This is a strange time in our real estate market. Easy credit money is still being made available to high-income borrowers with good credit scores. As a result, what few transactions are occurring in the market are happening at the upper price points. This also explains why the median does not drop much when we all know prices of individual homes are declining.
This peculiar set of circumstances puts sellers in an awkward position: there are not enough buyers to absorb the inventory, but the few buyers who are out there are foolish enough to pay ridiculous prices. As a seller, if you hold out for your price, you might just get it, albeit like hitting the lottery. Everyone is begging and praying for the greater fool to come along.
Asking Price: $950,000
Purchase Price: $394,500
Purchase Date: 12/4/2000
Address: 28 Chadwick, Irvine, CA 92618
Beds: 5
Baths: 3.5
Sq. Ft.: 2,600
$/Sq. Ft.: $365
Lot Size: –
Year Built: 2000
Stories: 3
Type: Single Family Residence
County: Orange
Neighborhood: Oak Creek
MLS#: P531417
Status: Active
On Redfin: 332 days
Unsold in 90+ days
From Redfin, “* Spectacular Home in Cul-de-Sac Location * Private Gated Community * 5 BR 3.5 Baths (one 3rd level suite) * Very Desirable Floor Plan w Separate Family RM Adjacent to Open Kitchen w Center Island, Granite Countertop & Full Back Splash * Fireplace in Cozy Family RM * Upgraded Expensive Tile, Wood Floor & Berber Carpert * Plantation Wood Shutters * Upgraded Ceiling Fan * Beautiful Professional Landscaping * X’lnt Assoc. Amenities w low Assoc. Dues * Award Wining Schools * Don’t Miss this out”
The realtor forgot to mention the relaxing drone of freeway noise…
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This listing is coming up on its birthday. At first glance this doesn’t seem like a WTF price, but 332 days on the market says otherwise.
Asking Price: $1,100,000
Purchase Price: $462,000
Purchase Date: 10/27/2000
Address: 20 E Sutton, Irvine, CA 92618
Beds: 4
Baths: 2.5
Sq. Ft.: 2,700
$/Sq. Ft.: $407
Lot Size: 4,200 sq. ft.
Year Built: 2001
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Oak Creek
MLS#: S494519
Status: Active
On Redfin: 11 days
From Redfin, “Looks Just Like a Model Home! 4 Bedrooms + Large Office on Corner Lot. Designed to Perfection with Pottery Barn Style Wainscotting, Crown Molding, Beautiful Wood Floors, Plantation Wood Shutters, Beautiful Custom Built-ins, Designer Carpet & Paint. Large Gourmet Kitchen w/ upgraded appliances, wine refrigerator. Over $100,000 in Custom Upgrades. Professionally Landscaped w/ Fireplace, Built-in Gas Bbq. Apoxy Garage floors w/ built-ins. Can convert downstairs office to bedroom & add bedroom upstairs if needed”
Looks just like a model home… BS. Designed to perfection… BS (I guess Pottery Barn is the new black.) Over $100,000 in custom upgrades… major BS. What is up with all the capital letters? Maybe the realtor meant to change everything to ALL CAPS buy instead chose Title Case?
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Is someone ready to pay $1,100,000 for this estate / Irvine tract home? I guess if you are a seller in this market you start your pricing at WTF, lower it to OMG, and finally sell at LOL?
Asking Price: $1,050,000
Purchase Price: $515,000
Purchase Date: 10/02/2001
Address: 24 Highfield Glen, Irvine, CA 92618
Beds: 4
Baths: 3.5
Sq. Ft.: 2,800
$/Sq. Ft.: $375
Lot Size: 4,050 sq. ft.
Year Built: 2001
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Oak Creek
MLS#: S480792
Status: Active
On Redfin: 107 days
Unsold in 90+ days
From Redfin, “MOST UPGRADED HOME AT END OF CUL-DE-SAC IN GATED OAKCREEK COMMUNITY. 4 BEDROOMS PLUS A OFFICE AND HUGE LOFT WHICH CAN COVERT TO ANOTHER BEDRM MAIN FLOOR SUITE AND POWDER ROOM, DESIGNER’S UPGRADED MARBLE FLOOR THOUGHOUT FIRST FLOOR, WOOD SHUTTERS, KITCHEN UPGREDED GRANITE COUNTERTOPS, CENTER ISLAND WITH WINE REF. owner will give $10000 allowance for replace the grandite countertop in kitchen. same model with larger yard and add one room sold and closed for $1300000.in May.”
I guess the CAPS LOCK must have broken in mid description…
Can you hear the whining, “same model with larger yard and add one room sold and closed for $1300000.in May.” Where is my buyer? Boo Hoo. You can feel the temper tantrum about to start. That statement is perhaps the most feeble attempt to justify a price I have heard to date. After 107 days on the market, someone needs to alert this seller to the possibility that the price is too high; of course, I don’t want to be the one to do it because then I would have to watch the temper tantrum.
What is scary is how right all those purchase prices look. I suspect we will be seeing them again.
—–
I’m going to have to call BS on that comment. I read this blog and find it very entertaining but sometimes you guys get a lynch mob mentality. It’s just absurb to predict declines of 50% given economic conditions of both the country as a whole and the local market. Sure, declines of 5-10% off the peak are certainly foreseeable, but not 50%. C’mon, you lose credibility with statements like that!
family guy, are you about to have a tantrum.
as credit tightens more, no one knows how low prices will go? but if I where to guess they go down till they come closer to what a place would rent. i.e. 40-50% cut. it just may take a few years to get there.
FamilyGuy – If prices have already fallen a modest amount during great ecomonic conditions, how much more might they fall given less than great economic conditions? This economy has been based on a huge credit expansion, cheap money. And history shows that all credit expansions turn into credit contractions. What then? The current economic expansion is five years long; one year past the normal time for a decline. How much longer do you think it will continue? Who knows, maybe it will continue and re prices will stop falling. But, I am betting otherwise.
The picture of the crying baby is hilarious.
What would you tell the people in Atlanta watching auctions at 40 cents on the dollar? http://www.nytimes.com/2007/07/09/business/09auctions.html?_r=1&pagewanted=1
Or Fort Meyers where the builder dumped townhomes at 50 cents on the dollar.
Or Corona, CA where the banks are already peeling $200,000 off of $700,000 prices. There’s only three other bank repos within 50 yards of the place… http://www.winknews.com/news/local/7896352.html?video=YHI&t=a
Or Sacramento: Previous sale $629,000, bank auction starting bid $249,000…
Remember REDC, http://www.ushomeauction.com/index.php they’re getting busier.
Like most consumers, we would like prices to fall. So with the afore-mentioned properties, what should the prices be?
Funny thing is, I was looking for an old condo to purchase. Prices between 380k – 400k for 2 bdrm. At first, I thought they were good deals since new condos for the same price range would only get me 1 bdrm. That is until I found that the original prices for the old condos used to be 150k in 2001. And of course, my first reaction is WTF.
I honestly think, as long as we know the original prices, we would never be happy with the current price. Inflated or not.
I know family members whom purchased their home back in 2000 for 399k and now the comps in their neighborhood are 899k. And without sarcasm, let me ask this of you. Please show me the “number” calculation, so that I can approach a seller and say, “I know you purchased this home for 399k seven years ago. And with my calculation, I would like to offer you 600k.”
Actually, I am in a unique position of being an individual responsible for researching, comping out, and setting prices on homes for some realtors in Orange County.
My job is to help the realtors sell the homes in a very limited timeframe in today’s market. 90% + of these are short sales.
There is a difference between setting a price, and setting a price that will sell and close in less than 30 DOM.
I’ve already seen 50% gone on some homes. Believe what you will. With the flood of REO’s now entering the market (And I have the numbers on how many REO’s will be entering the fray about 2 weeks before they do..), It will only get worse.
You are either very ignorant, or very much in denial… 50% may be conservative…
Reason,
there is a simple calculation that I remember from my school years.
Lookt at similar condos for rent find out how much the monthly rent is.
Multiply the rent by 12, that gives you the annual revenue.
Substract estimates for property taxes, HOA, maintenance, … approximately 5% of the annual revenue. this figure is called the net operating income.
Divide the Net operating income by the cost of money ( approximately the interest rate you would have to pay on the mortgage so say 7%). That gives you a good estimate for how much the property is worth.
I applied this model to the house I currently rent in Irvine and it turns out that the price would need to come down about 20% before I consider buying it.
The economy might seem wonderful to you but it boils down to the basics. What sort of income is needed to buy a $1 mil house and what do you get for it?
If there is no prospect of these properties yielding a good return on your investment (give that you have the money to purchase them) there is no incentive to move into a seven figure POS house.
The psychology of price setting kicks in and there is no way they can compete with REOs and short sales on the market. It boils down to minimizing the pain and it seems that there still is plenty of wiggle room.
Mo,
Thank you. Like I have stated, I am looking at old condos in the high 300k and couldn’t figure if they’re priced correctly. I will use your calculation. Again, thanks!
All good comments, I just have a couple of thoughts.
First, I would never dispute that some properties will come down 50%. Although, I suspect this may be more of a function of riduclous asking prices or other unusual circumstances than a true measure of the underlying value change in the house.
And second, I would be very interested to hear how many of you enlightened individuals are renters.
In the interest of full disclosure, I am an owner. A pragmatic one at that. And I remain (maybe stubbornly) convinced that, in the aggregate, the total market will not see declines in the 50% range. Show me a time in history this has happened and I will reconsider.
In any case, great site, intelligent posts and good times.
familyguy,
I am an owner, also. And obviously, the decline is happening. But like yourself, I don’t see a 50% correction. And I’ll probably be lynched for saying that. =)
But like Irvinerenter have mentioned before in one of his other postings. This blog is not just for “bear” views. It is a blog regarding the real estate market. Specifically, Irvine.
That there are different opinions regarding this subject of housing prices and where they’re heading. But instead of condemning those views that are different than ours. I believe even in our differences we can still learning from one another.
Reason –
“I know family members whom purchased their home back in 2000 for 399k and now the comps in their neighborhood are 899k. And without sarcasm, let me ask this of you. Please show me the “number” calculation, so that I can approach a seller and say, “I know you purchased this home for 399k seven years ago. And with my calculation, I would like to offer you 600k.”
You are right on the money with an offer of $600k. A realistic growth of 7% each year is acceptable.
IMO, the re market will decline until it gets down to this “normal” appreciation growth of 7% each year.
History always repeats itself. It’s a cyclical pattern.
Mo,
Pardon me, since I am not good with numbers. I was able to figure everything up to where you said “Divide the net operating cost of money.”
So lets say, net operating cost = $22k/yr
Do I divide 22k by ????
Are you serious? I was just throwing out numbers. Hahaha. I can just imagine that neighborhood would kill me if I gave them that offer. =)
Family Guy –
“And I remain (maybe stubbornly) convinced that, in the aggregate, the total market will not see declines in the 50% range. Show me a time in history this has happened and I will reconsider.”
IrvineRenter, Graphix and others have posted LOTS of historical data including some GREAT historical graphs on this website in past posts. The appreciation during the past years was insane. But history always shows that the market will correct (and decline) back to a normal growth phase. It could be 50%. I’ve seen lots of 40% losses in Coto de Caza already. Irvine and Newport beach haven’t been hit as hard yet – but it’s coming. The declines usually start on the suburbs and work their way toward the cities and higher-end communities like Irvine and Newport Beach.
Question for the knowledgables: I live in a condo near Beverly Hills, more specifically around the Beverly Grove area. It is a high end community that is still showing a strong demand for housing. The price for a very similar comp unit is selling for less than 6 months ago but not by much. I am looking to move from my condo and upgrading to a house in the same area (or similar area) in about two years. I am a bit concerned with housing prices falling and I am afraid that in about a year, my area will fall dramatically as well. But my girlfriend is telling me not to worry too much because I will only be moving from one house to another in the same area. Meaning that if I sell low, I will also be buying low. If I sell high, I should expect to swap into a high priced place as well. Sounds completely logical to me, but do you guys have any comments or thoughts I should be aware of in my situation? Thanks.
The simple reality is that the prices homes are WAY out of whack with incomes. I own and I am looking to move up. Our neighbor hood is going to hell with rentals and forclosures. The homes we like are priced at 1.2M. Our home may fetch 600k which is what others in our hood are asking (probably more realistic to say 520~560 assuming we actually want it to sell). Less commish we will have about 350 to plonk down on that 1.2M house. That would leave a whopping 850k to finance. We make decent money (over 150K) and I can’t fathom paying that mortage. Hell just the taxes would pay for a nice S-class.
My home has nearly tripled in value, and at the peak in 2005 it was up nearly 4x what I payed for it. BFD! I still fully expect a big decline. I’m hoping for 50% (more would be nice). That brings that 1.2M home down to 600K. Even though mine falls to 300k I would only be looking at financing 400K versus 850K. That’s a lot easier to swallow than the nut on a 850K loan.
Bottom line is there is no way in hell I will be buying a home that is 1.2M in this market. (no matter how much bitching my wife does)
Divide by the Capitalization Rate. $22K/.10 = $220K. $22K/.06 = $366K. The Cap Rate is the rate of return the investors require. See wikipedia’s entry http://en.wikipedia.org/wiki/Capitalization_rate
Alternative quicker rules of thumb are just do a GRM (Gross Rent Multiplier) for a ball park. Older apartments are already starting to show GRMs in the 9 range. SFRs depending on area of country and real estate cycle, range 8-13.
So if the monthly rent was $2000, the annual max gross would be $24,000 and multiplier of 9 puts it at $216k.
The kicker, most places rent significantly less expensively than owning. Purchase price/rent ratios on most SFRs today in Irvine will likely run 20 GRM or more.
I feel you. My girlfriend/fiance is on my ass about her dream home, which is at minimum 2M house in my area. It’s either break the bank and kill ourselves or live with the bitching. I rather see the huge decline in prices, take a hit with my condo, and take out a far less mortgage for the upgrade considering our combined pay hopefully will stay the same or only go up.
Golfproz,
Sounds like you’re in a good situation anyway you slice it. (Except the bitching part!)
Which neighborhood are you in right now?
It boils down to this. I won’t buy a POS at WTF, OMG or LOL. I wish that every buyer out there right now would stand their ground and say no way. Together we can bring reality back to realty.
Exactly what I was thinking. I’d be inclined to buy one of those homes for its purchase price.
Which neighborhood are you in right now?
Bueno Park but looking to move to MV or somewhere around there
The way I look at it is this: If I were to buy a house right now, 50% of our money would go to the price of the house (what it’s worth), and the other 50% of our money would go to the sellers. I would be helping the sellers retire, put their kids through college, send them on a luxury vacation, but them their luxury car, etc. I just won’t do it. We work too hard for our money to GIVE it to someone else.
Oops – I mean luxurious (instead of luxury). Can’t edit a comment once it’s written.
Assuming that none of these homes were overpriced when purchased:
1.) 28 Chadwick. Assuming 6% annualize appreciation, which is double inflation and higher than a zero risk government bond, the price should only be $593,182. This equates to a 37.5% price reduction off the 950,000 listing price. Assuming the seller didn’t suck out cash, he/she still stands to earn a reasonable return
2.) 20 E Sutton. Assuming 6% annualize appreciation, which is double inflation and higher than a zero risk government bond, the price should only be $694,677. This equates to a 36.8% price reduction off the 1,100,000 listing price. Assuming the seller didn’t suck out cash, he/she still stands to earn a reasonable return.
3.)24 Highfield. Assuming 6% annualize appreciation, which is double inflation and higher than a zero risk government bond, the price should only be $730,537. This equates to a 30.4% price reduction off the 1,050,000 listing price. Assuming the seller didn’t suck out cash, he/she still stands to earn a reasonable return
Any questions???
No_such_reality,
Thank you for clarifying that. It made sense.
Could a listing agent make up the GRM # to justify the price of the property?
I’d love to buy a place…but there’s just no way anyone can convince me that paying $1,000-plus more per month to own as opposed to rent is anything but insane right now. We live in a great neighborhood and are saving a bit more than $1,000 a month ourselves by renting instead of owning. Plus, we don’t have to worry about the value of the property declining and can get out at just about any time if necessary. I probably would have bought a while ago, except by the time I was out of grad school a few years ago, I knew that housing values were already too out of whack. Maybe in another year or two…
hahaha…it’s all about the wives. I wanted to purchase a 1 bdrm condo b/c that’s what I figure we could afford. But I caved in and got a 2 bdrm. hahaha…that’s life, got to love it.
Selling high and buying low sounds like a better plan to me.
Lendingmaestro,
Thank you. When these postings show the high prices. I have always wonder, “Then what is the reasonable appreciation?”
What you calculated made sense. Thanks.
Check out the condos on Tarocco near Irvine Valley College. Built in the late 80s. High price for 2-Bd, 2-Ba was about $415,000. About 12 now on the market at about $390,000. Two foreclosures sitting on the books. My guess is $340,00 to $360,00 will get you an easy “yes” from the sellers. Nice, decent places, OK amenities, kept up pretty good. HOA is around $360/mo
FamilyGuy,
The main reason I believe a 50% decline is both possible and likely is because prices only went up because of an unsustainable expansion of credit. It was not due to people making more money. To fully understand how this happened, please read:
The Anatomy of a Credit Bubble
It outlines in detail how the changing of credit terms allowed buyers to bid up prices to where they are today, and how the elimination of these terms will bring prices crashing back down to where they were in 2001.
Real Estate Rookie,
You girlfriend is basically correct. If you are moving from one type of housing to another and taking your equity with you, it really doesn’t matter much. However, if you want to make a step up and save a lot of money, consider renting for 2 or 3 years then buying.
Atlanta, Fort Myers, Corona, and Sacramento…yeah those places are just like OC. LOL.
Yeah, it’s different here, you know.
Yeah, I think the more rational number would be like an 80-90% decline, wouldn’t you agree? Soon all those Turtle Ridge homes will be ours for $100/sq ft! LOL.
buster,
Thanks. I actually saw a 390k condo bank owned. Time must be bad . No offense, but the mortgage on 390k shouldn’t be that much. Sad.
Off-topic comment:
Yesterday the Ventura County Star (and I suppose most newspapers had similar articles) ran this story regarding the change in demographics of California over the next 40 years, including a population increase of 25 million. Ventura County is expected to grow by neary 300,000 people (38%) over the next 33 years. It seems to me that the amount of land available for new housing is pretty limited in the county, with the exception of farmland, which is the #1 industry in the county. Where are all of these people going to live, and what kind of impact is it going to have on the real estate market?
Can you enlighten us with some hard data on the “lots of 40% losses” you’ve seen?
Nice straw man argument.
I attended an auction Saturday for SFRs at 206 East Balboa and 210 East Balboa in Newport Beach. Is that sufficiently OC? These were identical-floorplan units, both built in 2006, about 2700 square feet, 2-car garage. 206 sold for 1.3M and 210 for 1.28M.
The auctioneer stated the land and construction cost for each house totaled to about 2.1M and that he had sold a nearby Newport Beach condo (not an SFR) with half the floor space a couple of days ago for 1.5M.
I’m not sure how accurate his builders-cost story was but I’ve observed him long enough to believe his condo sale tale.
Does 1.3M for a 1-year old 2700 sq ft SFR in Balboa (2 blocks from the Balboa Fun Zone ) sound less than what it would have gone for a year ago?
Family Guy,
I am also an owner, and I’ll repeat my comments from above:
I attended an auction Saturday for SFRs at 206 East Balboa and 210 East Balboa in Newport Beach. Is that sufficiently OC? These were identical-floorplan units, both built in 2006, about 2700 square feet, 2-car garage. 206 sold for 1.3M and 210 for 1.28M.
The auctioneer stated the land and construction cost for each house totaled to about 2.1M and that he had sold a nearby Newport Beach condo (not an SFR) with half the floor space a couple of days ago for 1.5M.
I’m not sure how accurate his builders-cost story was but I’ve observed him long enough to believe his condo sale tale.
Does 1.3M for a 1-year old 2700 sq ft SFR in Balboa (2 blocks from the Balboa Fun Zone ) sound less than what it would have gone for a year ago?
FamilyGuy – I have owned one home or two homes at a time for the last 25 years and went through the last re downturn cycle. This time, instead of holding on through the depreciation cycle, we sold, even though 98% of anyone I talked to said we couldn’t time the market. We are leasing and from the looks of things, we have timed the market and it is working out well. I have absolutely no idea how much re will depreciate. I do think, with much certainty, prices will come back to affordability levels. What that is in terms of price is of less import to me than what it is in terms of neighborhood income, and other asset class prices. During the last re cycle, prices depreciated by an average of 30% in the LA metropolitan area, and that includes OC. In real dollars, as opposed to nominal dollars, prices depreciated by 40%-45%, before they started going up again.
In my estimation, the most important thing to remember as concerns re prices, is that the use value of a 3 bd, 2 bath, 1800 sq. ft. home in 2007 is the exact same as the use value of that same home was in 1987. RE cycles have been occuring in So Cal long before you and I got here and they will continue after we are gone.
Lendingmaestro,
I was just thinking about the 6% annualize appreciation. Where does one derive at that number? Could the annual appreciation be 5%, or 7% just the same?
And when we talk about real estate. Considering the 6% appreciation. Are there also premium put on such factors as: low crime rate, good schools, high employment, etc.
Would such factors be considered into the price of the properties? Assuming that buyers do consider these factors into their home purchase. How does one quantify “such factors” into the equation?
Exactly.
If I owned a place right now, I would sell it and rent for a few years.
When the 1M house drops to .5M, then I would jump back in with a nicer neighborhood/house, lots of cash in my pocket, and a big smile on my face.
But I already have the big smile on my face because I’m currently a renter!
reason,
The historic appreciation rate in California has been between 6% and 7% over the last 30 years or so. Using this as a basis for projection is making a conservative estimate.
IMO, this rate of appreciation is too high because it exceeds the rate of inflation in wage growth. To better understand what I am talking about, please read:
Appreciation is Dead
It will give you a much more detailed understanding of how prices go up.
The rate of appreciation should exactly match the rate of wage growth as people pay for houses out of their wages. The fact that it has historically exceeded wage growth is caused by lower interest rates and higher debt-to-income ratios. This trend cannot go on forever.
If its an investment property, ask for Tax Schedule E. 🙂
If it’s an individual condo or house, just check Craigslist, Rentometer.com and the publish Apartment guide.
Keep in mind, all three are just asking price, not the real price they rent for.
I use 6% because it is double the 3 % inflation target that the FED tries to maintain. It is also more than what the safest investment (government bonds) has yielded since 2000. Considering that real estate as a whole in the US averages barely above inflation, I gave Irvine a boost because of the general desire to live there.
A 6% return on a lump sum investment, that doesn’t pay dividends, operate a business, or generate income, is fantastic in my opinion. if you would have bought any of these homes at the original price and sold at my adjusted value then you would be happy as a clam.
This goes to show you that there is a very low floor price that people can sell for and still turn a profit. When calculating if it was a good investment you can’t take into account the lack of discipline of the homeowner. If he/she sucked out cash, it’s their fault.
IR,
Thank you, I guess what I am trying to get at is. In addition, to 6% annual appreciation. Wouldn’t factors such as: low crime rate, better schools, etc. add value to the price also?
Otherwise, why would a property in a crime infested neighborhood appreciate less than lets say another property in a better neighborhood.
good post. The home has the same intrinsic value as it did when it was built. In fact, you could make the argument that it is worth less since it is now aged and outdated.
IR, I’d like see your source for the 6%. I’ve been searching for the research document I remember that discusses the long term appreciation of housing. In real terms, it is 0%. In premium areas that have a variety of restrictions, like San Francisco, it is 1% above inflation.
IR/Lendingmaestro,
Not trying to be argumentative. But are there other variables as mentioned (low crime, good schools, etc.) be added onto the 6% appreciation?
I know as a homebuyer. I certainly would pay alittle higher than the 6% appreciation if I determine that the property is in a “good” neighborhood.
I apologize if I am not getting it. I sound repetative, but it seems to me that there are other variables that will dictate the “unreasonable” price appreciation.
IR – This is a little OT, but could you make a place on the sidebar of the blog that provides links to your various essays, sort of like how CR did with Tanta’s “uber nerd” series?
Doesn’t Atlanta have a similar per capita income to OC? I thought I read that in one of those “compare places to live” links off of one of the major news websites last year.
reason,
You are confusing premium with appreciation.
Premium is the price one pays over a comparative product due to its quality — i.e. all the factors you mentioned: low crime, good schools, etc. This is why Irvine commands higher prices than Mission Viejo.
Appreciation is the rate of growth in an asset’s valuation. Appreciation is tied to the rate of growth in wages.
To illustrate the difference, imagine a property in Irvine selling for $500,000, and a similar property in Mission Viejo selling for $400,000. Assuming Irvine and Mission Viejo have the same wage growth (3%) then house prices should rise 3% in each market. After one year, the Irvine property would be worth $515,000 and the Mission Viejo property would be worth $412,000. Notice the Irvine property appreciated more, but it was worth more to begin with. The rate of appreciation is the same.
Just because Irvine is more desirable, doesn’t mean it will appreciate at 6% while Mission Viejo appreciates at 3%. If you start doing the math on that, you would see that in 10 years, Irvine real estate would be 3 times the price of Mission Viejo real estate, and that isn’t going to happen.
No_Such_Reality,
Go check out this website:
http://www.realestateabc.com/graphs/calmedian.htm
You can check the math yourself and see what you come up with.
EvaLSeraphim,
I will ask Zovall if he can create those links.
I know this is Oak Creek section but last night I found this one in Columbus Grove from Redfin.
http://www.redfin.com/stingray/do/printable-listing?listing-id=890144
MLS#: S495550
The house next door (I went there a month ago) is listed for $1.28 mil but this particular one came on the market for $850k. Is this a foreclosed or did the seller realize the market and came to a senses. If it’s sold this could be a comp killer for sure since other two hosues on the same street were priced way too high and have been sitting for a while.
I’ve been looking for the similar size of this house (2600 sq ft) for awhile and 850k seem as good as it comes for now. Should I test the water and submit may be 825k or should I wait for a year or two more? I know it all depends but just curious. I have a year lease on my rented house so can’t move right away anyway… Thanks.
Thanks, I’ll continue to search for the missing research document.
Interesting to note that the sources of the graphs is the CAR. Also interesting to note that it clearly shows prices being down from 1991 to 1997.
Hmm, housing never goes down according to them right? 🙂
From the charts, it looks like about a 3.5% real appreciation from 1968 to 2004.
Of course, a roll back to 2004 prices put it at about 3% and 2003 price would put it back to 2.5%.
Hi Reason,
According to my calculations, the three homes above should go for approximately $710K, $850K, and $850K, respectively. This is based on the assumption that the selling price in ’00-’01 are “normal” – in my opinion ’99-’00 pricing were normal prices – and assuming historical OC appreciation rate for the past 30 years, including the 6 years of insane runup. Discounting the past 6 years, it would be around $650K – $760K. All numbers are rounded.
So, right now based on “normal” appreciation rates the homes are about 25% overpriced.
We have seen this one too. I was going to do a news flash on this property on Tuesday, but none of us can seem to find the original purchase price. The new stuff in the area is selling in the 800’s so I don’t know if the neighbor is dreaming or if this is actually a significant price drop.
Anyone who can tell me what this was purchased for, it would be appreciated.
Here are a few more for you:
http://www.laalmanac.com/economy/ec37.htm
I don’t know if I trust their data.
http://www.housingtracker.net/askingprices/California/LosAngeles-LongBeach-SantaAna/SantaAna-Anaheim-Irvine
http://money.cnn.com/2005/05/12/real_estate/re2005_100markets_0506/
http://www.abag.ca.gov/abag/overview/datacenter/housing/homesale.html
Looking at: http://www.realestateabc.com/graphs/calmedian.htm
what happened in 1997 that created a 5.2% increase after decreases in 5 of the previous 6 years?
That seems amazing that a 2700 SFR on the peninsula was sold for low millions
I’ll check into it online tonight. If that doesn’t show anything, I can make a trip to the recorder’s office on Friday.
No such reality,
Thanks!
IR,
Thanks for clearing that up for me. =)
Thank you,
My data access if FastWeb, and they are not always current.
Fair enough.
“I’ve already seen 50% gone on some homes.” Please, enlighten us. Share the hard data.
just wait a couple of years and you will see them selling below 1 mil maybe lower.
how about 600k max if you are itching to buy right now.
The comments about the wives/girlfriends pressuring spouses to buy houses reminds me of a stat I read which said 19% of all first time homebuyers in 2006 were single females, whereas just 9%(?) were single men. The article commended their initiative.
There may be a lot of daddys with wet shoulders in the coming years.
That is a common argument RE folks use to support the assumption of housing price appreciations, but it should be looked at in perspective. In 1970, there were roughly 20 million people in CA. In 2005, 35 million. That is an annual growth rate of about 1.6%. Increase to 60 million by 2050 (which you’ve been hearing about all over the radio in the past 24 hours) is a growth rate of 1.2%. So if anything, housing build rates should decrease, no?
The fact is, we’re not running out of land. Just look at Japan, they supposedly ran out of land 60 million people ago, but their prices have been stagnant for years. Or New Jersey, which has the highest density in the U.S. It’s an argument that sounds good on surface, but has no evidence to back it up.
My ex-husband has no clue about the housing market. I decided it was time to get out (both of the house and the marriage!). He went and bought a McMansion, while I live happily in my rental townhome watching my principle continue to expand on my high-yield CDs…so please cut out this generalizating crap about the wives being the materialistic, financial know-nothings!
LOL!
I knew I would get a rise out of some people for that! However, numbers are numbers – interpret them as you will.
Hey, your ex is part of the 9%. I imagine in the coming years there will also be some fist holes in home walls as the single males punch them for not appreciating in value as advertised.
A single mom who is smart/humble enough to rent versus a guy who buys a McMansion in a declining market? My curiosity is piqued.
No_Such_Reality,
My spreadsheet shows the “average” of the yearly increases to be 9.6% going back to 1969.
California Median Home Price 9.06%
2006 $566,294 8.07%
2005 $524,020 16.19%
2004 $450,990 21.39%
2003 $371,520 17.52%
2002 $316,130 20.50%
2001 $262,350 8.70%
2000 $241,350 10.96%
1999 $217,510 8.70%
1998 $200,100 7.30%
1997 $186,490 5.20%
1996 $177,270 -0.50%
1995 $178,160 -3.70%
1994 $185,010 -1.72%
1993 $188,240 -4.46%
1992 $197,030 -1.81%
1991 $200,660 3.56%
1990 $193,770 -1.20%
1989 $196,120 16.60%
1988 $168,200 18.40%
1987 $142,060 6.30%
1986 $133,640 11.50%
1985 $119,860 4.90%
1984 $114,260 -0.10%
1983 $114,370 2.30%
1982 $111,800 3.80%
1981 $107,710 8.20%
1980 $99,550 18.30%
1979 $84,150 18.71%
1978 $70,890 13.81%
1977 $62,290 28.09%
1976 $48,630 16.90%
1975 $41,600 20.20%
1974 $34,610 10.01%
1973 $31,460 9.20%
1972 $28,810 7.18%
1971 $26,880 9.09%
1970 $24,640 1.69%
1969 $24,230 4.39%
I calculate the “average” yearly median home price in OC at 7.2%
Orange County Median Home Price 7.20%
2006 $643,000 8.07%
2005 $595,000 9.58%
2004 $543,000 9.39%
2003 $496,370 13.94%
2002 $435,650 20.99%
2001 $360,080 13.23%
2000 $318,010 13.21%
1999 $280,900 7.34%
1998 $261,700 13.86%
1997 $229,840 7.72%
1996 $213,370 1.90%
1995 $209,400 -2.40%
1994 $214,540 -1.23%
1993 $217,210 -5.91%
1992 $230,860 -3.68%
1991 $239,680 -1.10%
1990 $242,358 0.27%
1989 $241,708 18.57%
1988 $203,860 24.90%
1987 $163,218 13.00%
1986 $144,441 8.80%
1985 $132,758 1.60%
1984 $130,668 -0.60%
1983 $131,456 1.40%
1982 $129,641
I freely admit taking the average of yearly data overstates to the upside because the declines have more impact than the gains, but the numbers are what they are.
Bummer. Mine isn’t current either. I’ll check on Friday at the Recorder’s Office.
I went by this property and there was no sign or brochure box. Not quite sure what is going on.
I made several trips to Columbus grove to check out the price and model homes. They are priced now ( I got an email from Cantara folks that there are only two left for ~$895k for 2800 sq ft. so ~$325 per sq ft) but first thing I notice is how narrow the street is. I felt that same way this afternoon. One tempting thing about this particular house is, though, the land is 7800 sq ft.
I just checked ziprealty.com for this 28 E. Desert Willow property. It has 1.1 mil price tag with 42 days on the market not 850k with 3 days on the market in redfin. Beats me…
Yeah, and that single mom just made up a new word: generalizating! Darn it, I really need to stop multi-tasking while I work out on my Stairmaster!
“Generalizating” is the sting that comes from generalizing – very clever!
Since you coin words, you should consider becoming a US President.
However, if it was a spelling mistake, you should pursue brokering real estate.
41 Rose Trellis 92603 just went back to the bank for less than $1.5mil which is 25% off highs in the area and the 10 other sellers in the tract. It’s coming soon to a neaighborhood near you.
Fifth time asking where is the data proving otherwise. I will ask everytime you post. So please do tell why we are wrong. I’d really like to know. Or am I a just wasting my time to not get a response?
How do you get access to Fastweb?
You want me to show you data proving that prices aren’t down 50%? Ummm…every property profiled on this site shows that.
IR, I’m not following the question? I know your data is valid.
Please keep in mind, I’m looking at the website and using the word “real” in a investment inflation adjusted return context. The numbers for the CAR site are Nominal dollars.
If you look at the site http://www.abag.ca.gov/abag/overview/datacenter/housing/homesale.html that you provided, the numbers are already in constant dollars. From 1982 to 1995 the real return was 3.7% for OC, 3.2% for LA, and 5.4% for SF.
1982 was already well into the down cycle of the downcycle prior to the late 80s, bull cycle.
With inflation, at least reported inflation, extremely low, expecting 8% long term returns may be optimistic. However inflation plus 1% may be overly pessimistic.
And of course adjusting for the McMansionization of housing potentially lowers the return for like for like housing when looking at median numbers.
The $1.3m for an almost new 2700 sf 3br 3ba SFR at 206 Balboa in Newport Beach a couple blocks from the water sounds amazingly low. Is it next to a restaurant or some bad location to make it that low? Anyone have pics of the place or more detail?
I checked on google maps and 206 Balboa is one house away from the sand. Maybe in Oxnard you can get 2700sf for $1.3M this close to the sand but sounds unusually low for Newport Beach.
No_Such_Reality,
I apologize, I did not see your reference to “real” instead of nominal. Yes, the real return was about 3% over inflation, and the nominal return was about 7%. I am still of the opinion that real returns of that level are not sustainable because they require higher DTIs and lower interest rates.
I see something very interesting in these numbers. The last real estate boom hit the wall at the end of ’88 and beginning of ’99. Do you notice however that the Median price still increased until ’90, ’91???
This is exactly what we are seeing now. Prices are plumetting but the Median is being skewed by both lack of uniform sales across the price range. The upper end is holding up longer than the lower end.
Also notice that it took 6 years until 1997 for the median to return to 1990-1991 levels.
No I don’t need you to find properties that are down 50% I can do that myself. What I am asking now for the sixth time is provide us with facts that prove that prices are not going down and it is not going to get worse. You seem very confident that they won’t so please enlighten us with your wisdom of how prices in OC never go down. I can find you plenty of homes that have sold for 25%-30% less than peak prices and if you factor in inflation it won’t be long before that real decline equals 50%.
This is a short sale property with the sales price 850 to 1,100,000.
GE Will Seek Buyer for Subprime Mortgage Unit After Defaults
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMfFpvP7WFuY&refer=home
No report today. My lunch ran long. Sorry. 🙁