The housing bubble only impacted houses under $1,000,000. Houses over this price have continued to appreciate, right?
Irvine Home Address … 19001 ANTIOCH Irvine, CA 92603
Resale Home Price …… $1,258,000
{book1}
Somewhere in the back of my mind 
Secretly I know you will find
Way amongst the blushing and glow
Teach me all the things I don’t show
How I can flower bloom
Just over a day?
And at night
You’ve got to let the world change
Denial — Sugarbabes
Back on April Fool’s Day, I wrote a post talking about some of the ill-timed and poorly executed improvement projects around town. Today, I want to recognize an equally futile attempt at property improvement to add value.
According to the listing, the owners spent “Nearly $300K in quality upgrades.” Their timing could not have been worse. These owners bought right at the peak and then proceeded to over-improve the property. Of course, now they expect someone to pay not just for their first mistake of buying at the peak, but they want someone to pay for their second mistake of over-improving the property as well.
Anyone want to pay this WTF asking price and bail these people out?
“I lived at West Egg, the—well, the less fashionable of … the two, though this is a most superficial tag to express the bizarre and not a little sinister contrast between them. […] Across the courtesy bay the white palaces of fashionable East Egg glittered along the water …”
The Great Gatsby — F. Scott Fitzgerald
Irvine Home Address … 19001 ANTIOCH Irvine, CA 92603
Resale Home Price … $1,258,000
Income Requirement ……. $259,296
Downpayment Needed … $251,600
20% Down Conventional
Home Purchase Price … $1,000,000
Home Purchase Date …. 7/21/2006
Net Gain (Loss) ………. $182,520
Percent Change ………. 25.8%
Annual Appreciation … 6.6%
Mortgage Interest Rate ………. 4.96%
Monthly Mortgage Payment … $5,378
Monthly Cash Outlays ………… $6,710
Monthly Cost of Ownership … $4,770
Property Details for 19001 ANTIOCH Irvine, CA 92603
Beds 4
Baths 2 full 1 part baths
Size 2,190 sq ft
($574 / sq ft)
Lot Size 8,925 sq ft
Year Built 1969
Days on Market 7
Listing Updated 11/23/2009
MLS Number S596936
Property Type Single Family, Residential
Community Turtle Rock
Tract Bm
Stunning… Customized home shows better than a model! Nearly $300K in quality upgrades. HUGE gourmet kitchen with walk around island, SS KitchenAide appliances, granite counter tops & stone back splash, beautiful custom designed cabinets with retractable hardware, separate breakfast area, & diamond patterned designer tile flooring. Master Bedroom was expanded & has dual walk in closets. Master Bath also expanded with dual sinks, high end fixtures, separate walk in shower & oversized tub. All baths completely upgraded. Entrance into the home is breath taking with hard wood flooring, vaulted ceilings, & chandelier. Customized lighting throughout. New windows & doors. Separate office area. Lush mature landscaping and professionally designed hardscape. Convenient walking distance to both Uni Hi and Turtle Rock Elem. Nothing left to do except close escrow. Just in time for the Holidays!
Nothing left to do except close escrow. Just in time for the Holidays! Are we hearing the listing agents fantasies?
Do you see it too?
If owners like this can get out without a loss, then everyone should just go out and buy. Apparently, it does not matter when you buy or how much you waste on improving a property, someone will always bail you out — that is the mindset of denial of a high-end property owner. Do you think it works that way?
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing
the Irvine home market and combating California Kool-Aid since
September 2006.
Have a great weekend,
Irvine Renter
:;
.
http://www.crackthecode.us/images/professional_landscaping.jpg
Smoke and Mirrors Story of the Day.
What the FHA’s New Criteria Mean for Housing
Share Comment
By LUKE MULLINS
Posted: December 2, 2009
After the real estate crash decimated the mortgage market, a tiny government agency has assumed an outsize role in the housing recovery. In 2006, the Federal Housing Administration—which insures home loans against default—backed just 3 percent of new home-purchase mortgages. But today, the agency insures nearly 3 out of every 10 new home loans. That’s because while banks have raised their lending standards, credit requirements for FHA-backed loans have remained fairly liberal. But after a recent actuarial study concluded that the housing swoon has dragged the agency’s reserves below its congressionally mandated level, the FHA is facing mounting political pressure to increase borrower requirements as well.
[Check out Why Foreclosures Rise Even as the Economy Expands.]
Shaun Donovan, secretary of housing and urban development, responded to such criticism yesterday by outlining a series of steps the agency plans to take to make sure its loans are available and safe. “We want to ensure that we are able to continue to support the housing market in the short term and provide access to homeownership over the long term, while minimizing the risk to the American taxpayer,” Donovan told a congressional committee in written testimony. Here are five things you need to know about the development.
1. More money down: The FHA’s low down-payment requirement—of just 3.5 percent—is one of the main reasons that agency-guaranteed loans have become so popular. Home loans without FHA backing can come with down payments anywhere from 10 to 20 percent, depending on the market, borrower, and other factors. But the FHA’s deteriorating balance sheet has triggered calls for the agency to force borrowers to put more cash down. Rep. Scott Garrett, a Republican from New Jersey, has introduced legislation that would boost the minimum down payment to 5 percent.
2. Higher fees: The major downside to getting an FHA-backed loan is that borrowers must pay into an insurance pool through upfront and annual fees. The agency uses the cash to reimburse lenders in the event of default. But with its cash reserves dwindling as more loans go bad, Donovan said the agency is considering increasing the insurance premiums as well. Although the current 1.75 percent upfront insurance premium remains below its statuary cap, the annual fee is already as high as the law allows it to go.
3. Better credit: Donovan also said the agency would—at least for now—increase the minimum credit score for new borrowers. The FHA’s current minimum credit score is 500, and the agency did not detail the new threshold.
4. Political concessions: Cecala says the development is an acknowledgment that the FHA was going to have to beef up its credit requirements one way or another. “It’s basically a trade-off,” Cecala says.
OH man! Now I have to come up with 5% instead of 3.5%!
If I buy a 200K house then that means I have to now find 10,000$ to get my subprime loan. Where am I going to find that kind of money? Oh from the seller of the house that I buy – I forgot.
This is a crock. These FHA buyers are getting their down payments as kickbacks from the sellers anyway so this increase in lending standards is just an illusion masking a cloaked version of zero down mortgages.
More defaults on the way.
The sad part is that raising the downpayment from 3.5% to 5% will destroy the housing market. You would think that a few dollars of savings wouldn’t make that much of a difference, but it does.
FHA is the new subprime.
Unfortunately, the new downpayment requirement is not going to affect the Irvine housing market at all. Most of the sales here are 20% and above…
FHA is the new subprime…i like that…the rate at which the Fed is buying MBS will soon make the Fed the new subprime:)
dr housing bubble has a nice article on the cost of california homeownership
http://www.doctorhousingbubble.com/
Oh, don’t worry — buyers can just use their first time homebuyers’ tax credit as their down payment!
I don’t see how any of this can possibly go wrong . . .
I believe current FHA credit scores are 620 and soon to be 659…
Just a few months ago the Senate Finance Com. discussed the Down payment could go to 5%… Now that is here…
Since then, the Senate Finance Com. floated another trial balloon stating the Down Payment would go to 10%…
Stay tuned…
Let’s not forget the NEW FHA condo rules go into effect Sunday at Midnight… Communities where FHA has funded 30% or more of existing condos are no longer eligable for FHA financing.. retro active..
Green shoots ????
With $300k in upgrades, there is no way they will recoup. Most people will still have the mindset that their house is “better” than their neighbos when statistics will show you that they will sell for approx. the same. Upgrades will help in a strong market, but unfortunately not do much in this market. Good luck to them!
It’s a pretty house, and I like their upgrades, but really, what are the current comps? I’m looking at this and seeing a $250k base house upgraded to being a $350k home + land value for a total of like $700k max.
How many thou am I off, and how many thou are they off? (from current market value)
From the Redfin link…
Home Value Estimates for 19001 ANTIOCH
Low Estimate High
Zillow $791,630 $920,500 $984,935
Eppraisal $764,490 $899,400 $1,034,310
Cyberhomes $750,197 $833,553 $958,585
Nearby Similar SalesMore Info
Closest homes similar to 19001 ANTIOCH, which sold within the past six months:
…
Range: $780,000 – $1,140,000
Average: $447/Sq. Ft.
This home at $447/Sq. Ft.: $977,879
So, it’s safe to say it’s probably worth somewhere between $800k and a million.
Obviously they didn’t tell the tax-man about their improvements. Redfin’s tax value for the additions to the land is only $160k. Adding the “$300k” to their assessment would be roughly another $3k/yr in taxes. I guess not a huge amount when you’re buying a million dollar house, but those thou’s add up for the cities.
Imagine Broadcom adds a $3M building onto a $10M facility. What are the odds that Irvine would not instantly hit them with an increased tax bill? Well, maybe they’ve got a sweetheart corporate welfare deal, but I imagine the assessed value would change.
That is one of the Proposition 13 loopholes. If you keep a single wall of the structure, you can do a huge renovation without triggering a re-assessment.
Is that true? Never thought about that. Let’s say you double the size of your house via a huge addition. You still get to keep the old valuation, plus the 2% yearly? Geez.
Tonye did something similar, he can probably quote the regulations (are you out there?) I don’t think he tore it down to a single wall, but as I recall, the renovation added a second story to part of the house, so it was quite extensive. I imagine the “one wall” rule came into being to prevent subjective arguements as to what represents an improvement so significant it requires reassessment; that and the apartment industry lobby certainly made the definition of “significant renovation” so broad as to never be triggered for anything they did.
When you look at the impact of these loopholes, they do tend to cause people to make home improvements rather than sell and move to a more expensive property. In Mexico, for instance, people buy property and never sell. They just continually work to improve what they have. Home improvement does have a societal benefit, and it is more resource effective than building new homes.
Yep, keep one wall standing and you keep the CODING STANDARDS… otherwise you got yourself a new house.
Prop 13 however has a loophole. If you add square footage to your house they will increase the base tax on that, regardless of the 2%.
And, yes, I like the fact that Prop 13 does create stable neighborhoods.
Now, this particular property is close to me. Now, as I happen to know, I spent 300K to rebuild the entire house, so either these people were idiots are they are liars. Yes, I can see from the pictures they moved a wall, or two, but that’s all they did. The kitchen should not have run more than $60K tops, and that’s with custom cabinets.
Again, Prop 13 has limits.
And, no way in hell did these people spend $300K on renovations. For that money, they would have a complete new house.
Price wise, and with comps. As of last March we got appraised for a refi at $999K. Our house is totally brand new, not as good a location but we got five bedrooms, 3 ba and 2700 sq feet.
So go figure. Is this think worth 1,25MIL? IMHO, I think it’s worth no more than $750K.
They will not get a bank to finance it.
I think you just add in the present value of the additions to the proposition 13 taxable property value. For instance, if your prop 13 home value is $200k, and you add a room valued at $50k, then the new value for property tax purposes is $250k which will then continue to increase at a maximum of 2% per year. I guess the caveat is not to tear down the house completely.
Aww, I got all excited when I heard the above. But, I think you’re correct:
http://assessor.lacounty.gov/extranet/Guides/realprop.aspx
There’s no tax advantage then to buying a fixer you want to expand. Just one you want to renovate to bring it back up to snuff.
Ok, that’s reasonable then. Let’s say the market value of your house (not counting land) is $300,000. But on the tax rolls, it’s only $100,000 due to prop 13. You double the size of the house, making the market value of the house $600,000. The tax valuation of the house then becomes $400,000 ($300k for the new part and $100k for the old part), plus whatever the land was listed at, which makes more sense then leaving it at the old $100,000 number (plus land), which is what IR seemed to be saying.
If it was the case, everyone would want to buy a shack on a big piece of property and then keep one wall integrated into something 10x bigger. This couldn’t possibly be the case.
Prop 13 doesn’t work that way-for this to really work, you would have needed to buy the house in 1980 and expand it today.
They only tax you on the new square footage.
If you take a 2000 sq foot home and turn it to 4000 sq feet, you’ll find that your spend about 40~50% of your cost on modifying the old space to accommodate the new space.
So, the county appraiser will take that into consideration.
Of course, if you’re nice and tell him the truth, you may get a nice gift and find that he didn’t take your all the way.
BUT, woe to them who lie… the appraiser can really hose you.
I was nice. I know someone who got hosed.
I recall reading somewhere that traditionally one had to improve and maintain their house just to keep its value current with inflation. If you didn’t remove your shag carpeting and replace with wood flooring then you could not expect your home to fetch the same as the more updated house across the street. Of course this thinking is absurdity to the modern seller – and shelved up there with belief in UFOs.
Where do these sellers get off thinking that they are entitled to windfall profits because they installed some pergraniteel? It is seriously getting old now with listing agents shamelessly pumping these trivial cosmetic upgrades that add no practical value whatsoever to a house.
The disease is so widespread now that first time buyers walk into houses and expect pergraniteel everywhere just as the housing trash tv shows have groomed them to expect by trotting out one unworthy homebuyer after another being sold these fancy trinkets and sailing off into the sunset, turning off the cameras before these buyers get foreclosed, go underwater, divorce, etc.
When I decide to buy, I have no intention of paying 1 penny over the 1998 comp. I don’t care how much lipstick some knife catcher smears on it. And I sure as hell will not be subsidizing some boomer’s retirement so I can live a life of debt while they go jetsetting and cruiseshipping around the world. Not going to happen. If some other moron wants to do it, have at it.
You may never purchase a property then, at least not in Irvine.
You already can buy at 1998 prices in Las Vegas. I haven’t looked at Phoenix’s market to compare to the past, but I imagine 1998 prices are on the horizon.
In the IE, Vegas, and parts of Arizona and Florida, 1998 prices are possible. But I seriously doubt it in Irvine, unless you are talking 1998 prices in 2009 dollars (that is, factoring in overall inflation).
Just curious – where did you come up with 1998? Was that arbitrary or does it have some other meaning?
David, these people did more than just install pergraniteel. They actually moved wall and move the kitchen around. They moved the kitchen 90 degrees and punch out a wall.
So, they spent some serious money.
$300K? No way in hell unless they was robbed, but they easily went through $130K for these changes.
So, forget the 1998 comp. There are homes with lipstick but most homes have seen a fair amount of maintenance costs (figure $10K a year) just to keep up with wear and tear. So, figure that a well maintained 1998 home is worth today, at the very least, $110K more.
Government Debt: No Way Out?
“You have to admire the audacity of these clowns:
“To my mind, a natural place to start is asset sales,” he told reporters after a speech in Charlotte, North Carolina, playing down fears of market disruptions. “We have to move over time to channeling resources away from the housing market. It doesn’t seem advisable to me to build a recovery based on housing.”
What Federal Reserve Bank of Richmond president Jeffrey Lacker is talking about is the huge portfolio of MBS – mortgage-backed securities – that The Fed has “bought” as part of its “quantitative easing” program.
The problem with this statement is that it is a bald lie.
Literally everything that government and The Fed have done has been predicated on not “building a recovery based on housing” but on attempts to re-inflate the housing bubble! Holding prices high – intentionally – by forcing long-term interest rates for mortgages down is destructive and evil.
Creating the housing bubble – which we now know was not just Greenspan’s legacy but in fact was largely Bernanke’s fault in that he was one of the individuals at The Fed in the early 2000s that advocated for the ultra-low rate and ultra-high liquidity environment that caused it – was the underlying evil in our economic mess.
Yet to believe that this was some sort of accident is incredibly naive. Certainly where all the “funny money” went might have been an accident, but the creation of a bubble as The Fed’s solution to the bursting of the last bubble they created was no accident at all – it was a policy.
…
In any event there has been no recognition by the government that the last 20 years of credit growth is unsustainable and in fact is why we’re in this mess. Worse, they seem to think they can drink themselves (and we can drink ourselves as consumers) sober.
Nonsense.”
Apparently people like Geotpf don’t know what a housing appraisal really is.
http://www.crackthecode.us/images/caveman_appraisals.jpg
The best description that I have found so far is that an appraisal offers nothing more than a confirmation that lemmings nearby are overpaying for houses by just as much.
An appraisal makes no assumption of local incomes, or mortgage products being hustled onto the public. This system may have been an OK indicator back when banks actually issued loans based upon a borrower’s ability to repay – but nowadays, forget it. The current system of appraisal is just an artificial floor used by realtors and house debtor cabals to fix prices in their neighborhoods.
Ask anyone with an underwater mortgage how much that appraisal was worth.
Likewise, Zillow estimates are based on the same dumbass logic and over estimates giving sellers ridiculous expectations.
A real appraisal would consist of surveying the area income levels and obtaining a median income. Then survey the houses and obtain a median house size to get a median $ per square foot. Then survey area rents for an approximate rental $ per square foot.
Using these metrics you can obtain a reasonable bluebook value of a median house in good condition.
When a seller wants to sell, his house compared to the median house profile and adjusted accordingly.
These metrics can be easily calculated, but it does not benefit the realtors or the sellers because it places limits on how far they can BS and ripoff the general public. The current system is nothing but a charade – let’s not play games.
That’s not an appraisal at all. An appraisal would not factor in local median income. All an appraisal is an estimate of what you could get if you sold your house. Obviously, in areas with higher incomes, this would be higher, but incomes do not factor in directly to the equation.
An appraisal would not factor in local median income
Why not? If a bank wants an appraisal and is trying to establish a rubric to determine what the median house should fetch in a geographic area – seems like median income is a great piece of information.
This appraisal in no way shape or form restricts what a buyer can pay – it just sets the stage for what a bank can safely lend.
If the buyer wants to pay more – just let him do it by saving up a nice down payment. Nobody will tell him he cannot pay whatever he wants.
Interesting article by a “…professional in residence” at Chapman College in nearby Orange, Ca. stating that future homes will need to be bigger, not smaller to house multigenerational families. He has this to say about Irvine:
“Then, along came 2008 and the economic crisis. The plates under our feet began to shift. The mass migration to dense urban living evaporated as people stayed put and speculating in condos lost all economic logic. The shiny new urban corridor in Irvine now lined with high rise housing sits empty, with many units vacant and foreclosed. In nearby Santa Ana, twin 25-story residential towers sit eerily vacant with not a single unit sold or occupied. Central Park, a giant new urban project in Irvine that boasted dense high-rise, townhouse and mid-rise units, sits vacant behind green security fences.
He notes that 50% of the 18-24 age group is still living at home.
If you’re interested, the entire article link is:
http://www.newgeography.com/content/001245-when-granny-comes-marching-home-again-multi-generational-housing?ref=patrick.net
I’ve noticed that in older blue collar neighborhoods like Garden Grove and Downey they are tearing down the small 3 bedroom, 1500sq ft homes and building monstrosities. You can’t do that in Irvine because the lot sizes are too small.
Look at the other houses in this neighborhood on street view:
http://www.redfin.com/CA/Garden-Grove/11742-Old-Fashion-Way-92840/home/3389313
This was rebuilt as the market started to tank. I’d guess there won’t be more of these in the area until prices stabilize, if then. If starter castles become the norm on zero lot line properties and Irvine footprints can’t accomodate them, what happens to Irvine home prices? Obviously, a long way away but food for thought.
Here’s one in Downey
http://www.redfin.com/CA/Downey/11015-Pomering-Rd-90241/home/7398792
and one in Pico Rivera
http://www.redfin.com/CA/Pico-Rivera/7754-Manzanar-Ave-90660/home/7446928
This is the future of California real estate.
Some developers get this. For example Standard Pacific is offering 7 bedroom homes with an optional Wok kitchen instead of a walk-in pantry.
http://www.threeoaks-walnut.com/windcroftR3.php
That’s a very interesting house. Talk about aiming at a particular ethnic demographic.
Only have a moment, but I wanna say this real quick.
Resale Home Price … $1,258,000
Are people stupid? WTF is this!
People, the world has changed … this despite all the unsustainable intervention from the govt. Any temporary bubble success the govt does have does have propping up these quasi markets, will be snuffed out once they are forced to remove the training wheels.
And do not be in a illusion that govt. want to prop up home prices artificially. They will let it go as soon as they see job market coming back below 7% unemployment. They are smart and they know that current rates are not sustainable. So CA will be the last state to burst after interest rates start raising. Somewhere in 2011 my guess…..
JMO … I don’t think the govt is going to voluntarily allow housing prices to decline.
“Most of the sales here are 20% and above…”
For now.
The truth is that nobody really knows where the market is heading. I personally feel that all the indicators show things in the RE future won’t be good, but I may be wrong as who knows what financial schemes our trusty leaders will come up with.
I am putting my money where my mouth is, however. I’m not buying into this scheme, at least not yet. Part of my money is ‘wasted’ on rent and the little bit that’s left over gets stashed away in secure investments.
I agree with Irvine2008. 2011 seems most likely. I am predicting that it will coincide with new makework New Deal work programs as the government starts riding in to help save the working man and in effect create massive inflation. A war on unemployment.
its not going to happen in 2011, 2012 is an important election year…they will do everything to either make a mess in 2010 and try to make a show of fixing it in 2012 or kick the can…
Like I said – I think we are going to see them start giving out makework jobs using “New Deal” economics.
They will then claim that their policies have created jobs and reduced unemployment. The masses will swoon with delight. As unemployment starts to drop, everyone will go back into spending mode and then we are going to see major inflation in this country on goods and services.
Personally, I think USA is way behind the rest of the world in public transportation. We desperately need to invest in railway systems, etc to reduce our consumption of gasoline. I hope they will at least create jobs in productive long lasting sectors such as this, but I’m guessing they will hold off until gas goes to 10.00$ and we have anarchy and blood flowing in the streets of our major population centers.
I drive a nice 2009 Honda Fit Sport T5 with Navi.
I don’t need nor want stinkin’ public transportation.
I get 35mpg at 80mph on the freeway.
Better than you… so YOU start taking the bus.
What this country needs is people making better choices in their cars. No need for SUV, CUVs, big schlongs in wheels to show your status. A minivan (Honda Odyssey) is fine for family jaunts, but for going around you don;t need anything heavier than 2700 lbs.
Buy Honda.
spend some time in Japan where people have the choice of more cool cars than we’ll ever see here, and the best public transit in the world. A network of fast efficient rail systems enhances your quality of life immeasurably. Trust me – going on a ski trip via a 6 hr bullet train ride to the north where a gal comes around and serves draft beer and snacks every half hour sure beats a 6 hr drive to Mammoth.
It’s this stupid, myopic attitude that is responsible for the waste, environmental degradation, and unsustainability of the exurbia mentality. You sound exactly like the stereotypical NIMBY Irvinite. Disgusting.
(That would be in reference to tonye’s comment–not OC_Boston_Bay’s. The comment nesting makes it look odd.)
Easy now… name calling, character assumption and generalizations isn’t much better.
LOL! Good for you Tonye!
I hope you are ready to send your children off to future war in the middle east to defend your pig headed view gasoline entitlement. Why not enlist yourself? We need warriors like you to defend our oil rights. Put your money where your sense of entitlement is and enlist next week.
We have 3 years to go in Afghanistan. You don’t mind taking a bullet or and IED explosion do you? Oh, you would rather people who live in places like North Carolina do it instead. I see how it is.
Keep tuned to your hero Rush Limbaugh.
I don’t need nor want stinkin’ public transportation.
You are a pig. OINK OINK! I am sorry that the educational system failed you. What a tragedy.
Joseph –
Don’t confuse dittoheads like Tonye with words like “myopic”.
irvine_home_owner, I was responding to a comment, not a person. Nothing character-assuming or name-calling about it. Rejecting public transportation on the whole is a myopic and stupid position. You may be hung up on the word “stupid”, but think of it in comparison to the actions of a serial HELOC-er: stupid. Attitudes expressed through comments and behaviors can be stupid. Let’s not get overly-sensitive here.
My sensibilities are intact.
But as you said yourself, the medium and structure here make it difficult to discern exactly what you are saying.
I find discussion is better served when you explain your position rather than use generalizations. I was more concerned about “stereotypical NIMBY Irvinite” than “stupid”. It’s not like Irvine is the only place in the world that doesn’t have a great public transportation system.
Many urban areas in SoCal are like that… unlike New York or other densely packed cities… the logistics don’t work as well.
Where are you from? Let me lob some generalizations over at you and maybe you’ll understand my response. Disgusting.
(I was kidding about the “disgusting” but you can see how that single ending word can turn the mood of my entire post)
2010 is almost as important an election year; possibily more so. I personally believe Obama’s chances of re-election in 2012 are probably 90% or better-a combination of an extremely weak Republican field (Palin? Romney? Huckabee? Gingrich? Pawlenty? Jidal? This is really the best you can do?), the fact that he’s a very good campaigner, and the general incumbency advantage guarantees that, no matter what the public thinks of his job performance. Worst case scenerio for Obama is a Bush 2004-like squeaker, which is still a win. A more likely scenerio is a Reagan-style trouncing.
However, if the economy doesn’t improve double quick like, 2010 might be a bloodbath in both houses of Congress for the Democrats. 2011 is probably the best time politically to make neccessary but unpopular decisions, IMHO.
I think a Palin – Quayle ticket would make a great REPUBLICAN ticket!
Palin is an embarassment, but she is a good representative cross-section of stupid Americans so I can see why she has such a large following of Dittoheads wanking themselves over her.
I thought it will be the war on private small business employment and shifting to govt program employment which will include bubble producers.
American have been saving less and less until the so called safety net has ripped. It will be too late for some, but the next generation will be more like the rest of the world (saving and not relying on an uncle support them).
1998 pricing?
What was the cost of a gallon of gas back then? I doubt we’ll see many things return to 1998 pricing.
The most liquid market in the world, the Dow Industrial Average dropped to 1998 prices.
But did it stay there?
So I guess AZDave has to time it just right so his future home closes escrow before the price bounces back to reality (however skewed our current reality must be).
It doesn’t matter if it stayed there. If local real estate prices do drop to 1998 levels, they wouldn’t stay there. Remember, we’re talking about the DOW industrial average … an extremely liquid market. Besides, I think the DOW could retest those 1998 lows in the future. Also, if you adjust the DOW to inflation, it likely is still trading at 1998 prices.
For Irvine, I think 1998 + about 35% inflation would make sense. Still, I don’t think we’re going back there in Irvine because, as some had frequently pointed out, there’s still a latent effect in the way people view homeownership in & around Irvine.
That will all change as rates rise and prices resume descent. When prices rise for a decade it takes a long time for the buzz to wear off – it will.
For Irvine, I think 1998 + about 35% inflation would make sense
Why 35%?
I have seen people kick around the number “3% inflation per year” as though this number is some kind of universal constant like PI = 3.1425…..
First of all, anyone who has watched Dr. Bartlett’s presentation on world population will instantly be reminded of his great quote that mankind’s biggest failure is his inability to understand the exponential curve.
The 3% inflation is nothing but a historical average. You could have years of low inflation followed by a few years of high inflation that average out to be 3% in the long run.
So just taking 3% inflation per year and projecting ad infinitum out into the future does not work. Remember the exponential curve! Exponential growth is not sustainable!
well, you are right. Markets, overshoot and undershot. You are also correct about exponential growth not being sustainable, for example, coming from behind, China’s (or India’s) economy can grow at 10% or more per year while that would be unheard of here. I’m talking about what makes sense based on the more recent inflation data (the last 20 years or so), and wage increase averages. Sure, there was high inflation in late 70’s and early 80’s (and later higher interest rates to go along). I, obviously do not have a crystal ball and I could easily be wrong but here in Irvine & the OC there’s demand, possibly due to population increases that exceed the average U.S. population growth. I do hope you are right though because I’m hoping to buy sometimes and 1998 levels sound so (too??) good.
The one variable is jobs. Irvine and the rest of OC is mostly service sector. So many jobs in marketing/advertising/business development/project management ect are gone for good. Doctors are seeing their compensation legislated down big time, and without clients law fiorms won’t have business. In the new economy unless you make something, develop something, or sell something you are a cost center, and a target.
I’m one of those cost centers (even though I do design/make something) and so I was cut – – not completely but my work hours were cut almost by half. And so, for now, I’ve relegated to looking to buy a condo, and quite possibly not in Irvine.
Get your facts straight dude. House is a depreciating asset. There has been no drastic growth of earnings from 2000 to 2009. I would say 10-15% and since everything else have gone up housing cannot go up. If the essentials like gas, milk groceries food have gone up more than 10-15% then what does it tell you. Something has to give in and that is housing. That’s why u see shrinking houses. People want to spend lesser on their homes.
The 2003-2006 period was an anomaly, this is the new reality. Houses will fall to 1998-2000 levels once interest rates start going up.
Dude! This is my opinion. House is a depreciating asse but land is often an appreciating asset. I don’t need to get any facts straight when saying my opinion. What facts did you use to support YOUR opinion? Take it or leave it. JMHO.
In areas of lower demand, prices have already fallen to that level in some cases. In places like Irvine, which are in high demand due to schools, low crime, and short commutes, this is unlikely. It’s a flight to quality, in an sense.
Flight to quality is not the same thing as heightened demand. Irvine had great schools, low crime, and short commutes ten years ago. So whatever the reasons why (so far) Irvine prices have declined less than other areas has nothing to do with those qualities.
Geotpf –
The banks are going to take care of it. People cannot spend what they cannot “borrow”. It is outside of the people’s control.
That is true, but people are still apparently able to borrow enough money to buy houses like this for a $.8-1 million, because houses like this routinuely sell for $.8-1 million.
Your market is different Geotpf – but not for the reasons that you may think.
Imagine a Pyramid scheme:
******************* First time buyer non-Irvine
************* First time move up into Irvine
****** Second time move up into Irvine
** I am so smart to live in Irvine
Your market is different because it has so few first time buyers. Your version of the first time buyer is really just a first time move up from non-Irvine so the majority of your sales are actually from people coming in with some form of equity extraction from a previous sale. None of your buyers are coming in with cash that they saved up the hard way – it’s just bubble money working its way through the system.
This is going to start popping in the next year. I predict 2011 is going to be particularly vicious for your sellers with all the froth left over from the 2010 blood bath.
My first -and only so far- house was (is) in Irvine, I must be a genius.
My next house, though, will be a yurt in Outer Mongolia. But it will be a McYurt with AC and a walk in wok kitchen.
There… I’m an Einstein.
The reason that I selected 1998 pricing is not arbitrary. Several reasons drive my reasoning.
If you study price history charts (available on Zillow) you will see that 1998 is where the price trends start to begin their bubble ascents like this:
http://www.crackthecode.us/images/8SatinwoodWayChartCall.jpg
If you look at history, collapsing bubbles look symmetric when plotted over time. So I believe 1998 levels will mark the end.
The other reason is that incomes have stagnated for the last 10 years. Cost of living has increased which erodes any inflation gains housing would have made.
History also suggests that prices can swing lower than their pre bubble state so I can’t say 1998 is the bottom, but it is close enough for me to be comfortable coming off of the fence.
This is all assuming that the government does not cause hyperinflation with its policies. If we get that then all bets are off.
AZDavidPhx: 2 questions:
1. Not sure what you mean by the increase in cost of living has eroded any inflation gains housing would have made? The increase in the cost of living is inflation so… isn’t that like saying inflation has eroded any gains inflation would have made?
2.And are you saying that if a house cost $200k in 1998, you’re predicting that that house will again cost $200k somewhere on the downslope?
I don’t think cost of living is the same as inflation. Gas costs about twice as much now, electricity, medical insurance, cell phone service, cable service, etc. All of these costs of living have increased. However, you college graduates are still getting salaried about the same amounts as those who graduated in 1998.
The government publishes a consumer price index – but you cannot trust it because their formula is open ended for them to tweak any way they want in order to engineer a number that looks good to the public (Keyword “Hedonic Adjustments”).
How can the prices of houses increase when their operating costs have increased while incomes have not? Like when gasoline prices increase, Hummer H2 loses value.
And are you saying that if a house cost $200k in 1998, you’re predicting that that house will again cost $200k somewhere on the downslope
Yes. Assuming that the government doesn’t cause hyperinflation. If that happens, I will be investing every last dollar that I have in wheelbarrows.
In Phoenix we are sitting at about 2002 pricing right now. There are still tons of foreclosures on the way; 1998 is a guarantee as far as I am concerned at this point if the government does not mess it all up.
I don’t think cost of living is the same as inflation.
The dictionary disagrees with you.
inflation /?nfl’e???n/
1. Inflation is a general increase in the prices of goods and services in a country.
http://www.google.com/dictionary?aq=f&langpair=en|en&hl=en&q=inflation&safe=active
Geotpf –
Don’t play games. That’s a child’s definition for consumption by the masses.
For the grownup definition, take a stroll on over to:
http://recession.org/library/inflation
Inflation Definition & Causes
“Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices.”
“Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money.”
Note the BOLD text, Geotpf. Stop misusing the the term.
Sorry but I think Geotpf is right on this one. You’re trying to square money supply as inflation.
It’s kind of irrelevant anyway.
Nobody wants to have their assets grow in line with “quantity of money and credit”. Who cares about that? People want their assets to grow at least in line with what it costs to sustain and maintain a certain lifestyle. And in California for a lot of folks housing is half of all expenses to sustain a lifestyle.
Inflation already happened. If I can’t get a 2400-sq feet house without paying 4000$/month, then that affects my lifestyle way more than the fact my milkk costs me 1.99$ instead o f0.99$.
Sorry but I think Geotpf is right on this one
I suggest you do more reading then. Or just stick your head in the sand – I don’t care.
http://www.clevelandfed.org/research/commentary/2008/0608.cfm
“Inflation Is a Misused Word
Inflation is one of the most misused words in economics. As economist Michael Bryan carefully explained a few years back, the word originally described currency and money, not prices. It referred to a rise in the amount of paper currency in circulation relative to the precious metal (or money) that backed it. Later, the term referred to the amount of money in circulation relative to the amount actually needed for trade. Today, however, people typically use the word to refer a rise in some set of prices or even in a single price, with no necessary connection to money at all. So now we have countless types of inflation: oil-price inflation, healthcare inflation, wage inflation. The unfortunate outcome of this evolution is that the public no longer distinguishes between two very different types of price pressure.”
David: If you’re going to choose the definition of inflation that suits your purposes, you can’t fault Bernanke or the treasury or the govt for choosing their own definitions of economic events to suit their purposes.
Inflation is an increase in the cost (price) of goods and services as measured in money (actually economists use “utils” as a unit of measure but in our world it’s money). Credit is a form of money.
I am not choosing the definition that suits my purposes. That is what Geotpf did.
I simply stated that cost of living is not the same as inflation. Geotpf said that the dictionary disagreed with me and in doing so he misused the term.
I difference is subtle, but important. Plus when people quote dictionaries, I typically interpret it as a “smart ass” remark which was met with the same.
I fully agree with you that when I make the statement “We are going to see inflation” – we intuitively interpret that in the form of rising prices.
My point is that cost of living can change due to other factors other than an expansion of the money supply. Each time the oil cabal decides to increase or decrease production – our cost of living is affected. Doesn’t have anything to do with how much money is currently in circulation at the time. A hurricane comes in and takes out Florida and everyone’s insurance premiums go up the next year – not because of inflation.
That was the entire point. Cost of Living does not equal inflation. Not that inflation does not cause rising prices.
Queue the pointless discussion about technical details, sprinkled with random and easy-going insults at whoever says otherwise, in typical AzDavidPhx fashion. Never gets old. You have so much to teach, but it never gets through.
“The other reason is that incomes have stagnated for the last 10 years. Cost of living has increased which erodes any inflation gains housing would have made.”
You know I could have sworn you weren’t really making all sorts of pointed differences about what inflation means there. I probably can’t read, it certainly looks like you’re mixing up cost of living, incomes and inflation right there.
Feel free to insert your regular random 2-page rant about how it all makes sense for some obscure reason and how you don’t give a shit what people think, followed by how this all relates to American vices of all sorts, right here (P.S. You can rest well assured I won’t be reading it.):
||
||
||
||
||
\/
The other reason is that incomes have stagnated for the last 10 years. Cost of living has increased which erodes any inflation gains housing would have made.
I’m going to try to explain my point again.
Suppose I have a fixed income that has not increased in 10 years.
During this 10 years my cost of living has increased because gas is now more expensive, my electric bill has doubled, my insurance premiums have gone up, etc. Things that can be easily explained such as oil cartels halting production, increased taxes on corporate profits, CEO greed, etc.
I now have higher monthly expenses 10 years later but eeking by on the same income. If I had to buy my house all over again, I would have less money to spend on it on a monthly basis. So how can I justify a 3% house “inflation” appreciation gain when I have less money to spend? I can’t justify it. Which is why I say that the house cannot appreciate 3% because my increased cost of living and stagnant wage consumed the money that would otherwise have been available to pay the 3% inflation gain. This is why I believe that “inflation gains” on housing can be eroded by increased cost of living expenses.
Geotpf traded the first barb by tersely and pompously quoting a dictionary to mis-characterize what I had said which was that cost of living is not the same thing as inflation (which I still stand by my original statement that it is NOT).
When you stated that he was right, I mistook your endorsement of his opinion as an endorsement of his sarcasm which is why I reacted. I apologize for that.
Another way I would explain it is using a truth table:
IF “inflation” THEN “higher cost of living”
This is an instance of a simple “Implication” where statement A being true implies that statement B is true as well. “IF A THEN B”.
IF “I am 2 years old” THEN “I am younger than a 3 year old”. We would conclude that the overall statement is true since a 2 year old is without question younger than a 3 year old.
You would agree with me that it is not logically equivalent then to take this statement and re-arrange it into IF B THEN A and expect the same to hold true:
IF “I am younger than a 3 year old” THEN “I am two years old”
The above statement is obviously a false (I could be 1 year old and and still be younger than a 3 year old).
This is the rule that Geotpf violated with his dictionary quote.
This is my point. Cost of living is not the same as inflation because increased cost of living is a consequence of inflation. inflation is not a consequence of increased cost of living.
IF “Money in circulation increased” THEN “My cost of living goes up”
If we agree the above statement is true then we know that it is not logically equivalent to switch the pieces and conclude that:
IF “My cost of living goes up” THEN “Money in circulation was increased” – This is false statement! My cost of living can go up even if the money supply is not expanded. Maybe a hurricane wiped out my insurance company and they are desperate to raise lost funds by sticking it to existing policy holders.
Wages stagnated when adjusted for inflation. In real terms, they rose but just not fast enough to beat inflation. So all of the huffing and puffing above was a waste of time. I hope you don’t give out financial advice AZDave.
1998 + 30% is very realistic. 1998 isn’t impossible but it would have to be areas that were almost entirely speculators selling to speculators.
I hope you don’t give out financial advice AZDave.
Don’t worry – I don’t give financial advice. I am just a common sense peddler.
1998 + 30% is just a random number you pulled out of your rear end.
Keep praying to your inflation God.
It’s based on the recent average of 3% inflation per year for 10 years (but not compounded). It didn’t compound to give a quick number. I also didn’t add in 2009 since we had deflation this year.
I just did a quick search online and it showed that between 1998 – 2008, the cumulative inflation was 34.4%.
$500,000 in 1998 is $670,747.00 today.
It’s based on the recent average of 3% inflation per year for 10 years
Flawed thinking. You just think that 3% can go on indefinitely? Forever? You are assuming that exponential growth is a sustainable measure.
AzDavid: Good criticism. Much easier than constructive comments.
well, inflation is not growth. You could have 3% inflation without having organic growth. In effect the economic output is constant but valued more only due to inflation. And that inflation can go on year after year (exponentially ??) as it has since 1776.
Sure it can. As long as human innovation increases at an exponential rate (which it has been and accelerating).
“It can’t continue exponentially..” sounds like a sound argument but it’s flawed thinking when you look at the pace of human innovation for the past 100 years. It’s astonishing to see how quickly and how far we’ve come and how much further we have to go.
Within 30 years we will have atom-level control and it will give us super-materials, supercomputers 10000x more powerful than the ones we have today, incredible medical advances, etc.
Exponential growth is sustainable if you take off your bear glasses. And with all due respect (seriously), bear thinking keeps you in a bunker: the optimists rule the world, own the future, tend to grab the wealth, and generally, live happier lives.
I was a serious bear for the past 4 years, renting and waiting after selling at the peak. It was the right time to be a bear. Now that everyone is a bear, it’s the right time to be an optimist and prep for the inevitable turnaround because if you’re ready, you can ride the next wave up.
Good or bad in 2010… here’s to creating a great future for yourself…!!
Every old track house is unique. Each will age differently and are locate on a different lot. All 1970 Ford are unique. All old but with different mileage and replacement parts. With a transparent market, they are price according to set standards. Too bad RE wasn’t that transparent.