What do you guys think?
- Thread starter jyeh74
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Where did that theory come from? Is that what you imagine everyone who doesnt agree with you thinks?
Looking at incomes is extremely important but you also have to look at the incomes of the people buying the houses. Irvine has had a MASSIVE amount of building in the last decade and many houses as well as apartments have been built. The income comparison is valid if the ratio of renters to owners stayed the same or if you can pull the incomes for just owner occupied units throughout Irvine in the 90's and currently.
I am trying to find the income for just SFRs on census.gov but its not as easy as I thought. I did find some interesting data points though like the city added 38% more housing units after 2000 and overall, 47% of the housing units in Irvine were built after 1990.
YEAR STRUCTURE BUILT Total housing units
-------------------------------------------
Built 2005 or later 5,221
Built 2000 to 2004 15,498
Built 1990 to 1999 14,343
Built 1980 to 1989 16,646
Built 1970 to 1979 19,642
Built 1960 to 1969 3,122
Built 1950 to 1959 443
Built 1940 to 1949 117
Built 1939 or earlier 299
I grew up in WLA and remember coming to Irvine in 90s to visit my cousin and thinking we are in the boonies. Its no urban city or even close but it has dramatically changed and there are tons more houses and tons more stores here now.
Personally I think we have more room to fall but without knowing exactly every income of every buyer in the last 10 years, its hard to simply look at the income and make a conclusion on the bottom or value of a house. Some of the other things in play:
1) job growth - irvine has become the job center of OC and has had lots of office buildings and commercial RE developed in last 10-15 years
2) population growth - its simply a much bigger city with more to offer so will have more people interested in it
3) cultural change - i dont know the percentage of non-whites and their growth rate but i think its safe to say there are more non-whites today than there were in the 90s and definitely more than before the 90s. this isnt the FCB theory or anything like that but an observation on savings rate and different cultures. it would be useful to understand what the average savings rate looks like with the people moving in the last decade as down payment is a big factor as well
Or you can do as IrvineRenter and simply look at rental parity and not worry about anything else. In any case, looking solely at median income data for an entire city isnt useful.
But consider this; the home ownership rate began to geometrically increased 1997-1998, right around the same time the CS began to go haywire. For 100 years before that, the home ownership rate was steady. So either the market built more homes because of implicit subsidies, and lax credit markets, or people all of a sudden wanted to just own a home at the turn of the century.
One of those is more likely than the other. I'll leave you to your own devices to figure out which one it is. 8)
2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900
United States 66.2% 64.2% 64.4% 62.9% 61.9% 55.0% 43.6% 47.8% 45.6% 45.9% 46.5%
seems the geometric increase you speak of was from 64.2% in the 1990's to 66.2%. The largest jump actually occurred in the 40's and 50s and hasn't changed that dramatically since.
California 56.9% 55.6% 55.9% 54.9% 58.4% 54.3% 43.4% 46.1% 43.7% 49.5% 46.3%
IndieDev - you really need to stop the smarter than thou attitude. I have taken stat courses and I understand median incomes. We can have a good discussion without you telling me that I dont understand something and that I am a layman. Its insulting and makes communicating with you extremely challenging.
I never stated that I didnt believe in the median income data or thought it was wrong. Perhaps I should have been more careful in my wording but I was trying to convey that a market can change and that it might not be reflected in the median income, hence its not as useful. Have you considered the other items in my post that might be affecting the prices? I realize that its impossible nor beneficial to do a door to door poll of incomes but I would like to see how the incomes have changed. Specifically incomes of SFR households and I believe that data is there, I just need to find it.
When my parents bought their house in WLA in '94, they paid $270K for a 1930s 1800 sq ft house on a 8000 sq ft lot. That same year, my friends parents bought a house in Venice right off of Lincoln for $190K. The house was smaller, the lot of was smaller, and Venice was considered crime ridden and grungy.
Fast forward today and the Venice house sells for more than the WLA house. If you look at median incomes, they dont really explain the story as there are still tons of poor people in Venice but basically, its been gentrified, a major ghetto like complex has been razed, crime has reduced, etc.
I truly believe Irvine today is very different than Irvine circa 90s. There is much more development and I think many more apartments and condos have been added over houses. This has to affect medians.
Exactly my point. The housing ownership rate jump from the 90s to the 2000s was the biggest since the end of WWII when hundreds of thousands of soldiers were coming home from Germany and Japan and starting their own families (baby boomers). You don't find that peculiar at all? What sparked the jump in the 2000s?
I'm sorry you feel that I've personally insulted you, that's not my intention. I am simply coloring your comments for what they are, somewhat misinformed, and inaccurate.
When you say the "median income isn't a useful measure", or when guys like so_scared say "unemployment is factored into the income side of the equation", it becomes obvious to me that both of you are speaking from an uninformed position. That's not a personal attack on either of you, though I know people are often sensitive to being told that they are wrong, but to me it's simply the truth.
I've been creating financial models for very rich people for a long time, and I've become exceedingly good at it. The measurements you say "aren't useful" are measures I've seen work over, and over again, not only in my own work, but in the work of others. There's a reason guys read books about people like John Venn, or Daniel Bernoulli, it's because the models work.
To your point, while I will agree social factors can lead to demographic changes, income is still an important indicator for determining fair value of housing.
Umm, I've always talked about things in REAL terms. Did you not see the post where I showed the Irvine median household income actually tracked inflation? In real terms, housing has become much less affordable than for someone in 1997. In real terms, households are NOT making more money in Irvine than 10 years ago. You were the one who attempted to talk about things in nominal terms, and you were the one who tried to make the very weak correlation between nominal per capita gains and median household incomes.
The "all else being equal" qualifier is of course a necessity to my point. I have no way of predicting whether rates will artificially be kept low, or whether government subsidies will upset fundamentals. Those are unpredictable factors that are abnormal.
You're original point about not needing double the income to afford double the housing is completely based on government market manipulation of rates, and bank manipulation of lending standards. Do you think that is a sound model with which to base affordability upon? Really?
i thought the same thing after reading Test's post. if more people make the same amount of money, i guess the money supply would increase, but that does change what people individually make so no impact on price increase. now if the same amount of people started making more money, then that would drive price increases.
If there are 10 people who want to buy and can afford the existing 10 houses. If there are now 10 more people who make the exact same amount, but still only 10 houses, then the price of those 10 houses would be higher than before.
Per person, the income hasn't gone up. But there are still more dollars chasing the same amount of goods, then prices will generally rise unless you increase the number of houses as well or absolutely no one could pay even .01 more at the income level for those 10 houses.
That makes sense, but here's a question:
Are people paying more down because they simply have to for affordability(market) reasons? Or is it because, in general, the savings rate for individuals has suddenly shot up?
The reason that's important is because if people are dedicating more and more of their disposable income towards housing, that naturally means they are taking away money from spending in other things (food, healthcare, vacations, etc).
That isn't a characteristic of a "normal market". Although anecdotal, I personally know people who can "afford" $1m+ homes in my neighborhood, but most of their wealth is locked up in the house itself. They have almost no retirement fund, no liquid savings, no money market accounts, nothing. Everything is focused towards making sure the mortgage is current.
Like when the Dow crashed, many said it was going to be a long road to recovery considering unemployment, housing etc... yet it's at 12k+. Irvine housing was supposed to be 1999 prices by now... yet it's not... however other cities it is and they had the same interventions that Irvine had.
This is what I was referring to with my point on demographics changing. Anecdotal but in my indian community, its very common for children to live with their parents until they get married. Esp for girls. Heck one of my wife's closest girlfriends makes 6 figures and is early 30s still living with her parents. Lets not debate good or bad - its just the culture and we should understand how these large downpayments happen. Think about the amount of money saved if you are working and living and eating for mostly free.
On IHB, AZDave always comments about down payments coming from previous equity but that isnt the case in my community. Most of my friends saved a ton by living at home until they were married, and some even for a year or 2 after they were married and then putting a large amount down.
In addition to the living at home, the savings culture is just different. We drive nice cars and spend money but its nothing compared to what my non-indian friends spend. Heck, my wife and I compile how much we have earned and spent at the end of every year and even though our income has gone up by about $150K since we graduated college, our total spend has only gone up by $20K per year. All that extra money goes to savings. I havent even tried to be frugal or be money conscious and savings comes so easy as its how we were raised.
IndieDev said:
Where did that theory come from? Is that what you imagine everyone who doesnt agree with you thinks?
Looking at incomes is extremely important but you also have to look at the incomes of the people buying the houses. Irvine has had a MASSIVE amount of building in the last decade and many houses as well as apartments have been built. The income comparison is valid if the ratio of renters to owners stayed the same or if you can pull the incomes for just owner occupied units throughout Irvine in the 90's and currently.
I am trying to find the income for just SFRs on census.gov but its not as easy as I thought. I did find some interesting data points though like the city added 38% more housing units after 2000 and overall, 47% of the housing units in Irvine were built after 1990.
YEAR STRUCTURE BUILT Total housing units
-------------------------------------------
Built 2005 or later 5,221
Built 2000 to 2004 15,498
Built 1990 to 1999 14,343
Built 1980 to 1989 16,646
Built 1970 to 1979 19,642
Built 1960 to 1969 3,122
Built 1950 to 1959 443
Built 1940 to 1949 117
Built 1939 or earlier 299
I grew up in WLA and remember coming to Irvine in 90s to visit my cousin and thinking we are in the boonies. Its no urban city or even close but it has dramatically changed and there are tons more houses and tons more stores here now.
Personally I think we have more room to fall but without knowing exactly every income of every buyer in the last 10 years, its hard to simply look at the income and make a conclusion on the bottom or value of a house. Some of the other things in play:
1) job growth - irvine has become the job center of OC and has had lots of office buildings and commercial RE developed in last 10-15 years
2) population growth - its simply a much bigger city with more to offer so will have more people interested in it
3) cultural change - i dont know the percentage of non-whites and their growth rate but i think its safe to say there are more non-whites today than there were in the 90s and definitely more than before the 90s. this isnt the FCB theory or anything like that but an observation on savings rate and different cultures. it would be useful to understand what the average savings rate looks like with the people moving in the last decade as down payment is a big factor as well
Or you can do as IrvineRenter and simply look at rental parity and not worry about anything else. In any case, looking solely at median income data for an entire city isnt useful.
IndieDev
New member
Umm, that's exactly what test is saying if you cared to read his post.rkp said:
This is a somewhat ridiculous statement. Sampling and aggregating data has been an accepted practice since the days of Aristotle. Descriptive statistics is used by the BLS, Census, and numerous other analytics agencies, not because these agencies are lazy, but because sampling actually works. If you took a basic statistics course you would know that sampling improves the accuracy, and quality of data for measurements of large populations, not the other way around. The method you're presenting actually causes data to lose homogeneity, and clarity because of outliers, and data spikes. To say that you have to record and consider every case because you don't trust a sampled measure is a fairly ignorant viewpoint, even for a layman.rkp said:
rkp, you seem like you're trying hard, and I respect that.rkp said:
But consider this; the home ownership rate began to geometrically increased 1997-1998, right around the same time the CS began to go haywire. For 100 years before that, the home ownership rate was steady. So either the market built more homes because of implicit subsidies, and lax credit markets, or people all of a sudden wanted to just own a home at the turn of the century.
One of those is more likely than the other. I'll leave you to your own devices to figure out which one it is. 8)
No one solely looks at median income as an indicator of market activity and direction, but it is a key indicator and one that is used by most serious analytics firms. That's why we have the term "aggregate data". To say it "isn't useful" is a gross misunderstanding of how the metric is actually used.rkp said:
irvinehomeowner
Well-known member
Some interesting points in this thread.
1. While future interest rates can be considered intervention and non-fundamental, since current rates are known, don't they become part of the present-day fundamental equation? You can't say "Fundamentally the rates should be at 7%" -- because the fact is... they are not.
2. The problem with median income is the accuracy and the correlation to home values. If 25% of the sample incorrectly report their income, how accurate is it? And there could be households with $50k income or less living in $1m homes because either the home was bought many years ago and is now paid off, the home was bought for all cash or the existing loan can be serviced by a lower income. With down payments in Irvine at a 35-40% clip... those scenarios are likely. It seems like a correlation to home loans (not just prices) needs to be considered.
3. How does this compare to a city like Newport Beach? Do their median incomes and home values track?
And back to the original topic, Kelsey Lane SFRs are selling in the same price range as the Cypress ones, so you get into that whole detached condo vs. SFR question.
1. While future interest rates can be considered intervention and non-fundamental, since current rates are known, don't they become part of the present-day fundamental equation? You can't say "Fundamentally the rates should be at 7%" -- because the fact is... they are not.
2. The problem with median income is the accuracy and the correlation to home values. If 25% of the sample incorrectly report their income, how accurate is it? And there could be households with $50k income or less living in $1m homes because either the home was bought many years ago and is now paid off, the home was bought for all cash or the existing loan can be serviced by a lower income. With down payments in Irvine at a 35-40% clip... those scenarios are likely. It seems like a correlation to home loans (not just prices) needs to be considered.
3. How does this compare to a city like Newport Beach? Do their median incomes and home values track?
And back to the original topic, Kelsey Lane SFRs are selling in the same price range as the Cypress ones, so you get into that whole detached condo vs. SFR question.
IndieDev said:
2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900
United States 66.2% 64.2% 64.4% 62.9% 61.9% 55.0% 43.6% 47.8% 45.6% 45.9% 46.5%
seems the geometric increase you speak of was from 64.2% in the 1990's to 66.2%. The largest jump actually occurred in the 40's and 50s and hasn't changed that dramatically since.
California 56.9% 55.6% 55.9% 54.9% 58.4% 54.3% 43.4% 46.1% 43.7% 49.5% 46.3%
IndieDev said:
IndieDev - you really need to stop the smarter than thou attitude. I have taken stat courses and I understand median incomes. We can have a good discussion without you telling me that I dont understand something and that I am a layman. Its insulting and makes communicating with you extremely challenging.
I never stated that I didnt believe in the median income data or thought it was wrong. Perhaps I should have been more careful in my wording but I was trying to convey that a market can change and that it might not be reflected in the median income, hence its not as useful. Have you considered the other items in my post that might be affecting the prices? I realize that its impossible nor beneficial to do a door to door poll of incomes but I would like to see how the incomes have changed. Specifically incomes of SFR households and I believe that data is there, I just need to find it.
When my parents bought their house in WLA in '94, they paid $270K for a 1930s 1800 sq ft house on a 8000 sq ft lot. That same year, my friends parents bought a house in Venice right off of Lincoln for $190K. The house was smaller, the lot of was smaller, and Venice was considered crime ridden and grungy.
Fast forward today and the Venice house sells for more than the WLA house. If you look at median incomes, they dont really explain the story as there are still tons of poor people in Venice but basically, its been gentrified, a major ghetto like complex has been razed, crime has reduced, etc.
I truly believe Irvine today is very different than Irvine circa 90s. There is much more development and I think many more apartments and condos have been added over houses. This has to affect medians.
IndieDev
New member
so_scared said:
Exactly my point. The housing ownership rate jump from the 90s to the 2000s was the biggest since the end of WWII when hundreds of thousands of soldiers were coming home from Germany and Japan and starting their own families (baby boomers). You don't find that peculiar at all? What sparked the jump in the 2000s?
IndieDev
New member
rkp said:
I'm sorry you feel that I've personally insulted you, that's not my intention. I am simply coloring your comments for what they are, somewhat misinformed, and inaccurate.
When you say the "median income isn't a useful measure", or when guys like so_scared say "unemployment is factored into the income side of the equation", it becomes obvious to me that both of you are speaking from an uninformed position. That's not a personal attack on either of you, though I know people are often sensitive to being told that they are wrong, but to me it's simply the truth.
I've been creating financial models for very rich people for a long time, and I've become exceedingly good at it. The measurements you say "aren't useful" are measures I've seen work over, and over again, not only in my own work, but in the work of others. There's a reason guys read books about people like John Venn, or Daniel Bernoulli, it's because the models work.
To your point, while I will agree social factors can lead to demographic changes, income is still an important indicator for determining fair value of housing.
IndieDev
New member
so_scared said:
Umm, I've always talked about things in REAL terms. Did you not see the post where I showed the Irvine median household income actually tracked inflation? In real terms, housing has become much less affordable than for someone in 1997. In real terms, households are NOT making more money in Irvine than 10 years ago. You were the one who attempted to talk about things in nominal terms, and you were the one who tried to make the very weak correlation between nominal per capita gains and median household incomes.
The "all else being equal" qualifier is of course a necessity to my point. I have no way of predicting whether rates will artificially be kept low, or whether government subsidies will upset fundamentals. Those are unpredictable factors that are abnormal.
You're original point about not needing double the income to afford double the housing is completely based on government market manipulation of rates, and bank manipulation of lending standards. Do you think that is a sound model with which to base affordability upon? Really?
qwerty
Well-known member
IndieDev said:
i thought the same thing after reading Test's post. if more people make the same amount of money, i guess the money supply would increase, but that does change what people individually make so no impact on price increase. now if the same amount of people started making more money, then that would drive price increases.
usctrojancpa
Well-known member
I think that's exactly it, there's more money out there with the same incomes (on real terms). I would make an educated guess that the average down in Irvine was not 40%+ back in the mid-to-late 90s like it is today. So when you take higher downpayments + lower interest rates that would be a catalyst for the increase in home prices. I have a handful of Irvine buyers who's household income is below the median in Irvine and they are still looking at buying $600,000 to $1,000,000 homes because they have high savings to put down 40-60% down.qwerty said:
qwerty said:
If there are 10 people who want to buy and can afford the existing 10 houses. If there are now 10 more people who make the exact same amount, but still only 10 houses, then the price of those 10 houses would be higher than before.
Per person, the income hasn't gone up. But there are still more dollars chasing the same amount of goods, then prices will generally rise unless you increase the number of houses as well or absolutely no one could pay even .01 more at the income level for those 10 houses.
IndieDev
New member
USCTrojanCPA said:
That makes sense, but here's a question:
Are people paying more down because they simply have to for affordability(market) reasons? Or is it because, in general, the savings rate for individuals has suddenly shot up?
The reason that's important is because if people are dedicating more and more of their disposable income towards housing, that naturally means they are taking away money from spending in other things (food, healthcare, vacations, etc).
That isn't a characteristic of a "normal market". Although anecdotal, I personally know people who can "afford" $1m+ homes in my neighborhood, but most of their wealth is locked up in the house itself. They have almost no retirement fund, no liquid savings, no money market accounts, nothing. Everything is focused towards making sure the mortgage is current.
irvinehomeowner
Well-known member
Is there any way to confirm that? And if that's true... why? Change in demographics? I have a feeling that DPs were still high in Irvine back in the 90s because even back then, prices were higher than surrounding cities.USCTrojanCPA said:
So do fundamental models have to adjust for this? When non-fundamental factors become prevalent, doesn't that change the baseline? And if more is spent on housing, doesn't that affect other things? Yet it doesn't seem spending on other things have changed all that much (Christmas time at Spectrum!).
Like when the Dow crashed, many said it was going to be a long road to recovery considering unemployment, housing etc... yet it's at 12k+. Irvine housing was supposed to be 1999 prices by now... yet it's not... however other cities it is and they had the same interventions that Irvine had.
IndieDev said:
This is what I was referring to with my point on demographics changing. Anecdotal but in my indian community, its very common for children to live with their parents until they get married. Esp for girls. Heck one of my wife's closest girlfriends makes 6 figures and is early 30s still living with her parents. Lets not debate good or bad - its just the culture and we should understand how these large downpayments happen. Think about the amount of money saved if you are working and living and eating for mostly free.
On IHB, AZDave always comments about down payments coming from previous equity but that isnt the case in my community. Most of my friends saved a ton by living at home until they were married, and some even for a year or 2 after they were married and then putting a large amount down.
In addition to the living at home, the savings culture is just different. We drive nice cars and spend money but its nothing compared to what my non-indian friends spend. Heck, my wife and I compile how much we have earned and spent at the end of every year and even though our income has gone up by about $150K since we graduated college, our total spend has only gone up by $20K per year. All that extra money goes to savings. I havent even tried to be frugal or be money conscious and savings comes so easy as its how we were raised.
usctrojancpa
Well-known member
I have a few asian and indian buyers just like that. I lived at home for 18 homes after college and that's how I got my downpayment for the first property I bought back in 1999.rkp said: