PermaBears from the IHB: Where is the 40% drop?

[panda]

Dude.. once TIC hits critical mass marketing Irvine to the affluent class of Korean, Chinese, Taiwanese, and Filipinos like Louis Vitton did. It is game OVER! .. that is why Panda picked up his basketball and went back to his cave.

 

[iacrenter]

Will it be a massive wave to hit?  No.  They are holding them off on purpose to mitigate their losses (they lose on average about $130,000 per property, currently).  It will more likely be a steady flow.  As far as values, probably not a 40% hit, but who knows.  All I know is that I am not buying in OC/Irvine any time soon.  Anyway, I wanted to add what I know to be true.  I get frustrated when I read posts from various sites about the naysayers who say no wave is coming etc.  I don't come on this site often but I will try to answer questions.

So if it's not a massive wave and just a steady flow, how will that really affect pricing?

Let's put this in perspective here. Part of the reasoning why people said prices will drop is because of all the shadow inventory that will suddenly become available and this will create downward pressure on pricing. I would argue that would be true in normal inventory situations. The problem with Irvine is it seems that we are in a drought inventory situation. While there seems to be a number of homes available, it's not at prices that buyers would prefer. So one would think that if someone dropped a bunch of homes on us at nominal pricing (meaning somewhat below the average per/sf price) THEN prices would drop.

Well... didn't that just happen at the end of January? TIC dropped over 700 new homes into the market and where did the prices go? Not only did they NOT drop... they went up. And they are gearing up to drop hundreds more....

So even if there is tons of waiting inventory out there... I don't know how that will affect the Irvine market specifically. Still trying to see if someone would show me some data on the 90s bubble where new Irvine homes that were built during the peak took a dive similar to surrounding areas. I still think they didn't... my relative bought a brand new home in 1989 and by 1996, it had only dropped 15%. In fact, if he kept it 2 more years, it would have been back up to what he bought it for. And this was in Lake Forest... I assume Irvine was even more resistant.

Just read a good blog post on our old home at the IHB. It gives a great Irvine specific overview on current Pre Foreclosure and shadow inventory.:
http://www.irvinehousingblog.com/blog/comments/500-properties-are-currently-scheduled-for-foreclosure-auction-in-irvi/

IR seems to make a compelling argument as to why even Irvine will NOT by immune to further price drops. He also argues that TIC is taking advantage of this temporary restricted inventory period to sell new homes and points to Las Vegas as a more extreme example.

 

[irvinehomeowner]

With all respect, he's making some assumptions with that number:

At least 2,700 in Irvine shadow inventory

Bear in mind that none of these numbers capture the shadow inventory of those who are not paying their mortgage but the banks have not begun the foreclosure process. The latest report is that 8.4% of Orange County mortgage holders are delinquent on their payments. There are about 75,000 homes in Irvine and about 45,000 mortgages. If only 6% of those are delinquent, that amounts to 2,700 homes. If Irvine matches the 8.4% rate of Orange County, then 3,780 homeowners are delinquent The ratio of three to four houses in shadow inventory for each house in pre-foreclosure is about the same as national figures.

His post last week said there was 850 homes in shadow inventory... that's a huge leap.

I don't think there is as much distressed property in Irvine as everywhere else... it gets bought up too quickly.

If his math was accurate, there may be a problem... I just think a bunch of shenanigans has lowered the shadow inventory numbers more than he thinks.

 

[nosuchreality]

I need some explanation as to why they think Irvine is still going to drop so hard considering all that is going on. They talk about ever-looming foreclosures, how to buy at auction, HELOC abuse of the day etc etc but when I mention how well the 2010 Collection has sold and how TIC keeps raising prices... I get crickets.

It's just a game of musical chairs.  The government has done a beautiful job of keeping the music going but eventually the music will stop.


Is that in 2011?  2013? or 2018?  I don't know. 

If rates stay at 5% and the economy improves, then who knows.  But frankly, all I see for housing market is more pain and suffering. The kind of pain and suffering that comes from people being unable to sell their homes.  As I posted on IHB, the problem is really two fold, the market is dominated by banks and the banks don't need to sell. Couple that with the few equity sellers that can actually sell out there and they get a price premium just for being able to sell in a relatively straight forward manner.

Eventually, more equity sellers will get used to the new prices and be willing to sell, that will add pressure.  Eventually the banks will sell all their inventory. Whether that is a 1 year event or 10 year event is yet to be seen.

Until then, buyers get to dance with the devil.  Pay more in capital but get long term incredibly low rates, or wait and risk an even more bleak market, greater interest rates and even though less capital, still significant capital and payment needs.

Until then, life doesn't stop. 

 

[irvinehomeowner]

The bears must be hibernating.

Where is the snark? Maybe when the Dow dips below 10k again we'll hear the 'I told you so's.

 

[iacrenter]

The bears must be hibernating.

Where is the snark? Maybe when the Dow dips below 10k again we'll hear the 'I told you so's.

Let's talk again in December. Time to sleep. 

 

[nosuchreality]

Okay, here's the scoop. Unbeknownst to the posters of that other blog, each Irvine Village has been consecrated with a corrupted version of the grass ritural using the Ram's horn, bull manure, boar testicles and debasing it with a virginal roll of uncirculated hundred dollar bills...

That's why their values don't wilt.

 

[irvinehomeowner]

The bears must be hibernating.

Where is the snark? Maybe when the Dow dips below 10k again we'll hear the 'I told you so's.

Let's talk again in December. Time to sleep. 

But that's the thing... you need to be able to argue when things don't look your way either. Anyone can say "See... the prices did drop" while they are dropping but it's much harder when they are not.

The bears are currently in "gov intervention" mode which is funny because they once touted that no government action will stop the pain. Now that they see it's actually extending out... they are being more careful in what they are saying. And while many of the theories can apply to OC as a whole... Irvine seems to have its own plan (or some supernatural protection ritual involving animal parts ).

 

[iacrenter]

The bears must be hibernating.

Where is the snark? Maybe when the Dow dips below 10k again we'll hear the 'I told you so's.

Let's talk again in December. Time to sleep. 

But that's the thing... you need to be able to argue when things don't look your way either. Anyone can say "See... the prices did drop" while they are dropping but it's much harder when they are not.

The bears are currently in "gov intervention" mode which is funny because they once touted that no government action will stop the pain. Now that they see it's actually extending out... they are being more careful in what they are saying. And while many of the theories can apply to OC as a whole... Irvine seems to have its own plan (or some supernatural protection ritual involving animal parts ).

Based on everything I see in the overall RE market, I am still betting on further drops. I feel there is little downside in continuing to rent. Sure I am disappointed at the lack of inventory and the pace of REO activity but I don't believe Irvine is special. Maybe stubborn--but not special. Irvine might always carry a premium over other OC cities but prices will fall closer to fundamental affordability in the longer run.

All this government intervention will NOT rescue the RE market. Obama and the Fed are just kicking the can down the road. Foreclosures might be slowing down but the rate of default mortgages continue to rise, adding to shadow inventory. Ultimately all this excess inventory held by banks must be disposed. Even if Irvine itself is not flooded by REOs, the substitution effect by surrounding cities will take a toll.

 

[iacrenter]

Let the good times roll in Irvine for buyers...are we going to see further price pressure?

http://www.irvinehousingblog.com/blog/comments/there-are-3600-distressed-properties-in-irvine/

"What about the 3,600 distressed properties in Irvine?
I recently wrote that Nearly 500 Properties Are Currently Scheduled for Foreclosure Auction In Irvine. There are about 900 properties in the foreclosure pipeline about about 2,700 in shadow inventory. Last month we sold 228 properties, and this is the prime selling season. In any market where distressed inventory has exceeded 50%, prices have cratered, so if we chipped away at the 3,600 number with about 120 sales a month, it will take 30 months to clear out the garbage -- assuming we don't add any more to it."

 

[irvinehomeowner]

That's assuming all 3,600 end up being foreclosed... which we know historically has not been the case... auctions get postponed or quickly bought and flipped, pre-foreclosures get short saled, NODs get modded.

How does that number compare to the rest of the Orange County cities?

It's all about perspective and comparing apples to apples. The thing that's different about Irvine is that there are buyers who will purchase those homes at comp prices because inventory is so low. The Irvine Company put 800 homes on the market, has sold through over half while raising prices each phase and are now selling more.

The fundamentals don't support what is going on... but it wasn't fundamentals that inflated the bubble in the first place. With FHA-OArm substitutes... and no recourse from the banks... why wouldn't people buy at these high prices (making them stay high or go higher). If they can't afford it... they can get bailed out or squat.

But I will be very sad if this is the baseline... here's hoping 2013 is really as low as it's predicted to be.

 

[irvinerealtor]

Don't know if this should be thrown into this conversation, but here's some more data:

May resale numbers... per SocalMLS

Orange County - 2789 sales
Short sales - 673 (24%)
REO - 369 (13%)

Irvine - 213 sales
Short Sales - 48 (23%)
REOs - 10 (4.7%)

I don't know why specifically, but can speculate on several reasons the Irvine ratio of REO is lower than the County's average...

Carry on.

 

[irvinehomeowner]

I keep posting new threads... but maybe I should revisit old ones.

This one is chock full of information that is relevant to the market today.

So what happened? IR talked about all this shadow inventory for Irvine yet we are at super low inventory levels now and prices have gone up.

3 years and the perma-bears are still quiet.

 

[freedomcm]

I bought my house!

But I view it as an expense, not investment...

 

[zubs]

bears bought houses to combat "The Bernanke's" printing press.  Need to put assets somewhere that is !cash.  Although it may be too late now...cause I hear economic bad news is coming.

 

[nosuchreality]

I need some explanation as to why they think Irvine is still going to drop so hard considering all that is going on. They talk about ever-looming foreclosures, how to buy at auction, HELOC abuse of the day etc etc but when I mention how well the 2010 Collection has sold and how TIC keeps raising prices... I get crickets.

It's just a game of musical chairs.  The government has done a beautiful job of keeping the music going but eventually the music will stop.


Is that in 2011?  2013? or 2018?  I don't know. 

If rates stay at 5% and the economy improves, then who knows.  But frankly, all I see for housing market is more pain and suffering. The kind of pain and suffering that comes from people being unable to sell their homes.  As I posted on IHB, the problem is really two fold, the market is dominated by banks and the banks don't need to sell. Couple that with the few equity sellers that can actually sell out there and they get a price premium just for being able to sell in a relatively straight forward manner.

Eventually, more equity sellers will get used to the new prices and be willing to sell, that will add pressure.  Eventually the banks will sell all their inventory. Whether that is a 1 year event or 10 year event is yet to be seen.

Until then, buyers get to dance with the devil.  Pay more in capital but get long term incredibly low rates, or wait and risk an even more bleak market, greater interest rates and even though less capital, still significant capital and payment needs.

Until then, life doesn't stop. 

Wow, was I wrong.

Here we are three years later.

The music is going strong.  Interest rates are even lower.  The job market is still the same and sellers basically are in a position to look for a buyer's letter stating why the buyer should be allowed the privilege of funding seller's children's UC education dreams.

All that said, how come I still feel like the music is being provided by Wallace Hartley.

 

[zubs]

When I joined IHB in 2007, I thought it was great.  I was in the market for a house, and having IHB as my information source would help me decide when was the best time to buy.  However, I did remember that being on a bear blog would mean I would be brainwashed into possibly waiting too long to buy (permabear mentality).  I always thought IR was more bearish than he really felt just so he could buy before everyone else.

I began looking at houses at the end of 2011.  I bought in the middle of 2012. 

The current prices feel like a bubble.  Congratulations Bernanke, mission accomplished.  Don't fight the government.

 

[gld2]

Where did you get it?  any sources?

...cause I hear economic bad news is coming.

 

[jayl23]

http://www.zerohedge.com/

 

[zubs]

Zerohedge is a bear blog, but it does show a lot of truth behind how our economy works.  Despite it's intent on pulling back the curtain to show the wizard, it is still hard to make money following that blogs advice.  It is only a tool in our struggle for resources. 

Sometimes you can see Paul Krugman in the comments section.  They really despise him.