Today we take a detailed look at rental parity in the neighborhoods of Irvine, California.
Irvine Home Address … 52 GRAY DOVE Irvine, CA 92618
Resale Home Price …… $1,099,900
There's more besides joyrides
A little house in the countryside
Understand, learn to demand,
Compromise, and sometimes lie
Get the balance right, get the balance right
Depeche Mode — Get the Balance Right
Patrick Killelea asked me not to post the links from Patrick.net, so if you were looking for that content, please go to his site.
Today, I am going to take a look at rental parity in Irvine, at least a snapshot of rental parity based on 2009 data. I was going to run this post during the week, but since the data has not been updated for more than a year, I moved it to Saturday. It is still interesting data. I wish it were updated more frequently.
I believe this data was compiled in 2009 from available data sources some of which may have only had data available from earlier years. In short, the data is probably not far off as not much has changed in incomes, rents, or prices since early 2009.
North Irvine
Some neighborhoods in Irvine have higher median home prices because they are inhabited by high income borrowers. The chart below shows the median income data for the northern half of Irvine. It doesn't show Woodbury, and the data on west Irvine is sketchy. That being said, the neighborhoods with the highest incomes are the most desirable on the map.
Based on the income numbers above and housing cost data, the map below shows the percentage of income people in each area are putting toward housing.
The debt-to-income ratios shown above all make the same assumption about equity and mortgage balances. In the real world, some of these neighborhoods will sustain a higher DTI, not because borrowers are borrowing more, but because the owners used a larger than standard down payment.
The map above shows the cost of ownership for renters in the same area. Comparing the two maps above reveals which Villages and neighborhoods in north Irvine are at or near rental parity and which ones are well above.
One of the first things I noticed was that El Camino Real was very close to rental parity. Since this is one of the least desirable neighborhoods in Irvine, it is not surprising that the aggregate lowest premiums would be found there.
The other item that stands out is the huge premium people are paying to own in Northwood. Don't simply dismiss this as Northwood is desirable. The desirability premium would be reflected in both rents and resale prices. There is a premium for rental in this area, but there is an enormous premium for ownership that defies explanation — other than kool aid intoxication and the belief that these prices are going even higher.
South Irvine
Some have speculated that when you factor out the college students and renters that the actual incomes in Irvine are much higher. The statistics below do not support that contention. The Irvine median income is around $90K, and if you look at the income distribution below, you see some above and some below just as you should. If you get down adjacent to the university, incomes fall off a cliff where the college students impact the results. Whatever impact college students have on the median income is isolated to this area.
Outside the loop in Woodbridge and University Park are both areas where the bulk of the housing stock is trading near rental parity. Inside Woodbridge Loop and in the south-central premium area of University Park as well as Turtle Rock is still inflated.
If you would like to check out this site in more detail, the maps can be found at H+T Affordability Index.
Million Dollar Mortgage
The owner of today's featured property paid $1,410,500. He used a $1,000,000 first mortgage, a $269,404 HELOC and a $141,096 down payment. For this he obtained his unique tract home that surely was going to hold its value in the bad times and appreciate like crazy when times are good. We all know how that is turning out. This is another 25%+ loss on a high-end property.
Foreclosure Record
Recording Date: 11/30/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/19/2010
Document Type: Notice of Default
Irvine Home Address … 52 GRAY DOVE Irvine, CA 92618 
Resale Home Price … $1,099,900
Home Purchase Price … $1,410,500
Home Purchase Date …. 12/26/06
Net Gain (Loss) ………. $(376,594)
Percent Change ………. -26.7%
Annual Appreciation … -6.1%
Cost of Ownership
————————————————-
$1,099,900 ………. Asking Price
$219,980 ………. 20% Down Conventional
4.78% …………… Mortgage Interest Rate
$879,920 ………. 30-Year Mortgage
$222,075 ………. Income Requirement
$4,606 ………. Monthly Mortgage Payment
$953 ………. Property Tax
$475 ………. Special Taxes and Levies (Mello Roos)
$183 ………. Homeowners Insurance
$175 ………. Homeowners Association Fees
============================================ 
$6,393 ………. Monthly Cash Outlays
-$1248 ………. Tax Savings (% of Interest and Property Tax)
-$1101 ………. Equity Hidden in Payment
$401 ………. Lost Income to Down Payment (net of taxes)
$137 ………. Maintenance and Replacement Reserves
============================================
$4,582 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$10,999 ………. Furnishing and Move In @1%
$10,999 ………. Closing Costs @1%
$8,799 ………… Interest Points @1% of Loan
$219,980 ………. Down Payment
============================================
$250,777 ………. Total Cash Costs
$70,200 ………… Emergency Cash Reserves
============================================
$320,977 ………. Total Savings Needed
Property Details for 52 GRAY DOVE Irvine, CA 92618
——————————————————————————
Beds:: 4
Baths:: 5
Sq. Ft.:: 3383
$0,325
Lot Size:: 5,222 Sq. Ft.
Property Type:: Residential, Single Family
Style:: Two Level, Contemporary
Year Built:: 2006
Community:: Portola Springs
County:: Orange
MLS#:: P761552
Source:: CARETS
——————————————————————————
Gorgeous home in Portola Springs. This lovely home features 4 Bedrooms, one on the main floor with a separate entrance. All bedrooms have private baths. A nice size bonus room upstairs. Gracious Master suite w/ Office. Beautiful hardwood floors downstairs. Formal living room and dining room. Chefs kitchen w/ granite counter tops, vegetable sink in center island, glass front cabinets, breakfast bar and nook. Adjacent to the kitchen is a spacious family room w/ fireplace. Good size rear yard w/ upgraded hardscape and young softscape, great place to entertain family and friends. Additional features include a 3 car garage, mud room, upstairs laundry room, plantation shutters, recessed lighting, and crown molding throughout.
Let’s play master and servant….
Who’s the master? Bankers.
Who’s the servant? Hmmmm……
Interesting Data from redfin:
Northwood median income $100,400 with over 4000 households earning over $150,000.
Turtle Rock median income $152,800, westpark median income $102,928, shady canyon $130,219.
Northwood Pointe is a good one, over 85% home owners with a median income of $152,281. Approximately 1000 out of the 8000 households earn over $200,000.
whats also interesting is the amount of tax advantaged strategies that can be employed by those with means and those with desires to do so.
I am by no means an expert but everything from various forms of investment to creating your own insurance company/trust fund will lower reported taxable income by significant amounts. (in the case of setting up insurance, up to 1M a year can be tax deferred indefinitely if you own a business.)
That begs the question…what are these income numbers based off of? Census information? (self reported). Tax information (AGI is greatly impacted by tax strategy).
True, the higher income folks definitely earn more than what is reported.
Also the following studies are very different:
Study of what current residents can afford.
Study of the market balance of what available buyers can afford versus available homes.
The study of what current residents can afford is interesting and worth while but it won’t set market prices. Available buyers includes people moving to Irvine from other parts of California, the US, and the world. There is no perfect study but evaluating the data of all realities is worth while. IRs study here is worth while though incomplete.
Higher earners who are wage earners don’t have many tax strategies available. The doctors, lawyers, and dentists are only able to take advantage of the many write-offs available to businesses if they receive their income through a business – i.e. they have to open their own shops or somehow get their employer to pay their company, rather than themselves.
“Northwood Pointe is a good one, over 85% home owners with a median income of $152,281.”
If the median is the price point where 50% of the values are larger and 50% of the values are smaller, how do you get 85% of the home owners being above the median?
Your enthusiasm for the math has overlooked an important point. Nobody disputes there are some high wage earners in Irvine. The income statistics prove that. The problem is that for the 4000 homeowners that can afford a $600,000 to $800,000 based on their incomes, there are 10,000 houses priced or valued at supportable income levels and above.
“Approximately 1000 out of the 8000 households earn over $200,000.”
Ask yourself how many $1,000,000+ homes can be supported by the 1,000 people with sufficient income (200K+) to make payments on the note. A quick glance around Northwood will reveal more than 1,000 homes currently valued above $1M (go to Zillow and see for yourself.)
Well first of all if you read my post I never drew any conclusions. All I did was state the facts from a credible source. You then went on to invent my oppinion.
Anywho, let’s move on to the conclusion you make:
“Ask yourself how many $1,000,000+ homes can be supported by the 1,000 people with sufficient income (200K+) to make payments on the note”
What? These 1000 homeowners don’t need to support or justify prices.
How many homes sell in this neighborhood in a month? For arguments sake let’s say it’s 10 per month (someone can go find the actual number if they care enough).
This means 120 homes sell pet year, and 600 homes sells every 5 years.
The market is determined over a 5 year period by 600 available buyers. Most of these buyers are coming from another neighborhood, state or country. The market has nothing to do with the 1000 home owners that bought 5, 10, or 15 years ago.
Again I believe your analysis here is worth while. All it’s analyzing is what current residents can afford. This doesn’t set the market. Included in the market are a third of Irvine home owners who dont have a mortgage. The market is set by the 100 people buying homes in this neighborhood in 2011. What type of incomes is the neighborhood drawing?
Prices are indeed set at the margin.
That is why Ladera, where so much of e higher end properties were completed close to the peak of the bubble has imploded.
A further look at Northwood Point shows 7 homes over $1M on the market.
In the past few weeks 2 homes over $1M sold at $1.85M and $1.65M. So my numbers might need to be revised. There may be 30-50 homes sold in this neighborhood for over $1M per year. That’s only 250 new buyers every 5 years. In an entire decade only 500 new buyers are required.
By 85% homeowners, I meant only 15% rental units. The areas with low numbers of rental units are a good insight into homeowner incomes.
I’m disappointed that Patrick asked you to stop posting his links. Reading the weekly news HERE was my Saturday morning ritual.
Just out of spite, I won’t go to his site to do so.
Seems like a jerky thing for him to do.
Oh, and isn’t a bit ironic that he is just posting links to other content, but you can’t repost his links?
Patrick is just worried that others will start copying his links and people will stop going to his site. I suggested to him that I give his links added life because there are people like you that will come here after his links are old and still click on them. The links are still his, and they still bear his referral stamp. He preferred me not use them, so I won’t.
“One of the first things I notices”
It sounds like you have been living in Irvine too long.
Thanks, I fixed it. I must have “notices” on the brain after Friday’s story about NODs.
You forgot to mention that the older areas of Irvine like Woodbridge, Turtle Rock and University Park are filled with older people who don’t have high income anymore since they are retired. This is especially true for people who have several million dollars in treasuries and CDs who have seen their income dive off a cliff in the past five years due to low interest rates.
Contrary to the the majority of the posts, these people have not HELOCed their houses into oblivion and have either very low or no mortgages.
The effect you have described is tangible, but difficult to measure. I sincerely hope that most of them didn’t HELOC themselves to death. The daily post here shows there are plenty of borrowers that did.
I have a friend making $50,000/year but afford to buy a $560,000 house in Quailcreek because his parents chipped in $300,000 for his downpayment, otherwise, he could not afford to live in Irvine
“[Very] soon, every American will be required to register their biological property in a National system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will affect our security as a chargeback for our fiat paper currency. Every American will be forced to register or suffer not being able to work and earn a living. They will be our chattel, and we will hold the security interest over them forever, by operation of the law merchant under the scheme of secured transactions. Americans, by unknowingly or unwittingly delivering the bills of lading to us will be rendered bankrupt and insolvent, forever to remain economic slaves through taxation, secured by their pledges. They will be stripped of their rights and given a commercial value designed to make us a profit and they will be non the wiser, for not one man in a million could ever figure our plans and, if by accident one or two would figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debt to the registrants in the form of benefits and privileges. This will inevitably reap to us huge profits beyond our wildest expectations and leave every American a contributor or to this fraud which we will call “Social Insurance.” Without realizing it, every American will insure us for any loss we may incur and in this manner; every American will unknowingly be our servant, however begrudgingly. The people will become helpless and without any hope for their redemption and, we will employ the high office of the President of our dummy corporation to foment this plot against America.”
Edward Mandell House had this to say in a private meeting with Woodrow Wilson (President) [1913-1921]
Some interesting points from PR on what are the newcomers’ medium household incomes. Any study on those pay sales? I think pay scales of new arrivials in the last 3 years have been going down, not up. Rent at >50% of income is risky for both the renter and the landlord.
One factor to look at are trends in cost per sq. ft. Most report medium, but what about 25% and 75% tie. In most areas where the house cost is building and not land, the cost per sq ft is near about the same around town. But when the land cost is equal or greater than construction cost, how does it break down into the neighorhood, good, bad and ugly. “I gots to know.” …line from “Dirty Harry” movie.
Melissa data provides some good income statistics available on the web. Unfortunately the figures only run through 2007.
Median income in the 92603 in 2007 was close to $220k. This is by far the highest in Irvine.
You write that the Irvine median income is around $90K.
I reply with the news item that a sell-off in Africa, AFK, -4.5%, Emerging Market Financials, EMFN, -3.2%, Emerging Markets, EEM, -3.1%, and Ford, -13.4, commenced a bear market in world stocks, VT, on January 28, 2011.
Most stocks have been monetized by the announcement of QE 2, where as gold stocks were decapitalized by the US Federal reserve purchase of debt; but today, with a market shift lower, that changed with gold and gold stocks moving higher; how long the gold stocks will move higher with gold is any one’s guess.
An epic investment and economic sea change has occurred: the Emerging Market Small Caps, EWX, are leading the way down in a debt deflationary sell-off at the hands of the FX currency traders.
The five part Elliott Wave governs investments and the economy as a whole. The Emerging Market Financials, EMFN, entered an Elliott Wave 3 Down on January 1, 2011, and entered an Elliott Wave 3 of 3 Down on January 28, 2011. The third wave is the most sweeping and dramatic of all; it is the wave that builds wealth on the way up and destroys wealth on the way down. The world has passed from the age of leverage, economic expansion and prosperity … and into the age of deleveraging, economic contraction and austerity.
With a falling median income level, and a rising 10 year US Government Note Interest Rate, real estate sales will become quite rare.