What's going into escrow - Irvine and maybe some Tustin too

NEW -> Contingent Buyer Assistance Program
lendingmaestro, I'm not sure why your feathers are so ruffled by my comment. there was no condescension in it, I have nothing against loan processors, do you? when I said "loan processor", I meant in general, not the specific position. you may be a loan manager, supervisor, or hell, the owner of a loan company, I don't really care one way or another. it seems, however, that you feel loan processors are a pretty low position to be in.





1.) So you have physically seen their W2's and/or1099 Tax Returns?


Some of them, yes. I don't go around asking my friends for their tax returns, as I'm sure you are aware. Do I ask people if they physically see their friend's medical charts? Anyway, I have seen some of them because there were some proposed business mergers. I am also more aware than the average person of how a medical practice is run and how much revenue a practice generates based on its patient flow and practice type. So, I can pretty much tell (at least for a physician) if they can afford that $1.5M house they just bought.





2.) They also live in Irvine?


Some of them, yes. A few of them do live in NB/NC or CDM. However, it is a fallacy to think that everyone wealthy in the OC wants to live in those communities. One of those people I know is an executive at a biotech firm and moved from NB to Irvine because he didn't like the general attitude of the residents of NB (and especially of the students at his children's school). I should point out though, you did say "doing mortgages in Orange County", not "doing mortgages in Irvine".





3.) I am not a loan processor. I can only assume your condescension comes from the fact that you possess a Medical degree?


Again, not sure where you see the condescension.





4.) I did not say I only saw "two" in three years.


No, you said you could "count them on two fingers" before, I think, editing the comment. So you see how I thought you meant two. So now that it says "two hands", I guess you've seen 10?





5.) All of the people I know who make over 250k a year, including family, live in Newport or CDM. Not Irvine.


See #2.





I think everyone's observations is relative to what they know personally. Some people may have seen more than the usual share of financial information (say, a loan processor), and some may know a larger than usual number of physicians, lawyers, and biotech executives (my wife works in a biotech company).
 
<p>You make me feel special Nano... I've got no problem affording $900K, assuming I could sell my house today for a market price. I would probably only need to finance $500K or so. Conventional 30-year at 5.5% or so with an $80K 2nd @ 8%. </p>

<p>After tax spend on interest, taxes, HOA, and insurance would be a whoppin' $2700. That's like 25% or so of our take home pay and we don't even make north of $200K.</p>

<p>Point is - it's not all about income. It's about the size of the loan and expenses associated with it. If someone is bringing big cash, they can swing $900K without much fuss.</p>
 
ipoplaya -- i think those numbers are on the optimistic side.











NATIONAL OVERNIGHT AVERAGES



TODAY

+/-

LAST WEEK













<a class="oabody" href="http://www.bankrate.com/brm/rate/brm_mtgsearch.asp?product=1&refi=0&ec_id=brmint_brm_large_new_mpro_mtg_all">30 yr fixed mtg</a>

<a href="http://www.bankrate.com/brm/graphs/graph_trend.asp?product=1&prodtype=M&ec_id=brmint_brm_large_new_mpro_mtg_all"><img width="17" height="18" border="0" src="http://www.bankrate.com/images_MRA/rates_box/graph_image_v2.gif" alt="" /></a>

5.43%

<img width="11" height="6" src="http://www.bankrate.com/images_MRA/arrows/down_oa2.gif" alt="" />

5.54%





<a class="oabody" href="http://www.bankrate.com/brm/rate/brm_mtgsearch.asp?product=2&refi=0&ec_id=brmint_brm_large_new_mpro_mtg_all">15 yr fixed mtg</a>

<a href="http://www.bankrate.com/brm/graphs/graph_trend.asp?product=2&prodtype=M&ec_id=brmint_brm_large_new_mpro_mtg_all"><img width="17" height="18" border="0" src="http://www.bankrate.com/images_MRA/rates_box/graph_image_v2.gif" alt="" /></a>

4.93%

<img width="11" height="6" src="http://www.bankrate.com/images_MRA/arrows/down_oa2.gif" alt="" />

5.05%





<a class="oabody" href="http://www.bankrate.com/brm/rate/brm_mtgsearch.asp?product=6&refi=0&ec_id=brmint_brm_large_new_mpro_mtg_all">5/1 ARM</a>

<a href="http://www.bankrate.com/brm/graphs/graph_trend.asp?product=6&prodtype=M&ec_id=brmint_brm_large_new_mpro_mtg_all"><img width="17" height="18" border="0" src="http://www.bankrate.com/images_MRA/rates_box/graph_image_v2.gif" alt="" /></a>

5.14%

<img width="11" height="6" src="http://www.bankrate.com/images_MRA/arrows/down_oa2.gif" alt="" />

5.27%





<a class="oabody" href="http://www.bankrate.com/brm/rate/brm_mtgsearch.asp?product=4&refi=0&ec_id=brmint_brm_large_new_mpro_mtg_all">30 yr fixed jumbo mtg</a>

<a href="http://www.bankrate.com/brm/graphs/graph_trend.asp?product=4&prodtype=M&ec_id=brmint_brm_large_new_mpro_mtg_all"><img width="17" height="18" border="0" src="http://www.bankrate.com/images_MRA/rates_box/graph_image_v2.gif" alt="" /></a>

6.48%

<img width="11" height="6" src="http://www.bankrate.com/images_MRA/arrows/down_oa2.gif" alt="" />

6.51%





<a class="oabody" href="http://www.bankrate.com/brm/rate/brm_mtgsearch.asp?product=7&refi=0&ec_id=brmint_brm_large_new_mpro_mtg_all">5/1 jumbo ARM</a>

<a href="http://www.bankrate.com/brm/graphs/graph_trend.asp?product=7&prodtype=M&ec_id=brmint_brm_large_new_mpro_mtg_all"><img width="17" height="18" border="0" src="http://www.bankrate.com/images_MRA/rates_box/graph_image_v2.gif" alt="" /></a>

5.62%

<img width="11" height="6" src="http://www.bankrate.com/images_MRA/arrows/down_oa2.gif" alt="" />

5.74%










but i'll give you the 5.5% 30 yr fixed. lets even forget about the 2nd.





2838 monthly pymt


1350 property taxes (assuming its irvine with mello roos - 1.8%)


-----------


4189





slice off 30% for taxes (very crude, plus the mello roos and principal arent deductible, but whatevers)





2932 total pymt





hoa and insurance arent even accounted for yet.
 
Not sure if any of you noticed the following inventory trend of single family homes in Irvine:



I have been mointoring the following sub markets, and the resale inventory as of today is as follows:

a. woodbury larger than 2400 sq ft: 6 homes plus two in escrow ( not including the 10+ news homes in escrow)

b. northwood all single family, including the older section and the newer section - 23 homes total

c. quail hill - all single family above 2400 sq ft - 14 homes

d. Turtle Ride - all single family - 15 homes

e. Northpark - all single family - 13 homes



This brings a total of 71 homes in the above 5 major irvine tracks. I have been tracking those areas for years, and the inventory is on the lower end. I understand the inventory is about to increase, it will be interesting to see how bad it gets.



OC Register did an article about inventory comparision between Dec 07 and Dec 06. There were extra 3000 more homes on the market in Dec 07. It broke down the inventory numbers by prices range, and showed that all this extra 3000 homes of inventory CAME FROM HOUSES/CONDOS LOWER THAN $500k. For homes at the upper price range, the number of inventory is similar between Dec 07 and Dec 06. I found that very interesting, and not what I have expected.
 
To the Bulls, namely: Ipoplaya, irvine123 and others,

To me it is clear that you have gone beyond risk assessment and into the temptation of thinking what the current price is and what price you are willing to pay in relation to the current price. At some level that is already an emotional commitment to buy.



There are so many risk factors that can result in massive volatility in valuations, that I think only time can weed out these excessive factors such that we have manageable risks to consider. The following risks could severely impact the assumptions the bulls are making about the market?s valuation:

1) The Rate of foreclosures ? we all know that predicting the rate of foreclosures is quite difficult due to the large number of variables like job stability, type of loan financing used, perception of future valuation of homes and the percentage of fraudulent loan approvals. A lot of these factors may be unknown.

2) The tightening of lending rules ? If today the requirements move from no money down to 10 -20 percent, I do not know if you could imagine the impact on the number of available buyers. A symptom that shows that we are nearing this eventuality is the fact that many houses are falling out of escrow because the borrower is unable to get past the financing requirements. Banks are finally realizing that they did not do proper due diligence and quality control on loans given out to people. They are also getting pressure from the secondary loan markets because they are unable to re-sell some of these loans due to the unknown amount of risks in many of these loan portfolios. Some of this risk consideration has been extrapolated from the sub-prime loans and applied more evenly to non-sub prime loans.

3) The state of the economy ? Most will agree that the US economy is headed for a blood bath. Trade and budget deficits are at all time highs; fed reserve is unable to control inflation and is too desperate to correct the housing market through rate cuts than to worry about the macro-economic picture with the deteriorating dollar and the erosion of investor confidence in American assets. We are headed for rising unemployment rates, shrinkage of demand ? collectively stagflation. We are approaching a scenario where the state is financed to the hilt by foreign debt and the sovereign debt ratings of the US could become questionable because of worsening economic situation. At the same time you have a record number of Americans filing for bankruptcy. Credit card companies, loan mortgage companies, auto loan companies are all facing delinquencies. All this points to reduced availability of credit, no matter how much funds are pumped into the economy in the short run.

4) Failing banks ? This could be a huge problem as it would negatively influence available credit and shrink the number of qualified and ?able to buy buyers? (as distinguished from ?willing to buy? buyers ? the definition of demand per economics).

5) The fallout risk ? If some of these huge factors pan out simultaneously home valuations would be way lower than what you would expect in a stable commodity market and a stable economy.



Bottom line, you have to base your assumptions on valuations that consider the broader macro-economic climate. Your assumptions do not ring true in the current state of the economy and the housing sector. You are being tempted by what declines have already occurred. You are ignoring the fact that there is still massive denial amongst sellers. Realtors have some hint of the impending doom, but sellers are still in denial.
 
acp - first of all, INTEREST expense on $500K @ 6.0% would be $2500/month. Principal payments are savings, not housing expense. I would be financing with a 30-year I/O.



Your property tax estimate is WAY too high. Take the Secret Garden house that started this debate. At assessed value of $980K, prop tax is only $1100/month. Knock $80K off that (we are talking about paying $900K for something) saves you another $1K per month for a $1000 per month prop tax load. So, $3500 pre-tax expense with your 30% tax reduction (my rates are higher but I will go with your figures) and you have $2450 per month after-tax + HOA and insurance. HOA is $125, insurance probably around $100. Like I said, $2700 per month.



Don't post on my thread if you can't get your calcs right. You can put that kind of stuff on Lansner where there's more conjecture than fact. Very very few places will have a 1.8% prop tax + mellos roos load... Maybe in VoC since the mellos there are $6-7K but surely not in NW II. If you'd like to educate yourself on prop taxes, use this link:



http://tax.ocgov.com/treas/



You can check the real property calcs on any property. I do this for every property I am interested in so I can make an informed buying decision...



And trust me, with a 55-60% LTV, sizeable personal assets to back even that up, and excellent front and back end ratios, obtaining a 2nd @ 8% wouldn't be a problem.
 
Purplehaze - there is a reason that Robert J Shiller, who is in a better position than many others to hazard a guess at the bottom, refuses to make a prediction....
 
<p>Haze - I'm not bullish on prices, but I will be a buyer long before most on this board. I don't care about valuations or the macro-economy. I will live in my next house until I retire or die. I am concerned with obtaining the home I desire for an affordable payment stream. It doesn't much matter what happens to the value of the home. I will have 20-30 years in the place and the economy will probably cycle a number of times during my stay there.</p>

<p>If I have to pay $900K to get the house I want but can get a cheap 30-year mortgage that keeps my after-tax monthly spend on housing in the $3K range, that's not a problem for me. $3K per month is only 25% or our take home pay after funding 401k, college savings, etc. $3K per month is only a grand a month more than people are paying to rent some 2 bedroom IAC apartments. Where's the risk there? The rate is fixed for likely as long as I will own the house. What will it matter to me if the value of a $900K house I buy today falls to $500K in three years? My payment will be the same, still affordable. Our incomes are likely to go nowhere but up... Heck, I still wouldn't be upside down on my loan. </p>

<p>As a current homeowner, already losing equity in this downturn, I'd be very interested on how buying today for $900K would be risky or harmful to me given the above parameters. I am open to your arguments. </p>
 
ipoplaya - what if your 20-30 year forecast assumption turns out to be not true? (ex. job relocated, move to take care of elderly parents, or whatever life may bring ...). Being forced to sell at the bottom would not be great...
 
I am a VP and CFO in my current job, #2 guy in the company, owned by the CEO that will never move from CA. Wife is a teacher in IUSD. Irvine isn't going to up and move all their schools someplace else... Relo, not going to happen. If my company went away, I'd go get another similar gig in one of the many wonderful OC/Irvine employers. OC/Irvine is a great job market, that's one the reasons I live here, own here, and will buy here. Very few people need to relo from here for a job. They might choose to go, but most likely there are many other similar job options here locally.



We actually want/need to buy to have extra room to take in elderly parents (downstairs bed with full bath is what we want to add) if their life situation dictates that is necessary. Only thing I can't forecast is some extreme medical situation that might require temporary relo or death. Death isn't a problem as my wife and I each carry enough life insurance to pay off the mortgage...



Not to dismiss your question anon, as it was a good one, but I'm still waiting for someone to toss out something useful that I haven't considered...
 
<p>Read the Black Swan book; the problem is unknown unknowns. I certainly hope that you live a long happy prosperous life, but the items Haze brought up are real and can affect you, especially if you don't keep an eye out for surprising discontinuities.</p>

<p> </p>
 
<p>Won't there always be unknown unknowns? That wouldn't be much of a life if you huddled up waiting for these so called Black Swan events. I try not to worry about things I cannot control. </p>

<p>What I can control is making a smart housing decision for <em>myself.</em> It probably makes me a bull by the IHB definition, but I'll be buying when the house my family can live in for 20 years comes into a comfortable affordability range. I'm not worrying about when the bottom is, I'm worried about enjoying this precious life to the fullest. So maybe I could buy the same house for $150k less in 2012 than I could in 2009? Big F***king Deal! To me, enjoying a home and building family memories for those addtional 3 years (while my daughter is going from 6 - 9 years old) is worth FAR more than $150k. I have a lot of fond memories of my elementary school years --- spent in the same house my parents are still in. In 30 years I want my child to look back on those years the same way.</p>

<p>I think the housing bears should be very cautious about becoming as extreme on one end of the spectrum as specuvestors of 2004 - 06 were on the other end of the spectrum.</p>

<p> </p>
 
<p>Ipop,</p>

<p><em>but I'm still waiting for someone to toss out something useful that I haven't considered...</em> </p>

<p>I think you have considered quite enough of the factors; It appears that you follow your guts and your heart to care for your family, and that is really all you need. The rest of challenges you just have to deal with as they come.</p>

<p> layerliz,</p>

<p><em>the problem is unknown unknowns</em></p>

<p>So true and cool statement </p>

<p>I bought my first home in my 20's based on 100% emotion (and clueless of the real estate market). My house was $100K and I was single making $25K/year, interest rate was 12%. With today interest rate of 6%, and my salary doing similar work would be around $75K, the price of the home would have been 6X or $600K. Now, that sounds just crazy but I did it.</p>

<p>By mid 30's, my housing cost was the least of my concern. Currently I live in a $1M+ home with the same payment I had in my 20's. </p>

<p>I know of so many people who are in similar situation as I am. Median price and median income do not have to correlate.</p>
 
<p>Blue - Don't really need a price (I am non-contingent on the buy), but that really is the big variable in my buying situation. I take recent comps, current list prices, and then lop off another $25K or so normally.</p>

<p>For example, I have a competing unit in my neighborhood, same plan, a pending REO that is being sold as a short, that is at $580K list. They have had offers at $550-560Kish but the bank has been unwilling. Mine has a good location premium vs. this one and for sure has an upgrade premium vs. this competing home, so I assume I can get an offer and sale at $575K. Back in the summer, when units essentially the same as my home were selling $650-675K, I was using a number of $625K for my calcs. </p>

<p>If the market headed down quickly at the time I bought/put my place on the market, I would have some risk. I'd have to drop my price to get a quick sale, but in that case I'd just push the seller on a house for concessions. Obviously if the market turned further down unexpectedly, I'd be in escrow at a higher price than what a seller would think they could get in the future. There is some risk there, but not a ton as long as my price isn't a WTF or wish price. I have to be prepared to sell at market or a little less... </p>

<p>Liz - Sorry, no books about unknown unknowns for me. Houses are homes to me, not investments. I refuse to sit paralyzed by possible freak future unknows. I want a place for my kids to put down roots, form lasting relationships with neighbors, a friggin' driveway to park our cars, and a darn backyard. IMHO, people need to live and enjoy their lives, not sit by fretting about the least obvious possible negative occurrences or outcomes. For my personal buying decision, I will look at the big picture items like the security of our income stream, the risk associated with my payment stream related to a move-up house, etc. If everyone waited for confirmed utopia to occur before they bought, we'd all be renting... </p>
 
<p>Right on, IPO. If I told you what I did for a living, you'd probably think there was a Black Swan coming. I'll give you a hint, I'm working on Q2 Fcst right now...</p>
 
Different circumstances, different solutions. In no way do I suggest that the current market does not have an opportunities for those who have a fine load of savings stacked up, have that top corporate job and have the stomach to digest a huge decline. One size does not fit all and one man's food is another man's poison pill.

With all that in mind and assuming you know yourself well and know what will keep you happy, go ahead and buy that perfect home!



IPO, I understand that you have the ability and willingness to buy. I guess you are just looking for a bargain in the current market rather than indulging in a quest to determine market direction, perfect time to buy or other such considerations which apply to people who might not have your mindset or financial muscle. I wish you all the very best :-) For the rest of us the macro economy and lot of the uncertainties still matter. I am in my early 30s so I definitely will not live in the house I buy untill I die:)
 
"Won't there always be unknown unknowns? That wouldn't be much of a life if you huddled up waiting for these so called Black Swan events. I try not to worry about things I cannot control.



What I can control is making a smart housing decision for myself. It probably makes me a bull by the IHB definition, but I'll be buying when the house my family can live in for 20 years comes into a comfortable affordability range. I'm not worrying about when the bottom is, I'm worried about enjoying this precious life to the fullest. So maybe I could buy the same house for $150k less in 2012 than I could in 2009? Big F***king Deal! To me, enjoying a home and building family memories for those addtional 3 years (while my daughter is going from 6 - 9 years old) is worth FAR more than $150k. I have a lot of fond memories of my elementary school years --- spent in the same house my parents are still in. In 30 years I want my child to look back on those years the same way.



I think the housing bears should be very cautious about becoming as extreme on one end of the spectrum as specuvestors of 2004 - 06 were on the other end of the spectrum."



I could not agree with this statement more. With every decision you make, there will be risks and rewards. Some are small, some are bigger. Some may choose to live in fear of those risks, I choose not to. I have certain financial advantages that greatly reduce my risks, and I am thankful for those.



Considering buying a home in this market does not automatically make you a housing bull; it may just mean you are a housing bear that is willing to suffer paper losses for an unknown period of time to come in exchange for home ownership.



I already own a home, but am considering moving to cut my wife's commute time down from 35-60 minutes to 15 minutes. That alone, I'm willing to pay a hundred grand for. The other considerations, like going from a 2 car garage to a 3 car garage, gaining an extra 1000 sq ft inside, and perhaps increasing our property lot size 1.5-2x, is worth another three to four hundred grand. So, in the end, prices are coming close to what we're willing to pay, another 10% would seal the deal. Am I concerned that prices may go down another 10% on top of that? Only a little, in an academic sense I suppose. But like CK says, having the few years in the home in a more convenient location with a few more amenities in a setting where I don't have to wonder what my lease terms will be within a year or if I'll suddenly be kicked out is worth taking that risk to me.
 
<p>I am worried about this (from <a rel="nofollow" href="http://www.economist.com/finance/displaystory.cfm?story_id=10534992">http://www.economist.com/finance/displaystory.cfm?story_id=10534992</a>) and this (from <a href="http://www.theoildrum.com/story/2006/10/2/111911/949">http://www.theoildrum.com/story/2006/10/2/111911/949</a>)</p>

<p> <img alt="" src="http://www.economist.com/images/20080119/CFN640.gif" /><img alt="" src="http://www.theoildrum.com/uploads/44/housing_bubble.gif" /></p>

<p> I am starting to think of a house in a new way - not as a long term buy that keeps pace with inflation, but as a disposible good (like a car) that will be worth nothing or much less when I finally sell it. When the cost of a place that's nicer than my rental, and the difference in living standards seems worth throwing away the capital to be to live there, then I'll be buying.</p>
 
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