Hello fellow irvinehousing blog readers. First I’d like to thank zovall and irvinerenter for inviting me to join them and irvinesinglemom as a contributor to the blog. Have no fear readers the failed flips will not go away and if anything we may have more. I decided to join them because I was not adding new posts to my blog ocecon101 which led to little traffic and even less motivation on my part to add new topics. Zovall thought that having me post here would get better traffic without the pressure on me to keep adding new posts. The idea is to add more content without taking anything away from the original purpose of the blog. Most come here searching for more information on the Irvine housing market and my goal is to add interesting and relevant content for those in search of more information.
For my first post I will give you a little background on myself, why I am a housing bear and what subjects I will be writing about. As some of the readers of the forums here know that I was in the mortgage business and for the majority of my time in the business it was for a lender for one of the larger homebuilders. I decided to leave the business for various reasons but it was on my own terms. I really did enjoy working there and gained a tremendous amount of knowledge from it. I am very thankful for all of great people I met there and remain friends with many of them today. I may in the future post topics on some of the reasons why I left if the curiosity is there.
Even though I am a homeowner I am a housing bear. The appreciation simply does make sense as there is no way I could afford my home that I bought in 2002 today. My income has increased more than inflation but housing prices have soared way beyond my income and many others in OC. I am also an investment property owner and I would like to buy more but I have this unique requirement called positive cash flow. Since 2004 it has been almost impossible to find and 2-4 unit investment property any where in OC with positive cash flow. Depreciation is supposed to offset your income from the property not your regular income.
I am a born and raised OC native who remembers the last crash in the 90s and I will be posting topics on the similarities that we are seeing today. My first topic on my blog has the headlines from the OC Register on housing from 1987 through 1993 and it really is not all that different than this time. I also will be posting about the economy and how it relates to housing. It may not be specifically Irvine but Irvine will be affected from these factors too.
Coming soon will be a post on a deeper look into the jobs in OC and what history can tell us.
Welcome Graphrix,
I look forward to your posts! I remember the early 90s crash from a Bay Area (Oakland) perspective. It sucked on many levels. I wonder how many bears and people “waiting for the crash” know what a depressing place California was in 1990-1994.
On my street in Irvine (before I moved to Raleigh, North Carolina) there were two types of people. 1. Older folks (ex police officers, retired teachers, etc.) 2. And wanna-be yuppies like me that made tons of money put pored it all down the drain servicing the HUGE loans we had in our POS zero-lot line stucco coffins. People in North Carolina would pee their pants laughing if they saw what $700k gets you in OC.
My main fear is that the credit-cruch and coming recession doesn’t sink all ships. I think California is in for another bruising like in the 90s (and maybe worse this time), but places where the house values never really went up, like North Carolina, may be relatively safe. I don’t see any serious appreciation anywhere, but I hope I made the right decision putting my ill-gotten California housing gains into a nice house in the woods of North Carolina.
—–
To clarify my last post. I put my house on the market in Irvine at the very top of the market (May 2006) then cut aggressively to get the hell out. And no, I wasn’t smart. I was LUCKY. Really, really LUCKY. When my wife and I got to NC, it was a bummer to leave a buyer’s market and land in a seller’s market!
Welcome Graphix,
I liked the content on your old site, so I look forward to seeing what you come up with.
Ripcord,
I just did the exact opposite. Selling in N.C. (Charlotte) and moved to Irvine at the beginning of 2007. I’ll actually be looking for a house here soon. Debating Dana Point or beating up a new home builder in Irvine to get some big concessions.
Has anyone else received a report from a Zip Realty agent about the OC market? I have been telling them that I think the market is overvalued and therefore I am waiting… So, here is some propaganda to change my mind.
It is an 11-page report, basically saying how great RE in OC has been over the past several years (including 2006), presenting annual return data. Then it goes on with the following statements (I can’t paste the entire report, but I am pasting the main points – sorry for the long post):
So Why Do You Feel So Bad? . . . Could It Be The Media?
Newspapers are losing subscribers and television is losing viewers. Viewers’ reactions to media presentations of past
events have shown the media that if they want to hold their viewers’ or readers’ attention, they can do so by portraying
fearful “impending events” and instilling anxiety in their audiences!
They present information in a way that creates this anxiety or fearfulness. In so doing, it is important to be factual but
not necessarily accurate! They use bold headlines to grab the viewers’ attention, but the content often misleads or tells
another story. Here are some very good examples:
? Remember all the fuss over Y2K?
? How about Killer Bees, West Nile Virus and the Mad Cow disease?
? What happened with 2005’s “serious” lack of vaccines for one of the “worst” flu seasons?
? Where did SARS and the Bird Flu. . . fly to?
What They Do With Real Estate:
? Housing Prices Continue to Decline!
Only the rate of appreciation is declining; home prices are still rising. The median profit earned
for Orange County was $291,000 for 4 years of ownership!
? Supply of Unsold Homes Rises to 6 Months!
In the U.S., the average supply has historically been around 6 months. For southern California, the
average has been 3 to 4 months and today’s present inventory, is a 4.2 month supply..
? Home Sales Decline By ____22___%!
They are measuring against 2005’s almost record year. Since 1996, the yearly average of all sales in
Orange County has been 42,716. Last year our sales decline will be only 15% off our 10 year average.
? Foreclosure Activity Rises!
They have to be up after hitting a record low! The truth is that 99% of all loans in the U.S. are not in
foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:
* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 – Low: 12,145- 3Q’04 High: 59,987 – 1Q’96 Current: 26,705
* In the 1st half of ‘06, foreclosures accounted for only .05% of all Orange County sales, with lenders
reselling those homes at an average discount of only 3.8%!
? Affordability Index at Record Low – So Few Can Afford to Buy!
Home ownership is at a record high of 70%, while the baby boomers ownership percentage is 80%! This
index is archaic and does not account for how dramatically the world changed in 1979.
Why The World Changed in 1979!
Baby Boomers Impact
From 1945 to 1979, incomes increased at the same rate for all tax brackets. By 1979, the early baby boomers had been
in the workplace for over 10 years. They were the most educated generation to enter the work force, and they had the
skills for our changing world. With both spouses working, dual incomes would have a tremendous effect upon future
wealth. Since 1979, a larger percentage of our population is becoming more and more affluent! From 1980 to 2004, the
median income rose by 18% but . . .
? the top 20% of incomes grew by 59%, while the bottom 20% of incomes grew by a measly 7%!
? the top 1% of incomes grew by 200% – earning more than the entire bottom 50% of wage earners!
? today, the top 10% of wage earners receives 45% of all household income.
? the top 85% of the nation’s wealth resides with the richest 15% of Americans; the bottom 50% holds
only 2.5% of the nation’s wealth. Just 1% of investors hold 53% of all shares in the stock market!
Over the next decade, there will be a 25% increase in the population over 50 years of age. They have more money than
any preceding generation, due to having dual incomes, equity growth, and record inheritances (60% goes to the top
40%)! This age group is spending $2 trillion dollars annually! Last year, 2.1 million boomers turned 60, with 25%
planning on not retiring. They found a way to mix leisure with work and are not ready to fully retire – they have money
and income and they are still investing in real estate.
They are part of a major buying wave, as 75% plan on moving to either the west or the south for warmth. Already,
80% own their own home with 25% of those owning additional property. This helps to explain why, in 2005, 27.7%
of all sales were for investment purchases and 12.2% of all sales were for 2nd homes!
They or their parents are also in the process of transferring their wealth to their children and grandchildren. These
newest home buyers make up the largest group of the 3 buying waves. They are presently 23 to 33 years
of age, and will total 1.2 million new households per year for the next decade! They are purchasing at a median age of
26, yet those purchasing under 25 years of age now represent 14% of the first time home buyers market.
And let us not forget the wave of buyers that represent the normal buying market. This group is projected to grow at a
rate of 1.17 million per year for the next 7 years. They include 1st time home buyers (median age 29) and those
purchasing upscale homes (median age 45).
Add to this the immigrants purchasing real estate and you can see that the U.S. home buying market will remain strong.
In the past 12 months, the U.S. population grew by 2.9 million persons. By 2030, there will be 80 million more people
living in the U.S.! From 1980 to 2000, over 6.2 million minority households joined the ranks of middle-income earners,
and they are purchasing housing.
? Immigrant children who arrived with their parents in the ‘80’s and ‘90’s, are now buying homes.
? These 2nd generation Americans, if history repeats itself, will out-earn their parents.
? As 1st time buyers, they represent 35% of the 1st time resale market.
Immigration of new buyers is largely due to a U.S. policy of family reunification. Today, there are 34 million
immigrants, making up 12% of our total U.S. population and representing 28.4% of all households.
? Presently, Latinos are the fastest growing segment of the U.S. housing market.
? Asians will become the fastest growing segment of the U.S housing market over the next decade,
largely concentrated on the West Coast.
? Between 2000 and 2005, only 7 counties in the U.S. drew more immigrants than Orange County!
Los Angeles is always #1.
Adding more pressure to the already strained housing market are the “single” players in home-ownership. Single or
unmarried homeowners are remaining single longer. Divorced parents are also maintaining larger homes for their
“floating children”. Single female buyers represent 21% of the market, while single men make up 9% of the market.
OC Homeownership: (cities with 65,000 + in population)
? Ownership is 62%
Why We Will Continue To Do Well In 2007!
The National Economy
If we take a look back at this decade, we have seen a lot of really bad things happen to both individuals and businesses.
Our nation has seen the crash in the Dot.Com business world, an attack on our own soil, 2 geo-political wars with serious consequences, major stock scandals, record corporate bankruptcies, the doubling of the price of oil, and as if all
this were not enough . . . 17 consecutive rate increases by the Fed!
So let us look at what is happening now in our economy . . .
1. Since 2003, the U.S. has created 3.9 million new businesses and approximately 7 million new salaried jobs.
Add the existing 16 million self-employed, the 25 million part-time workers and the 25.8 million small
businesses (where 75% are sole proprietorships) and you can see we are generating a whole lot of tax revenue.
2. As of December, we have employed 2 million new workers over the past 12 months. The unemployment rate of
4.5% is a 5-year record low, and since 3% of the population won’t work even if you give them a job, we are
near full employment.
3. These increased tax revenues have helped to reduce the originally projected deficit of $325 billion down to
around $240 billion. Our tax revenues are up 14.1% over last year, and the federal debt has been reduced by
20.8%. The 1st Quarter deficit was $80 billion, the smallest in 5 years and all but 4 states are running state
budget surpluses!
4. Corporate profits have doubled in the past 4 years, and this year their after-tax profits averaged 20.3% – the
highest in 4 decades. This makes 18 straight quarters of double digit earnings! Corporations posted earnings of
$1.42 trillion in the 3rd quarter, and after paying quarterly taxes on Sept. 15th (setting a single one day record of
$85.5 billion), corporate cash is still at a historical high of $2 trillion.
5. Since 1980, the Gross Domestic Product has risen 70% and is now at $13.3 trillion, helping to shrink our
federal deficit. Today, debt is only 1.8% of the GDP, compared with 6.0% in ’83 and 4.7% in ’92.
6. With both business and consumer spending growing, these forces are propelling the economy upward with a
“one-two punch”. Our economy should continue to grow between 2.5% and 3.0%!
Orange County…
? has the lowest unemployment rate in California (3.4%) and usually the second lowest in the nation.
? ranks #7 in the U.S. in creating jobs (32,175) and #5 in the U.S. in total number of jobs (1.6 million).
? job creation has been twice the national average since 1996 (due to the creation of 317,000 new jobs)!
? has the lowest housing ratio (to jobs) in the nation!
? ranks #5 in the nation in rental rate increases at 6.0%, plus has a 96.8% occupancy rate.
? ranks #3 in the U.S. in Asian businesses and #3 in Asian population in California.
Final Note on Housing: Those Who Own and Those Who Don’t
1. We are the youngest of the home-building nations. History does repeat itself! Every country has gone through a
cycle whereby it breaks into two parts: those who own a home and those who don’t.
2. When this happens, rental rates begin to soar. We are in the beginning cycle of this event, as evidenced by the
fact that the national rental rate increased 5.3% in the last 12 months. Since 2001, the rise in rental rates has
outpaced inflation.
3. Obviously this becomes a great benefit to those who own homes and rental properties – especially when the U.S.
occupancy rate is now at 96.2%!
4. Last year, investment purchases in Orange County represented 14.1% of all sales. Rental rates increased
6.4%, ranking OC # 5 in the U.S. in rental rate increases. Today, OC homeowners (on average) devote
25.4% of their income to housing while renters devote 32.5% of their income to landlords!
So What May Happen This Year?
Within the last quarter, we have had Alan Greenspan tell us “most of the negatives in housing are behind us,” the
Dallas Fed Governor tell us that inflation appears to be under control, stock brokers upgrading building stocks to a hold
or buy position, NAR reporting existing home sales rising, and the backlog of new unsold homes falling for a 4th
straight month. In the U.S., the new median home price is rising. In California, home sales have held steady at 450,000
since July. Prices are up 1.4%, with the median now at $555,290. In November, CAR reported that home prices had
risen .5% – the first increase in 5 months. It has now revised its home price forecast upward, estimating an appreciation
rate of 6.5% to 7%.
Second Quarter:
1. The Federal Reserve should begin reducing the Fed rate, and mortgage rates should decline further.
2. Inventory should begin to rise, but at a moderate rate.
3. The media will have to report dramatically increasing home sales when compared to last year.
4. Home prices should continue to rise, and condo prices should begin to appreciate once again.
Third Quarter:
1. The Federal Reserve should see that inflation is moderating and continue to reduce the Fed rate.
2. Home buyers may see 5.5% interest rates by summer, and the sales volume will continue to rise.
3. The media will once again become our friend as they report these new positive numbers.
4. The inventory of homes should once again peak in September.
Fourth Quarter:
1. The Federal Reserve may pause once again, awaiting final year end numbers.
2. Home sales, although declining, should still be above 2006 numbers.
3. Home prices will be up for the year but will be moving slowly in this quarter.
And this is why I’m predicting that you will have “a little bit of heaven in 2007!”
First Quarter:
1. The economy will continue to show positive growth while the Fed continues to stay in the pause mode.
2. The interest rates will continue to remain around 5.78% to 6.25%, with some downward pressure.
3. Number of home sales may actually rise when compared to last year’s decline of 13.4%!
4. The media will have to compare last year’s numbers to this year and things will begin to look good!
5. However, resale appreciation may not rise when compared to the big increase in 2006’s 1st quarter!
superba graphrix…try not to stay up til 5am again fixing computers (or posting for that matter)!
and yes, i for one would be interested in reading the reasons why you left the business…
Welcome graphrix! Your background and excellent research skills will be a great asset to the team 🙂
Thank you all for the positive comments!
ripcord – I moved to the bay area in 96 right before rent and home prices starting increasing like crazy. I moved back here in 99 before the tech bubble really burst there. It had started but I missed the worst of it. So my experience was during the good times. There are many things that I miss there that we do not have here. I have never been to NC but I have only heard good things. You get a lot for your money there and some of the best college basketball teams are there.
Almon – I am trying to keep the still up at 5am computer problems while blog posting down to a minimum. I will seriously consider doing a post on why I left the business and since I can alter the time it gets posted you will never know at what hour it was really done at.
Glad to see you’re joining the crew, graphrix! Your input is always awesome and along with zovall, ism, and irvinerenter, this blog will definitely continue to rock!
Try to do something with the highrise condos in Irvine. I can’t understand why the prices are staying so high for these shoeboxes with $1,000/mo HOAs with such high inventory. For the last year I see about 40 to 50 listings at the Marquee Park Place for example and I don’t seem to be seeing any price reductions after all this time. Same for the Plaza Irvine. I’d like to see the price drop like 40% to make them reasonable.
For example, perhaps you can uncover reasons as to how can anyone ask or a buyer pay $1.495M for a 1,500 sf Park Place highrise (MLS ID#: S426936) or $1.3M for a 1,675 sf Plaza Irvine (MLS ID#: S477073) with those HOA fees on top of property taxes?
Euromind,
I didn’t/couldn’t read any more of that lengthy rant after spotting glaring problems with it, primarily that it had appeared to have been written relying on data from 2006, and not 2007! It’s loaded with fallacious arguments, logical flaws, and rhetoric….
What we suspected in 2006 has in fact come to fruition in 2007 (namely, the sub-prime and alt-A collapse, definitive proof of the speculative nature of the bubble, widespread corrupt of the market with various types of mortgage fraud, etc. Oh, let’s not forget year-to-year drops of not just sales volume, but prices. That wasn’t mentioned, but see today’s report from the NAR).
Bottom line is buying real estate right now in O.C. is a really risky, bad investment, if you don’t know what is happening. IMO, you’d be better off renting, educating yourself about current market conditions to the extent that you’re able to counter the false arguments raised in your post by that author…..
sarahfan – I mentioned the towers to zovall a while ago and we agreed that an update was needed. So you are right we need an update on this especially with how there are many more towers in the works. I think that with all involved now we will come up with something soon. There is just too many things to write about it and it is tough to keep up. Thanks for the reminder and the feedback on this as it is a great example of excess inventory and inflated prices with that level of HOA dues.
graphrix – I appreciate your awesome efforts and detailed assessments of the current housing market. I am glad my client introduced me to this blog. This blog help me to understand the housing bears’ state of mind as I would not normally come across them.
In addition, I admire people who can write so well such as you, zovall, IrvineRenter, irvinesinglemom, and many of you on this blog.
Hi-rise or Mid-rise is still a puzzle to me; however, I believe in the power of mind; so physical appearance does not necessarily matter. I got really excited to get my first listing in the Plaza where I can experience first hand of the Hi-rise market.
I look forward to more of your postings.
Wow. That propaganda from Zip is insulting. They are definitely relying on the fact that most people are too ignorant to understand what is really going on and are too overwhelmed by a bunch of statistics to think critically about them. That first section about the media is straight out of Michael Moore’s film “Bowling for Columbine.” If you compared that “explanation” of the current housing market to any of the posts by IrvineRenter you will see that IR’s analysis is backed up by real data and logic while Zip’s is just a bunch of numbers that don’t really give any answers.
I think the Zip “report” came from Gary Watts. I read his 2007 outlook earlier this year, and is seems very similar. It is one of the reasons I don’t respect Gary Watts. If the bulls want to make a legitimate argument for how prices can increase, it should be more reasoned than this drivel. This kind of garbage provides a reason to believe house prices can increase if you are looking for reasons to believe. As an analysis of what prices will really do, it is total crap.
IR,
I laughed at Gary Watts’s presentation but you know something?, I kept seeing what he was saying in real life with my interactions with people. And I the the type that seeing is believing. We definitey are in a global market. Ok, I have to stop now!
Hi graphrix/others.
Graphrix welcome. I saw some references to the bay area here. There is now a 50% chance that I may move there in the near future. Since you/others have lived there, what are your thoughts on comparison between OC home prices/rents and bay area home prices/rents? What do you guys think of the cost of living comparison between the two regions? Is there a sanjosehousingblog.com?
renter,
This is a good place to start looking:
http://patrick.net/housing/crash.html
http://patrick.net/index_rent.html
I must say that there are more dumb people in our country than smart people. Education itself doesn’t automatically mean you’re smart.
There are what, 300 million documentable people in this country? There will always be suckers. It’s just going to take some time for the price crash to sink in.
renter – There are some good blogs you can check out. Patrick is one of the first to blog about the housing bubble. Here are a couple more.
http://www.viewfromsiliconvalley.com/index.html
http://marinrealestatebubble.blogspot.com/
If you are going to live in San Francisco or the close surrounding area home prices and rent will be higher than here in OC. Just like here you can still find a good deal there. You just have to search really hard. The cost of living is higher there aside from housing. You have tolls, $$$ parking fees, BART and ferry fees to pay for. Plus I found it easier to spend money there. I was able to walk to a gourmet market, 20+ restaurants, 3 coffee shops, 5+ bars and other retail shops. Even the shopping center I could walk to here I drive to and if I wanted any of the above items I would have to drive. If you are looking at San Jose I don’t know the area that well but every time I was there I felt like I was in OC. The housing and cost of living there is about the same as here maybe a little higher.
If you do an update on the Irvine high rises, it would be nice to know what the original developer pricing was for the Plaza Irvine units. The 2/2 1675sf units are listed for $1.3M, I think these units were under $1M from the developer? If so, how can Irvine high rise flippers expect 30% returns when San Diego high rise condo flippers are underwater from the developer prices as documented by http://sandiegomarketmonitor.blogspot.com/ ? Reality seems to be setting in for traditional Irvine condos and SFRs, when will reality set in for Irvine high rise flippers?
Thanks IrvineRenter/graphrix.
I am getting a 20-25% pay hike to move to the bay area. My feeling is that housing prices/rents are not that different in these two areas. I would love to live in SF area, but would probably settle for somewhere down south (San Jose) where rents are closer to OC, and save the extra money to purchase a house there.
Because there is always a greater fool. Have you heard of the greater fool theory?