What the bubble?!?

[paperboyNC]

Irvine has increased by 15000 households since the bubble. Has anywhere near that many been built?

If true, where did they all go?

Are you not factoring all the new apartments that have been built?

And you still haven't clarified what you think "starter" means. A starter home in Irvine is going to be different than a starter home in Santa Ana.

And are you saying that it's not a bubble now because so many people want to live in Irvine today compared to back in 2003-2006?

Supply may be lower now (although it seems there is more new home stock and available apartments now than back during the bubble), but I'm not sure how you are gauging higher demand than before.

Let's say a home sold for $900K in 2005 and then sold for $900K in 2014. There has been 19.8% inflation from 2005 to 2014 so in reality the home sold for $751,252 in 2005 dollars.

Throw in the fact that interest rates are still a lot lower (4.5% compared to 6.5%) and monthly payments are vastly different:

$720K loan @ 6.5% = $4,550.89/mo. @ 4.5% = $3,648.13

If you include both factors (19.8% inflation and a 20.0% savings on the monthly payment) a $900K home in 2005 = $1.3m home in 2014. A 900K home in 2014 = $600K home 2005.

On top of both of those factors, most Irvine homes are selling at slight discounts to 2005/06 non adjusted pricing.

Here's all of the homes from last week's closed sales in Irvine that had previously closed in 2005 or 2006 per Redfin:http://www.redfin.com/CA/Irvine/85-Passage-92603/home/5895169
2006 - $900k, 2014 $870khttp://www.redfin.com/CA/Irvine/9-Bonsall-92602/unit-61/home/5895571
2006 - $645k, 2014 $570khttp://www.redfin.com/CA/Irvine/102-Vintage-92620/home/7210866
2005 - $677k, 2014 $649khttp://www.redfin.com/CA/Irvine/199-Tarocco-92618/unit-83/home/5480172
2006 - $416k, 2014 $390khttp://www.redfin.com/CA/Irvine/30-Le-Vanto-92606/home/4625061
2006 - $701k, 2014 $642khttp://www.redfin.com/CA/Irvine/452-Monroe-92620/unit-88/home/5321937
2006 - $410k, 2014 $380khttp://www.redfin.com/CA/Irvine/53-Avondale-92602/unit-27/home/5884855
2006 - $745k, 2014  $645k

Overall prices for these homes declined 8% from the 2005-06 bubble.

To review:
8% price decline
19.8% inflation
20% monthly payment savings due to interest rates


We have a long way to go until we approach the prices of the last bubble (prices would have to rise 56% or interest rates would have to climb).

Let's look at 30 Le Vanto (a starter home):

2006 -
$701k
$140.2k down payment
$560.8k borrowed at 6.5% interest = $3544.64/mo
Property Tax @ 1.2% = $701/mo
HOA @ $162/mo

Total: $4,408/mo + $140,200 down in 2006 dollars

2014
$642k
$128.4k down payment
$513.6k borrowed at 4.5% interest = $2,602.34/mo
Property Tax @ 1.2% = $642/mo
HOA @ $162/mo

Total: $3,406/mo + $128,400 down in 2014 dollars

$4,408 in 2006 dollars = $5,114.59 in 2014 dollars
$140,200 in 2006 dollars = $162,673.73 in 2014 dollars

$3,406/mo compared to $5,115/mo = 50% more in 2006
$128,400 down compared to $162,674 down = 27% more in 2006

This $642k home would have to immediately rise to around $1 million (over 50%) to be at 2006 affordability. If interest rates remain at 4.5% - we are nowhere near the 2006 bubble. Not even close.

 

[irvinehomeowner]

@paperboyNC:

I think it depends on where you look:

$1.865mhttp://www.redfin.com/CA/Irvine/114-Mosaic-92603/home/5902931
$1.900mhttp://www.redfin.com/CA/Irvine/106-Mosaic-92603/home/5902924

Those Sienna homes were selling for ~$1.1-1.3m in 2005, those two closed for ~$1.9m.

You bring up inflation but I don't know if you are familiar with the arguments made on the IHB but they were claiming price drops regardless of inflation... as far back as 1999 or earlier prices.

In your comparison, you also forget that a $900k home is only $180k down, a $1.3m home is $260k down, $80k more, so the LTV is $1.040m and thus the monthly at 4.5% (if you can get that low for such a high LTV), is $5269. To even out the monthly, you're looking at a $900k loan which puts you at $1.125m (and you're still having to put down $45k more).

Take a look at these homes that sold in 2013:

$1.190mhttp://www.redfin.com/CA/Irvine/10-Santa-Eulalia-92606/home/4628056
$1.280mhttp://www.redfin.com/CA/Irvine/1-Pienza-92606/home/4628777
$1.175mhttp://www.redfin.com/CA/Irvine/29-Arbusto-92606/home/4629541

All higher than $1.125m and these homes were trading for $900k-$1m in 05-06 (I know this because this is where I was looking back then).

So really, even including inflation and lower interest rates, for larger SFRs in Irvine, we are close to 05-06 pricing. And for those who don't use financing, the lower interest rates part of your equation doesn't affect them and all they see is higher prices than 05-06. Even if you factor in inflation, if those are the same as bubble prices in 05-06, why are they not considered bubbly now?

I can see your argument at the sub-$900k end (which almost all your links are), but most move-up SFRs (which is the market I am in) is what I am talking about.

 

[paperboyNC]

@IHO

Only one of your linked homes closed in 2006 and it didn't close in 2014 (it was in 2013) and looks like it was upgraded between 2006 and 2013. It would be helpful if you can provide links of homes that sold in both 2005/06 and 2014 to show the price appreciation.

I did include down payments in my calculation - the downpayment also goes up with inflation and yes it's not a perfect comparison because you'd have to convert the downpayment to a monthly cost which varies depending on the alternative use of that cash.

The lower interest rates actually do effect the all cash buyer as well. Back in 2006 he/she could have put 20% down and parked the 80% in CDs at 5% per year or bonds at 10% per year. Now CDs pay 1.5% and bonds pay 5% so cost of cash is lower.

 

[irvinehomeowner]

@paperboyNC:

It's harder to find these homes that closed in 2014 because WPII homes that I was shopping in 2005 had no sales in 2014, but if you consider pricing has been flat since the middle of 2013, you can extrapolate.

Similarly, it's hard to find homes in QH that closed in 05-06 and sold in 14 because that was a new community in 04-05 and those were the only 2 that closed in 14 in that tract.

I used both those neighborhood as examples because I shopped those areas in 05-06 so I know what the pricing back then was and what it is now. I can probably also find examples in Woodbury, Oak Creek and Woodbridge... basically newer SFRs > 2500sft.

You only included one $900k example in your links which is what I meant when I said "It depends on where you look".

Your $900k/$1.3m comparison is flawed in the interest rate because you don't take into account the higher LTV. You can't really use CDs or bonds to magically increase that but to make it fair, let's use inflation to give your cash its same value today, which would go from $180k to $215k. At $1.3m, you're at $1.085m LTV, you still need another $185k to get to a $900k LTV which would equal the payment for the 2005 $720k LTV at 6.5%.

I've done the inflation and interest rate adjustments, and we are very close to if not slightly above 05-06 pricing in the move-up SFR market, which goes back to my question, if that was bubble pricing back then, why is it not now?

 

[paperboyNC]

@ IHO

You might be right about certain tracts. I just looked at closed sales last week and was surprised that 100% were lower than the 2005-06 sale price. When you have some time put together some of the price comparisons for the $1m+ market with a closed sale both in 2006 and 2014 and I'll be happy to calculate total cost of ownership in 2014 dollars.

And actually prices have already fallen on certain homes from 2013. Individual buyers were overpaying a lot more frequently in 2013 than they are today even though the market as a whole is flat.

 

[irvinehomeowner]

Considering I started this thread in 2013 when the prices jumped, I think anything from mid-2013 and on is fair game, here is a QH one that closed in Dec of 2013 and was sold in 2005 (initially built/sold in 2004):

2005 $928k to 2013 $1.240mhttp://www.redfin.com/CA/Irvine/104-Weathervane-92603/home/5902587

Using inflation is kind of two-sided because back when the bubble prices were being ridiculed, when anyone would bring up how real estate values will do against inflation, the answer was always that regardless, they are still overpriced. Now, everyone is using inflation as an excuse as to why prices are where they are now... which to me is a bit unfair because if you were to take what everyone said was the correct non-bubble price, 40% off and apply it, today's prices are still higher than "what it should be".

Let's use your your $900k amount, homes should have been priced at $540k in 2006. Now, let's apply inflation, and that is $627k today. So even if that home was still $900k today, it's still 30% overpriced. Let's use a 20%, drop and then apply inflation, that home should be $835k today. But they are $1m+ and even if that's not bubble pricing, it's not what it "fundamentally" should be.

I think we are closer to 05-06 prices than your posts indicate, certainly not 56% off.

 

[flipper]

@paperboyNC:

I think it depends on where you look:

$1.865mhttp://www.redfin.com/CA/Irvine/114-Mosaic-92603/home/5902931
$1.900mhttp://www.redfin.com/CA/Irvine/106-Mosaic-92603/home/5902924

Those Sienna homes were selling for ~$1.1-1.3m in 2005, those two closed for ~$1.9m.

Those sienna homes were trading around $1.6M in year 2005. If you check the history of the above properties, you will know they were purchased from the builder. The close date is early 2004, which means the contract date is in the middle of 2003, before the last bubble was inflated.

 

[paperboyNC]

Considering I started this thread in 2013 when the prices jumped, I think anything from mid-2013 and on is fair game, here is a QH one that closed in Dec of 2013 and was sold in 2005 (initially built/sold in 2004):
2005 $928k to 2013 $1.240mhttp://www.redfin.com/CA/Irvine/104-Weathervane-92603/home/5902587

I had some time to look at closed sales in your price range ($1 - 1.5mm) this year that also closed in 2005 and 2006 and here's what I found:
http://www.redfin.com/CA/Irvine/71-Festivo-92606/home/4628527
$1.05m to $1.09mhttp://www.redfin.com/CA/Irvine/12-Poway-92602/home/5813332
$1.25m to $1.19mhttp://www.redfin.com/CA/Irvine/27-Bel-Spgs-92602/home/5771448
$1.04m to $1.035mhttp://www.redfin.com/CA/Irvine/53-Fanlight-92620/home/5959080
$1.25m to $1.4m (Doesn't really count though because it was new constructions in 2006 and the owner had to pay for landscaping/etc)http://www.redfin.com/CA/Irvine/53-Fanlight-92620/home/5959080
$1.03m to $1.08mhttp://www.redfin.com/CA/Irvine/23-Calavera-92606/home/4628379
$963k to $1.08mhttp://www.redfin.com/CA/Irvine/25-Teak-Brg-92620/home/5931647
$1.193m to $1.215m (also new construction in 2006 so they probably lost money)http://www.redfin.com/CA/Irvine/11-Malibu-92602/home/5772830
$1.365m to $1.211mhttp://www.redfin.com/CA/Irvine/16-Bower-Tree-92603/home/5943083
$1.1m to $1.135m

Not including new construction from 2006, prices went up only 0.2% with 3 prices going down and 4 going up out of 7 homes. The Quail Hill home you posted was an exception - and an exception that is more and more rare here in 2014 as buyers are not as willing to overpay.

Cost to own a home is now 33% less in Irvine than it was in 2006 if you include inflation & falling interest rates. Back in 2009 to early 2012 they were even lower (especially if you refi'd in late 2012 at 3.25-3.5%). Even people that bought in 2006 are paying a lot less today if they refi'd.

 

[irvinehomeowner]

@paperboy:

Again, you're talking about affordability. I'm talking about prices.

So you can't take interest rate into account because not everyone finances homes, and I know someone will say that prices are affected by rates, but why are prices higher now than 2012 when rates were at the bottom?

Maybe a better question, what has caused the price jump from mid 2012 to mid 2013?

 

[paperboyNC]

@paperboy:

Again, you're talking about affordability. I'm talking about prices.

So you can't take interest rate into account because not everyone finances homes, and I know someone will say that prices are affected by rates, but why are prices higher now than 2012 when rates were at the bottom?

Maybe a better question, what has caused the price jump from mid 2012 to mid 2013?

I guess we are talking about two different things. I was responding to the claim that "If prices now are as high as they were in 2005-06, why was that a bubble and this isn't?" It's all about supply / demand and affordability so interest rates are somewhat important to affordability. A rise in interest rates won't hurt as much as the fall in interest rates helps because:

- When interest rates are rising it can bring a rush of buyers to the market (buy now or be priced out forever)
- Existing home owners do not see a change in affordability when rates rise and in fact have an incentive not to sell / move up
- When interest rates fall existing home owners can refi which helps everyone

 

[irvinehomeowner]

I still think pricing is too high.

Unemployment is high and I do think some of this is being driven by the stock market.

It's deja vu,  because I feel like the one dissenting voice again.

 

[jmoney74]

If pricing goes up hot in Irvine again this year.. I can see a correction afterwards.  Interested to see what OH will do.

 

[homer_simpson]

It's a balloon that's going to slowly deflate...

 

[jmoney74]

It's a deflate that is going to slowly balloon...

 

[OpenSky]

8)

 

[paperboyNC]

If pricing goes up hot in Irvine again this year.. I can see a correction afterwards.  Interested to see what OH will do.

Doesn't look like it will go up hot this year. Inventory is 2.5 times what it was last year and there is a lot more new home building going on.

 

[bones]

[quote au..

 

[OpenSky]

>

 

[bones]

.

 

[OpenSky]