What the bubble?!?

[OpenSky]

 

[valueoc]

"1800-2200sf homes are a sweet spot for many, sellers are hoping for an irrational buyer and jacking the psf beyond reason." Well said, and a long shot strategy at best. This pricing seems seems very out of whack.

 

[irvinehomeowner]

So it's not a bubble right? It's been about 11 months.

 

[lnc]

I don't think we will see a sudden, large significant price drop this year but we might see a  price "correction" like the one in the early 90"s happen in the next few years.

OpenSky provides some very good arguments for the housing price to drop and I totally agree with his arguments, but just disagree on the timing. I can't tell how much the housing price will drop nor when this will happen,  but I do see it coming.

There is very little keeping pricing at today's peak levels other than weak precedent.

The fundamentals (affordability, rental parity) don't support it and are, in fact, breaking down very quickly with credit standards and rates.

Investor opportunities have largely dried up. They're on to other asset classes.

Add to that a tidal wave of builder supply that is only growing -- hell, new construction has already dented resales and there is so much more coming on line. Anecdotally, I'm seeing a large number of cancellations with new home sales. Resale listings that actually open escrow flip back to pending -- I'm guessing about 40-50% for the zips I'm tracking.

So 10% in 2014... yeah, I think that's modest.

 

[OpenSky]

 

[usctrojancpa]

I don't think we will see a sudden, large significant price drop this year but we might see a  price "correction" like the one in the early 90"s happen in the next few years.

OpenSky provides some very good arguments for the housing price to drop and I totally agree with his arguments, but just disagree on the timing. I can't tell how much the housing price will drop nor when this will happen,  but I do see it coming.

There is very little keeping pricing at today's peak levels other than weak precedent.

The fundamentals (affordability, rental parity) don't support it and are, in fact, breaking down very quickly with credit standards and rates.

Investor opportunities have largely dried up. They're on to other asset classes.

Add to that a tidal wave of builder supply that is only growing -- hell, new construction has already dented resales and there is so much more coming on line. Anecdotally, I'm seeing a large number of cancellations with new home sales. Resale listings that actually open escrow flip back to pending -- I'm guessing about 40-50% for the zips I'm tracking.

So 10% in 2014... yeah, I think that's modest.

Prices are holding on such low volumes, it really feels like the market is hanging on by its fingernails. Larry continues to argue about cloud inventory providing market support; I think it's a mix of precedent + some level of inflation fear.

We're about to open the seasonal inventory floodgates; we'll see if there are enough buyers to soak up the listings -- assuming they materialize. The loan guys I talk to say the young first time buyers are simply non-existent. That portends a structural deficiency in the market that I'd guess would manifest itself first with more contingent offers, but who knows.

Too bad Irvine has 35-40% of buyer using all cash to buy homes.  Irvine tends to outperform other cities in Orange County in terms of pricing and strength of market.  I don't see inventory levels skyrocketing like you think it will.  Hell, of the current active listings on MLS I'd say that probably 1/4 to 1/3 are sellers who aren't serious sellers because of WTF listing prices and are just looking for a sucker.  Inventory could double and we would still be in a neutral market (less than 6 months inventory). 

 

[calimark]

inventories may also remain stubbornly low as seasoned owners don't want to sell (and lose a favorable property tax basis) and trade up into a much higher property tax basis (assuming he/she buys).  and also, with prices having moved up so quickly, what would the seller of his/her home buy next in an inventory constrained market?

 

[OpenSky]

 

[usctrojancpa]

inventories may also remain stubbornly low as seasoned owners don't want to sell (and lose a favorable property tax basis) and trade up into a much higher property tax basis (assuming he/she buys).  and also, with prices having moved up so quickly, what would the seller of his/her home buy next in an inventory constrained market?

so... inventory is low because inventory is low...?

Inventory is low for various reasons...stable/growing employment in the area, lack of forced sales (REOs, short sales, sellers having problems with payments, etc), desirable location and schools.

 

[irvinehomeowner]

What happened to that tsunami of foreclosures and shadow inventory?

 

[usctrojancpa]

What happened to that tsunami of foreclosures and shadow inventory?

I guess it never came.  I sure hope there aren't people that are waiting for it because it's not coming.  Guess it was just a mirage.

 

[davenlei]

What happened to that tsunami of foreclosures and shadow inventory?

I guess it never came.  I sure hope there aren't people that are waiting for it because it's not coming.  Guess it was just a mirage.

Pretty sure it has been said but some friends I have in the servicing and FC/REO side of the house said they bundled REO homes in groups of 20-40 properties at a time and sold them in bulk to investors who then would 'fix up/touch up' the homes and pepper them on the market to sell near market value.  One home in particular I was wanting to buy got put into a REO bulk sale and sold for 560K (I told them I would give them 675K but it was locked in) and the investor sold it three months later for one million.  I saw a few of their bulk sale sheets and it was interesting how quickly they got rid of all their REO backlog and the investors did not flood the market with lots of properties competing against each other. 

So it was not a mirage, they just handled it in a way that did not trickle down the price benefit to the individual buyer.  I don't know about all banks but the bank I know about has successfully unloaded all their shadow inventory a while ago.

 

[irvinehomeowner]

@davenlei:

Yeah...heard the same. Also turned them into rentals to provide cash flow until prices rebounded.

 

[quattroporte]

I don't think we will see a sudden, large significant price drop this year but we might see a  price "correction" like the one in the early 90"s happen in the next few years.

OpenSky provides some very good arguments for the housing price to drop and I totally agree with his arguments, but just disagree on the timing. I can't tell how much the housing price will drop nor when this will happen,  but I do see it coming.

There is very little keeping pricing at today's peak levels other than weak precedent.

The fundamentals (affordability, rental parity) don't support it and are, in fact, breaking down very quickly with credit standards and rates.

Investor opportunities have largely dried up. They're on to other asset classes.

Add to that a tidal wave of builder supply that is only growing -- hell, new construction has already dented resales and there is so much more coming on line. Anecdotally, I'm seeing a large number of cancellations with new home sales. Resale listings that actually open escrow flip back to pending -- I'm guessing about 40-50% for the zips I'm tracking.

So 10% in 2014... yeah, I think that's modest.

Prices are holding on such low volumes, it really feels like the market is hanging on by its fingernails. Larry continues to argue about cloud inventory providing market support; I think it's a mix of precedent + some level of inflation fear.

We're about to open the seasonal inventory floodgates; we'll see if there are enough buyers to soak up the listings -- assuming they materialize. The loan guys I talk to say the young first time buyers are simply non-existent. That portends a structural deficiency in the market that I'd guess would manifest itself first with more contingent offers, but who knows.

Just wanted to add this:

"Many possible first-time borrowers have stopped applying for loans. Applications for mortgages to buy homes in February fell 9 percent from the previous month to the lowest level since August 1995, according to an analysis of Mortgage Bankers Association data by Capital Economics Ltd. in London.

Logan Mohtashami, a senior loan officer with AMC Lending Group in Irvine, California, hasn?t gotten one pre-qualification application from a person younger than 35 since Jan. 1.

?They?re usually about 40 percent of buyers,? said Mohtashami, whose company has been lending since 1987. ?This year, it?s so quiet. They?re not even getting started in the process.?"
http://ochousingnews.com/blog/housing-recovery-built-unstable-foundation/

 

[nosuchreality]

Doesn't matter, inventory and supply is so low that the barest bit of demand creates competition.

Demand is dropping, over the last three months, Redfin shows Irvine as 485 sales.

It also shows today that 485 properties are for sale.

Granted winter typically slows down, but that is just an anemic turnover for a city with a 100,000 housing units.

So while demand is dropping, there's even less desire to sell.

The reason is pretty simple, look around, you have to live somewhere and getting in and out of Irvine has steadily gotten worse.  The commute across Irvine west to east has turned into a 45 minute jaunt at rush hour.

 

[OpenSky]

 

[nosuchreality]

There is no starter market in Irvine anymore.  That is and will be a problem going forward.  The lowest priced 3 bedroom that isn't a mobile home is $390K. There are only 4 others below $500K.

Two bedrooms really aren't much better and they are a far fall, IMHO, from the level of quality that the people are used to living in at the newer apartment complexes.  Basically all the hassles of apartment living with none of the benefits.  Oh, and you get the bill.

 

[irvinehomeowner]

So I'm not sure what nsr's stance is... it is a mini-bubble or a supported price run-up?

 

[OpenSky]

 

[irvinehomeowner]

There is no starter market in Irvine anymore.  That is and will be a problem going forward.  The lowest priced 3 bedroom that isn't a mobile home is $390K. There are only 4 others below $500K.

Two bedrooms really aren't much better and they are a far fall, IMHO, from the level of quality that the people are used to living in at the newer apartment complexes.  Basically all the hassles of apartment living with none of the benefits.  Oh, and you get the bill.

But technically, 2br or less is still a starter market.

Whether it's a 1br or 2br, if you are a young couple (or a bachelor) that will work for you.

Or is your definition of a "starter" married with kids?

Affluent "starters" can easily do $500k, or does "starter" also mean "low-income"?