that. </p>
 
Great article but I don't think the housing prices are coming down that far even in the distant future. The difficulty of the entitlement process, and lack of land in OC, good schools , low crime and low unemployment will keep prices on the higher side IMO. My prediction is a 30% hit in the next 2 years and then flatline for another 2-4 which is not too far from the graph. After that we'll see a steady increase. BTW as of today I'm an official renter. Luckily I got what I wanted for my house and now I'm going to wait for at least 6 months.
 
Seeing as how the OP is reviving the post, I'll chime in.





To irvine 123, I'm not sure where you get...


"Historically, real estate assets always to min, even in mid west, etc can beat inflation by several points, especially if we can all agree that Jan 2001 real estate value can be considered at “fundamental value” in your language.

<p>Would you share with us why you think 1.99% is the right appreciation rate?" </p>




If your timeline is 1980 to present, then maybe I can see that, but a rising tide rises all boats. Historically, residential real estate...well, look at the graph for yourself. (This is a pic from Robert Shiller of the Case-Shiller home price index. Well worth the click if the pic doesn't come up.)





<a href="http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif">http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif</a>





I sure hope that comes up as a picture.


Predictions? Macro factors including housing put the U.S. in a 'healthy' recession. Inflation rises as the dollar drops. The Fed looks into their history books and sees previous recession of post-NASDAQ bubble and decides that the smart idea is to lower the interest rates to stimulate economy. Prime rate goes down and people get excited about the housing market again. Only problem is that recession has taken it's toll on employment and incomes. Housing market not only doesn't go up, it goes down due to uncertainty about prices, new jobs, old bills. Creditors are more strict anyways, and demand continues to be below average for a long time pulling the prices down. Net result is a slow, painful decline in prices with little demand to sop up the decay. Throw in any exogenous event, Iran / other oil price shocks, terrorist attack, natural disaster, financial crisis like LTCM (see wiki:LTCM) or derivative market meltdown and all bets are double down with a call for a free drink.
 
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