Cassandra — ABBA
Pity Cassandra that no one believed you
When I first started writing for the Irvine Housing Blog in February of 2007, I wrote a series of posts culminating in Predictions for the Irvine Housing Market. I updated that post in I Was Wrong, Its Worse... When I first suggested that prices might crash, there was a certain amount of incredulity in the very idea of a dramatic price crash. In order to float the idea with a minimum of being called crazy, I wrote a post titled, What if Prices Dropped to Fundamental Values. In that post, I presented a series of projections for the Orange County median home price. I put it out there as a hypothetical because I was afraid predicting a catastrophic crash would cost me credibility with readers. Even this hypothetical was shocking to many (read the comments and you will see).
Click for larger image
How crazy did people think I was?
“Let’s not get too carried away. First of all we probably should not
really make economic prediction more than one year ahead. As
IrvineRenter said, this is just an “what if” analysis. It makes an
interesting game for bubble sitters but IMO we should not read too much
into it.”
“I am not agreeing that the blow off downturn will look as drastic.”
“I have been following all your posts for quite sometime. I think your price dropping theory is way too unrealistic.” I hate to tell you who said that one…
“After tweaking your model, it seems that prices would need to fall
30-35% to return to fundemental values, not 50%. Considering the
factors above, it seems likely that once prices started falling by
significant margin that the pool of sellers would start to dry up.
Only folks that absolutely were forced to sell would consider it, which
would look more like a long, slow leak than a collapse.”
“I just don’t agree it will be as bad as you think. I *hope* you’re right … but I just don’t see it.”
“If I had to guess, I’d say 15-20% overall drop in housing values over the next 2-3 years max.”
“While I agree wait for a couple of years (may be two) is a good idea, but I just can’t image the prices will gone down so much.”
“Your long-term forecast appreciation is just pure speculation.”
Sorry Cassandra I misunderstood
Now the last day is dawning
Some of us wanted but none of us would
Listen to words of warning
{book}
So how did I do with my crystal ball? Well, DataQuick just released some updated numbers, and with the help of Jon Lansner and Lee in Irvine who has been tracking DataQuick numbers, I can provide an update:
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As you can see (consistent with the theme of I Was Wrong, Its Worse...) I was too conservative in with my dire predictions. At the time, I was predicting an unprecedented drop in prices. I did feel I was being conservative despite the conventional insanity of the day. I did not believe the median could drop so quickly. Perhaps I should have stood behind my predictions in How Bad Can Bad Get?
Today’s featured property is a short sale in Woodbury. Irvine is a bit behind the rest of OC with its price drops, but with the ARM Problem still facing us, a problem 60 minutes just discussed at length, it certainly looks as if prices will continue to fall…
Asking Price: $499,000
Income Requirement: $124,750
Downpayment Needed: $99,800
Monthly Equity Burn: $4,158
Purchase Price: $663,000
Purchase Date: 7/27/2006
Address: 66 Chantilly, Irvine, CA 92620
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,275 |
| $/Sq. Ft.: | $391 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2005 |
| Stories: | 2 |
| Floor: | 1 |
| Area: | Woodbury |
| County: | Orange |
| MLS#: | S557014 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
wow,absolutely gorgeous,plan 3 Cortile,Detached home w/3 bedrooms, 2
1/2 bathrooms,upgraded floorings,gorgeous hardwood floorings in living
room and staircase and hall way and decorative ceramic tiles in kitchen
and dining room.Spacious gourmet kitchen,window plantation
shutters,nice sized patio excellent for entertaining,Media
built-in.This property is gorgeous.And enjoy all the ammenities of
resort like living of Woodbury.
This place must be gorgeous. It is mentioned 3 times in that brief description.
ammenities?
This property was purchased on 7/27/2006 for $663,000. The owners used a $530,400 first mortgage, a $132,600 second mortgage, and a $0 downpayment. It didn’t go up in value, so now they are dumping it as a short sale.
If this property sells for its asking price, and if a 6% commission is paid, the total loss will be $193,940.
This property is being offered for 25% off its 2006 purchase price.
What is it worth?
I remember seeing one of these units for rent at $2,500 not long ago. Assuming that is market rent, this property is worth around $400,000.
{book}
Down in the street they’re all singing and shouting
Staying alive though the city is dead
Hiding their shame behind hollow laughter
While you are crying alone on your bed
Pity Cassandra that no one believed you
But then again you were lost from the start
Now we must suffer and sell our secrets
Bargain, playing smart, aching in our hearts
Sorry Cassandra I misunderstood
Now the last day is dawning
Some of us wanted but none of us would
Listen to words of warning
But on the darkest of nights
Nobody knew how to fight
And we were caught in our sleep
Sorry Cassandra I didn’t believe
You really had the power
I only saw it as dreams you would weave
Until the final hour
Cassandra — ABBA
Unable to enlarge 2nd chart, 1st charts okay.
Since ABBA is one of my favorites, how about Money, Money, Money. That would fit the greed of the get rich quick flipper mentality.
When asked how long I would be leasing by the owner of my house, I replied about 2 to 4 years. That appears to be bracketed by the red and yellow lines on your second chart.
Nobody would have believed that you could buy gas again at $1.65. Nobody believes this condo will eventually sell for less than $300,000, even in the “resort community” of Woodbury.
I fixed the second chart, you should be able to enlarge it now.
I have used Money, Money, Money already. Great song.
https://www.irvinehousingblog.com/blog/comments/deer-wood-you-spend-the-house-please/
IrvineRenter, I think that your book should have included an appendix containing the spiritual teachings of Master Bkshopr that lay the foundation for the sacred house prices in Irvine.
http://www.crackthecode.us/images/master_bkshopr.jpg
“Hot Asian market are often over-inflated than most other non-Asian location”
“One can not predict the wealth of Asians.”
“Asian will do anything to have their kids attend a good school at any price.”
“Lexus, Honda, and Toyota are vehicles that Asians drive”
“When It come to buying a home no one really can predict the bags of cash that Asian buyers bring to the purchase”
“While the rest of us are waiting for the price to tumble the Asian buyers are coming out in flocks with the cash that they hid under the mattress.”
“ I also think the design of the upcoming homes will be designed especially to target the Asian buyers like having good Feng Shui and good Wok “chi”.”
“Asians do not drive the home price up. The sellers increase the selling price knowing the Asian population will only buy in certain areas of high demands”
“Asians cluster around excellent schools and good Asian cusines and markets. The Irvine Company knows that”
“Asians will not buy a house that is cheap due to a divorce, loss of a business, foreclosure, and especially death. A house that has negative feng shui has been the cause of the mis-fortune to the inhabitants.”
“Asian American or immigrants are taught by their parents or relative that one must own their own home”
“There is much to learn about this culture and I have done very well knowing this “ancient chinese secret”.“
Wow Bkshopr’s generalizations on Asian are off. I would know. I’m Asian.
Bkshopr said that he/she is Asian as well. I think perhaps the mistake is in assuming that we are all the same within our own ethnic groups.
It doesn’t matter if he is Asian or not. Racism is racism.
Imagine if somebody said “Nobody can predict the wealth of the Jews”
I am not Asian, so I guess Master Bkshopr would say that I am much less likely to want my children to attend a good school or that I am far less likely to enjoy Asian cuisine. Makes perfect sense.
Understanding one’s customer base is mktg 101.
Here is an excerpt of a PBS interview with Magic Johnson regarding some of the differences in his movie theater and Starbucks franchises.
I guess Magic Johnson must be racist toward black people?
Johnson: Well, you made a good point. Why? Because I know the customer base and I address their needs. First of all, I put in spicier hot dogs and sausages; I put hot sauce at our concession stand –
Tavis: Ah, that’s the answer, hot sauce. (Laughs)
Johnson: I brought the flavors, drinks, so your grape and red, yeah. (Laughter) Red’s a flavor, I love it, yeah, yeah.
Johnson: Exactly. I put peppers down there, if they want to enjoy a pepper. So I brought the things that we like and our customer base enjoyed it. And the same thing with Starbucks – I took out the elevator music; I put in R&B. We had the desserts; we put in pound cake, sock-it-to-me cake, things that resonate with my customer base.
acpme –
Sorry but you are going to have to highlight the part where “black people” are mentioned. I am not seeing it.
here’s a link to the entire interview. i forgot that you’re not from LA and didn’t bother to provide the context. magic johnson has built a business empire putting franchises in inner city communities of LA that other franchisees or corp brand wouldn’t touch. he succeeds by catering his franchises (Starbucks, AMC theaters, 24 fitness) to the local community, predominately african americans, instead of following the generic template.
http://www.pbs.org/kcet/tavissmiley/archive/200811/20081117_johnson.html
Johnson: And then I said, “Where am I going to invest my money?” I said, “I’ve got to go back where I grew up, in urban America,” because at that time, there was no quality retailers in our community. And that’s how I got really started with the Magic Johnson Theaters.
Tavis: So here’s a question – if the White man and the White men who you were consulting, if they had decided that this was not a good investment, and obviously a lot of White folk had decided that they weren’t going to invest in the inner city at that time –
Johnson: And corporations as well.
Tavis: And corporations, exactly – same thing, White men.
Johnson: Yeah. (Laughter)
Tavis: The point is if so many people had decided that it wasn’t the place to invest, why did you think, then, that you could do good and do well at the same time?
Johnson: Well, let’s look at the numbers. This is very easy. Right now, the minority community is growing seven times that of the general population. Our spending power in the next couple of years will be over $2 trillion. That’s a lot of disposable income just sitting there.
When I did my research, we were the number one group of people at that time who went to the movies, because we’re priced out of the Laker games, the Dodger games, and so on. And so our form of entertainment usually is going to hear somebody perform – a singer or something – or going to the movies.
And so we were going, but we were driving 45 minutes outside our community. So now what I said, man, if they make up over 35 percent of all the moviegoers, why don’t I put it right into our community? And so it was just a great thing, and sure enough we hit a home run right here in South Central L.A., the first Magic Johnson Theater.
OK, I see where you are going and you are making up a straw man. I have no problem with restaurants that cater to Asian cuisine. I have a problem with statements like
“Asians drive car x” (Highly unlikely that all do)
“Asians want good schools” (Everybody does)
“Asians have unpredicted wealth” (Who has predictable wealth?)
I am talking about specific statements and you are going off topic, trying to make it look like I have a problem with an Asian restaurant in an Asian community.
Come on.
AZDave, if you can refute Bkshopr’s generalizations and provide better reasons for why Irvine has a significantly higher Asian population (particularly Chinese and Korean, and I think Bkshopr was thinking more about one or both of those groups than other Asian ethnicities), 36%, vs. the O.C. average of 16%, go right ahead.
Why do I have to explain why 36% of people in Irvine are Asian? It seems like we are going off track here.
Because the Asian culture generalizations that Bkshopr made were made to explain that (and the resulting effect on Irvine home prices). If you think his observations are racist hogwash, please feel free to let us know the real causal factors — I’m sure we’re all ears.
I am actually not disagreeing with you 100%. I can see your point of view on several of the statements made. However, there are others that are not as easily explained such as:
“One can not predict the wealth of Asians.“
“Asian will do anything to have their kids attend a good school at any price.“
“Lexus, Honda, and Toyota are vehicles that Asians drive“
“When It come to buying a home no one really can predict the bags of cash that Asian buyers bring to the purchase“
“While the rest of us are waiting for the price to tumble the Asian buyers are coming out in flocks with the cash that they hid under the mattress.“
“Asians will not buy a house that is cheap due to a divorce, loss of a business, foreclosure, and especially death. A house that has negative feng shui has been the cause of the mis-fortune to the inhabitants.“
“Asian American or immigrants are taught by their parents or relative that one must own their own home“
You can’t take statements like these and say that they have anything to do with Irvine being 36% Asian. Your argument does not wash (as a whole).
Already responded to these elsewhere in the thread.
I used to discount stereotypes, preferring to wave them off as a by-product of the mind’s desire to categorize things and people into the smallest number of classes.
But that was before I read today’s realtor prose. How can anyone write so poorly and earn a middle-class income? Enough: ALL (all all all all ALL) realtors are demi-brained bimbos too stupid to become cheer leaders. They are all alike.
I agree with you 100%, HydroCarbon. People who couldn’t make it in school become realtards, then they start acting like their high commission-based income was due to their talent or genius. They’ve also largely neglected to learn about basic economics, and the only things realtards have in abundance are greed, self-esteem, and a sense of entitlement to their sales commission.
Except for IR2.
Yes…true, true.
Where did these come from? Are these past quotes from other posters?
https://www.irvinehousingblog.com/blog/comments/what-if-prices-dropped-to-fundamental-values/
You can mock it all you want AZ, and people can pound their chest that these statements are not PC — but BKshpr is right on with many of these observations. I am not saying that the Asian population is going to single handedly support the bubble prices — but the desireability Irvine holds for much of the Asian population will definitely be a factor in sustaining Irvine well above some similar neighboring communities such as AV, MV, Ladera…etc. Believe me, AZ, for a lot of Asian families in SoCal there is absolutely no substitute for Irvine. They simply will not consider living anywhere else. BK knows what he is talking about.
Thanks for the heads up, CK – I am in the process of getting a Lexus, Toyota, and Honda dealership set up in Irvine. Someone is going to need to sell these people the vehicles that they are genetically pre-disposed to driving.
Well, at least you didn’t dispute my point –that’s a start. Maybe we are coming to a common ground? Come on over and visit some time, AZ. We could get a couple of those little counter thingys and go hang out at the Costco parking and tally up the ratio of Toyota to Ford. And then you can tell me what the ratio is in Scottsdale. Would be a blast!
LOL. Right on, CK. Truth-based generalization != racism. A lot of what Bkshopr said is indisputable, including common-sense things like the desirability for Asians of living near a large number of high-quality Asian restaurants and markets. To one of AZDavidPhx’s points, yes, such a thing is desirable for non-Asians who are particular fans of Asian cuisine as well, but that doesn’t at all negate Bkshopr’s point.
About the most that can be said is that Bkshopr made the generalizations sound too universal by saying just “Asians” rather than “most Asians” or “most Chinese and Koreans”, or whatever would be appropriate for each item.
You never know when AZ might appear.
Hot Costco market are often over-inflated than most other non-Costo location. One can not predict the Davids of AZPhx.
Come on now. “Truth-based generalization” sounds like a codeword for “stereotype”. If what you are saying is not all stereotypes are racism then I agree with you.
There are plenty of non-Asians who would do whatever it takes to put their kids in a good school. There are plenty of Asians who do not drive Lexus, Toyota, whatever. There are plenty of non-Asians who do not blow all of their money.
If you want to say that there is a large Asian community then that is fine – but to start popping off about how Asian culture is more suited to one geographic area is nonsense.
Like I said before, go back and re-read the quotes, but replace every instance of “Asian” with “Jews”. Clearly such statements are socially unacceptable on the latter, but there is a grey area for some of you on the former.
The Asian population is 30% of Irvine according to the 2000 census, certainly higher now. Asians are approximately 10% of California, and make up 4% of neighboring Newport Beach. The top high school in Irvine, University High, is 47% Asian.
It’s always dangerous to deal with racial stereotypes and generalizations, but anyone who lives in or near Irvine understands the special relationship between Irvine, Irvine schools and Asian-Americans. You can see it in the fact that BK does very well for himself helping builders, developers and merchants take advantage of those demographic trends.
Not all racial observations are racist.
Hey, stop making fun of Bkshopr’s broken English — you’re being racist!
I also demand that you take down your “We Make You Ah Sleep Ah Like A Baby” Chinese stereotype dialogue from yesterday’s comments.
%-P
I do agree with you that generalizations are dangerous.
I have re-read those statements a number of times now trying to see if maybe I am misunderstanding something, but I can’t seem to find a way to read into it that does not annoy me.
I suppose we just have to agree to disagree.
I’m not making fun of the broken English. I was just pointing out how dumb the statements were as you could pretty much insert whatever words you want and they would make just as much sense. I didn’t even think about broken english until you mentioned it.
Nice try. The sleep ah like a baby had nothing to do with Chinese. It was just a “wiseguy” type of speech. You are the one that turned it ethnic.
‘If you want to say that there is a large Asian community then that is fine – but to start popping off about how Asian culture is more suited to one geographic area is nonsense.’
He wasn’t talking about “geographic area”. He was talking about amenities that draw Asians (particularly Chinese and Koreans) to Irvine moreso than they’re drawn to other surrounding areas.
‘Like I said before, go back and re-read the quotes, but replace every instance of “Asian” with “Jews”. Clearly such statements are socially unacceptable on the latter, but there is a grey area for some of you on the former.’
Well, the whole Holocaust thing does lend one towards treading more lightly when making sweeping generalizations about the Jews. One factor is that I think that Irvine has a higher population of insular immigrants and recent descendants of immigrants than is the case in the general Jewish population in 2008. http://www.ocregister.com/ocregister/news/local/irvine/article_2250979.php shows that over 33% of the Irvine population is foreign born, with about 77% of those people having been born in Asia.
Therefore, I’d say the kind of generalizations that Bkshopr was making have a higher likelihood of holding true for a given Asian individual in Irvine.
All that being said, I would have no problem with a list of Jewish cultural norms and how they might affect real estate decisions in a particular area.
‘I didn’t even think about broken english until you mentioned it.’
Pfft. Not buying it. You couldn’t parody what he was saying and insert new words without noting the unique grammatical structure.
I certainly believe you weren’t doing it to be racist, though, which was kind of the point of my sarcastic accusation.
‘Nice try. The sleep ah like a baby had nothing to do with Chinese. It was just a “wiseguy” type of speech. You are the one that turned it ethnic.’
Okay, that was really poorly done, then. 🙂 Maybe if you’d said “Yeah, we make you sleep like a baby, see?” rather than “We Make You Ah Sleep Ah Like A Baby” I would have understood what you were going for. For the record, I misunderstood it to be old movie Chinese stereotype dialog when I read it yesterday, before this discussion came up.
He was talking about amenities that draw Asians (particularly Chinese and Koreans) to Irvine moreso than they’re drawn to other surrounding areas
That might be partially true, but you can’t use that to defend statements like:
“One can not predict the wealth of Asians.“
“Asian will do anything to have their kids attend a good school at any price.“
“Lexus, Honda, and Toyota are vehicles that Asians drive“
“When It come to buying a home no one really can predict the bags of cash that Asian buyers bring to the purchase“
“While the rest of us are waiting for the price to tumble the Asian buyers are coming out in flocks with the cash that they hid under the mattress.“
“Asians will not buy a house that is cheap due to a divorce, loss of a business, foreclosure, and especially death. A house that has negative feng shui has been the cause of the mis-fortune to the inhabitants.“
“Asian American or immigrants are taught by their parents or relative that one must own their own home“
The unpredictable wealth / bags of cash thing was related to different patterns of cash gifts from family members, and certainly matches my experience / understanding. Presumably the “hid under the mattress” thing is a humorous exaggeration, as there are lots of Asian banks in Irvine, like Shinhan, China Trust, etc.
The good schools thing is certainly an Irvine amenity.
Lots of Americans prefer Asian cars, but Asians even moreso, on average, due to their heritage (and due to the low maintenance = frugality for non-home purchases thing that Bkshopr was pointing out).
That bad feng shui thing is certainly interesting — most non-Chinese who don’t believe in feng shui wouldn’t have any problem with buying a house that became available due to one of those issues, other than death in the house.
And if certain cultures stress home ownership more than others, I don’t see how you have a problem with that either.
> the vehicles that they are genetically pre-disposed to driving
I think it’s pretty clear Bkshopr is talking about cultural biases, not genes.
It was a joke – an obviously ridiculous exaggeration. The point is: to say all Asians drive a particular model of car is just as dumb as saying all Asians have a genetic pre-disposition to like a particular model of car.
I will make a bald prediction today, I dont care if Asians, Aliens (ET and family) or any other group wants to live in Irvine, FUNDAMENTALS DO MATTER. Irvine will take a major hit even worse than most here anticipate.
I was optimistic (like Nano) at 200 per sf, now I have to say with all the kaka hitting the fan, I now doubt if it stops at that.
Depressing eh, 😆
The cultural vs. genetic differentiation is important here. If he really were claiming genetic predisposition on any of this stuff, I’d be right there with you calling the pronouncements dumb.
And I’ve already acknowledged that it would have been better if Bkshopr had used a phrase like “Most Asians in Irvine” rather than just “Asians”. Do you *really* believe he intended his statements to be pronouncements about ALL Asians, though…??
Here are AZDavidPhx’s made-for-tv-revisions:
“Desirable markets are often over-inflated than most other non-desirable locations“
“One can not predict the wealth of any particular homebuyer.“
“Many people will do anything to have their kids attend a good school at any price.“
“Lexus, Honda, and Toyota are vehicles that a lot of people drive“
“When It come to buying a home no one really can predict the bags of cash that any particular buyers bring to the purchase“
“While the rest of us are waiting for the price to tumble some buyers are coming out in flocks with the cash that they hid under the mattress.“
“ I also think the design of the upcoming homes will be influenced by Asian culture like having good Feng Shui and good Wok “chi”.“
“Buyers do not drive the home price up. The sellers increase the selling price knowing the many people will only buy in certain areas of high demands“
“People cluster around excellent schools and good cusines and markets. The Irvine Company knows that“
“Not all people will not buy a house that is cheap due to a divorce, loss of a business, foreclosure, and especially death. A house that has negative feng shui has been the cause of the mis-fortune to the inhabitants.“
“Lots of people are taught by their parents or relative that one must own their own home“
Again, Bkshopr was listing some cultural aspects that make many Asians *particularly* drawn to living in Irvine (and thus the effect that could have on Irvine home prices going forward).
The fact that you can restate these substituting “a lot of people” or “not all people” proves nothing.
“BK knows what he is talking about.”
Yes, he does. He has earned the respect of most on this blog. Actually, that was why his comment jumped out at me from the earlier post.
While his “I think your price dropping theory is way too unrealistic” comment, as with his Asian generalizations, may have been somewhat overstated, it’s clear he was only disputing it in the context of Asian enclaves. I think the points he put forth no doubt help explain part of why Irvine is falling more slowly than other areas, and why it may not bottom as hard.
Understanding one’s customer base is mktg 101.
Here is an excerpt of a PBS interview with Magic Johnson regarding some of the differences in his movie theater and Starbucks franchises.
I guess Magic Johnson must be racist toward black people?
Johnson: Well, you made a good point. Why? Because I know the customer base and I address their needs. First of all, I put in spicier hot dogs and sausages; I put hot sauce at our concession stand –
Tavis: Ah, that’s the answer, hot sauce. (Laughs)
Johnson: I brought the flavors, drinks, so your grape and red, yeah. (Laughter) Red’s a flavor, I love it, yeah, yeah.
Johnson: Exactly. I put peppers down there, if they want to enjoy a pepper. So I brought the things that we like and our customer base enjoyed it. And the same thing with Starbucks – I took out the elevator music; I put in R&B. We had the desserts; we put in pound cake, sock-it-to-me cake, things that resonate with my customer base.
Why did even the most bearish people still underestimate the strength of this collapse?
JMHO ~ Most of us bears never had a thorough understanding of what was actually happening in the mortgage market. We had little idea how all this money was ending up in the hands of people that would not be capable of repaying it. We knew it was unsustainable and stupid, but most of us didn’t know “how and why”. We were using previous models and past events to conclude what we thought was gonna happen. But history is less applicable this time, and for good reason … the securitization of the mortgage industry had morphed into a massive enigma. People that worked in the mortgage industry didn’t have any idea how this was working … even some of the management were clueless. I remember the first time I read the words, “collateralize debt obligation” in the WSJ. I asked a high-level management guy for a fairly large lender in Irvine, what a CDO was … he had never heard of the term. The only thing he knew, was these loans were being sold to investors.
What’s the moral of the story: Home prices will be influenced the most, by available financing. It’s that simple.
I’m a megabear, and I didn’t underestimate this crash. There’s still a long way ago – as I mentioned in a previous comment a few minutes ago, the IR’s predictions above assume a median income. That median income can be a big variable in this current economic environment.
I predict median incomes are going to continue to decrease for several years as wage growth stagnates and job losses continue to mount.
Someone should hurry up, we need a new bubble!
The point I was trying to make about incomes is that incomes may not increase and may continue to decrease. Lenders are returning to a model where they’re forced to factor in borrower’s ability to repay a loan, which is directly affected by incomes.
So yes, Lee in Irvine, home prices are directly affected by available financing. Available financing is now dependent on borrower’s income again.
I almost forgot about the down payment – does *anyone* have a 20% down payment at current prices? With all the outstanding consumer debt, my guess is not many people have that.
As Alice Cooper says:
“We still got a long way to go
We all got a long way to go “
Believe me, you’re speaking to the converted. I am almost certain, we’re gonna see income declines in most (if not all) of Orange County’s white collar zip codes.
I also believe rents are going down for single family housing.
JMHO ~ Since the turn of the century, most economic growth in The OC, was a result of leverage that is now evaporating. Once you form this opinion, it’s easy to connect the dots to Armageddon.
one word: DENIAL
My forecasts are still pretty close to 18 months ago. I have a matrix. No recession, 42% off peak end of 2009 (case shiller). Bad recession 55% off peak. Modest sensitivity to interest rates.
We are in a bad recession, already 36% off peak, and the most recent CS numbers are for September. With a 3% per month drop in prices we will almost exactly nail the 55% decline by the end of 2009.
When I told people this in 2006 and 2007, they were baffled. They knew I did finance research for a living, and that I had done careful calculations which I was willing to walk them through. I got a number of people to agree prices would drop, but almost none of them thought it would drop quickly. When you adjust for inflation, the rate of rise in asset bubbles is typically close to the rate of decline in the bust. The bust has dropped somewhat faster than prices rose in the bubble, but it was an OK approximation for my models.
“The bust has dropped somewhat faster than prices rose in the bubble, but it was an OK approximation for my models.”
The rate of decline has surprised me. Even the most bearish acknowledged that house prices are “sticky” on the way down. This drop has required no vaseline…
I see where you’re going with price comparisons, however there’s one major variable that your chart doesn’t fully account for: median income.
I’m less optimistic than most, but what if the median income assumed for 2014 is exaggerated? What happens if wages stagnate, assuming people can stay employed?
2014 may seem like a long way off, and we all could only hope that our economic situation improves by then. However we’ve never experienced any of these economic conditions before and there are so many unknowns.
Check out the post: How Bad Could Bad Get?
https://www.irvinehousingblog.com/blog/comments/how-bad-could-bad-get/
I projected a recession with declining wages and rents.
I think the real reason that IrvineRenter and others underestimated the severity of the crash isn’t attributable to not understanding the fundamental situation. If anyone here has a solid understanding of the necessary skills to formulate a fundamental valuation model for home prices, it’s IrvineRenter. IrvineRenter has also been gracious enough to explain to others how a fundamental valuation of real estate is prescribed and to desribe it both qualitatively (for the laymen) and quantitatively (for the math geeks) so that everyone can also learn and understand.
No the real reason for IrvineRenter erring on the side of timidity is more due to the emotional bias that was prevalent in southern California. I think a lot of us forget how much mockery was made of those who weren’t smoking the koolaid and didn’t agree with the ‘real estate always goes up’ mantra.
I remember feeling strong envy and depression two years ago when everyone else we knew was buying real estate and my wife and I were still renting. My brother bought a place, by parents bought a place, my brother’s best friend, a good friend of mine, co-workers, you name it they were into real estate. We’d go home to my parents for the annual Christmas party and everyone would be gaga over someone’s new real estate purchase. Such a deep immersion can generate feelings of self doubt and denial. After all others also have good educations and solid understanding of the situation. My wife and I are the plain engineers in our group, both my brother and his wife’s brother hold the MBAs. If anything, they should know more about money than I do. Yet they ended up buying real estate and asking me when it was going to be my turn (this coming from a ‘younger brother’ buying first).
I don’t think posters realize how much flack AZDavidPhx got for his dire valuations. Now it’s considered standard and he’s a bit of a minor celebrity. The people who argued with him and called him crazy (the only one that I can think of at the moment is ipoplaya) don’t post anymore. Take it for what it’s worth, but two years ago it was difficult for anyone to go against the grain and state that RE was going to half in value, much less state the possibility of it declining.
Dejnov.
You can smoke kool aid? Is that like freebasing?
LOL. 😆
It’s a little “apples and oranges” to compare IrvineRenter and David. IrvineRenter has published daily on this blog for over a year and written a book, putting his name and reputation on the line to make predictions others thought were crazy. David is a commenter on the blog who is best known for his creative photoshopping. IrvineRenter has done all the heavy lifting here. In fact, folks like graphrix, ipoplaya, IrvineRealtor, Lee in Irvine, MalibuRenter and awgee have all contributed much more substance to the discussion than David has.
David gets flack because his analysis is superficial and he attacks straw-men, not actual arguments. A number of us just gave up after the nth time David asserted that [Orange County property] wasn’t worth [$X] because [Arizona property] was worth [$Y]. He doesn’t do that as much anymore, to his credit.
By the way, ipoplaya’s beef with David wasn’t that prices were or weren’t declining, but that houses would sell TODAY at prices David claimed were impossible. I would venture to guess that ipo was right more often than David was.
And at the risk of exposing a dirty little secret, all of those people who locked heads with David are still active on IHB if you know where to look for them. But David knows this, we’ve seen him lurking.
It’s true, I am a popular whipping boy on the forums.
I would certainly hope that I am known more for saying things that a lot of people silently agree with than just throwing together a campy 5 minute photoshop message.
I do not live in your area so I cannot relate to you on the details of your streets, malls, etc. So I can see why you would think my analysis is superficial from that point of view. Nevertheless, inflated house prices are a problem all over the U.S including Phoenix. Irvine is a blip on the radar. It just happens to be special because this blog talks about the housing bubble and the authors promote open dialog in a much more free-form format.
You are claiming that I attack straw men and in the same breath you say the following:
David asserted that [Orange County property] wasn’t worth [$X] because [Arizona property] was worth [$Y].
I have never one time stated that AZ real-estate has a causal relationship to OC real-estate. I have mentioned AZ real-estate just as an example as to how ridiculous it looks to someone who does not live there. I have always used your local incomes to try to find a reason for your higher prices, but the numbers do not add up. You guys are only interested in taking my AZ association and re-stating it in a way that can easily be shot down and it’s the same mantra with you over and over again as you have been beating that straw man for ages now without coming up with something new. Very hypocritical of you, Skek.
I think you are correct that my contributions pale in comparison to those by IrvineRenter, graphrix, ipoplaya, IrvineRealtor, Lee in Irvine, MalibuRenter and awgee.
as some one above said, not only was Ipo smoking Koolaid, he was inhaling, 😆
this is probably my longest post ever.
I have been reading this blog even prior to Irvinerenter, my impression of AZDavids comments was that Irvine is not that special (which I agree), having lived in Irive, I know many people in Irvine in different fields including accountng,self employed,engineers, MDs, Lawyers, teachers. in the small circle of people that I know, 90% extended way beyond what they should have bought, no matter what Job they have, they extended x10.
Doesnt matter what income you have, if you overextend your finances, you will bend over at some point. plain and simple.
In most of the professions above, people dont make much more in Irvine than phoenix, the differential does not support Irvine prices, Irvine is a MIDDLE CLASS neighborhood.
Irvine renter had a post many moons ago where at some point morg payment in Irvine was equal or less than rent in the early 90s. it happens and will happen again.
Dejnove summarized it well, people have been conditioned to think housing prices only go up, to suggest 50% drop (even more now with current state of the economy ) was taking a big risk. I will admit that at some point I avoided saying 50 % drops so people wont 5150 me (put me in psych hosp), instead I would say when morg=rent and add I currently pay x, morg would be 2x (and let them think about it)…. 😆
I think your analysis is superficial because it typically consists of broad generalities and conclusory statements. I actually enjoy out of state posters and I don’t hold that against you, except when you play the tired old “sacred Irvine land” card.
On that point, you call me a hypocrite based on this comment:
“I have never one time stated that AZ real-estate has a causal relationship to OC real-estate. I have mentioned AZ real-estate just as an example as to how ridiculous it looks to someone who does not live there.”
Taking you at your word, isn’t that internally inconsistent? In other words, if you weren’t implying any relationship between AZ and OC real estate (it doesn’t have to be causal), then your statement makes as much sense as “That home in Irvine isn’t worth more than $200k because the price of soy beans in Iowa is $3 a pound.”
The only way your comments make sense is if you are implying a relationship.
I rarely comment on the blog anymore even though I read IR daily, but there’s lots of discussions going on in the Forums, including many that have nothing to do with Orange County and Irvine. At the risk of incurring graph’s wrath, you should delurk and join the conversation. The Forums are much more conducive to an ongoing debate, and you always seem to be itching for one. You might even learn to respect BK the way the rest of us have.
What say ye, David, put up or shut up?
I disagree with your logic here:
“…but with the ARM Problem still facing us, a problem 60 minutes just discussed at length, it certainly looks as if prices will continue to fall…”
The “next wave” of ARM resets (Option ARMs) will not be a very big issue with 1-year treasury rates below 0.5%. The rates on these Option ARMs resets to the trailing 12 month average of the 1-year treasury plus ~300 basis points. Yes, these people have to start paying principle after the initial five years is up, but at less than 4% interest it won’t be a huge shock.
I still think prices fall another 20% or more, but the ARM argument is no longer valid. IMO, the struggling economy (job losses) begins to affect property values instead of property values affecting the economy.
“the ARM argument is no longer valid”
IMO, this is the latest mantra of denial for beleaguered homedebtors.
The FED is certainly doing everything it can to make the ARM problem less severe. They know that the light at the end of the tunnel is a freight train coming. Best case, they simply stretch out the problem and prolong the misery. Even if they refinance some of these people, there are still far too many with Option ARMs, liar loans, and other forms of toxic financing were they cannot afford the payments at near-zero interest rates. Plus, you are still going to see people walk who are underwater.
Are you the same guy who advised Mr. Paulson back in March 2007 that subprime was largely contained?
“but at less than 4% interest it won’t be a huge shock. ”
LOL! How long do you think interest rates will stay at 4%?
WallST is already prepping for hyperinflation.
I think our deflation party will be over in March. Housing will continue to tank, but get ready for higher gas prices again.
No David, I’m the guy who was pounding the table back in early 2006, one of the first to recognize and profit from the bubble.
And “idrnkurmlkshk” you have no idea what you’re talking about. Hyperinflation is dead, where have you been the last few months? Hyperinflation was dependent on the BRIC economies decoupling from developed economies and continuing double digit economic growth, thus driving up commodity prices and inflation. That bubble burst. Commodities are done. You have the dollar tanking over the last few weeks and oil/copper/corn tanking as well.
Rates will stay low for years. And yes people will still walk away from underwater loans but that has nothing to do with resets, since the payment shock is gone. The interest rates on these ARMs that reset in 2009 will actually fall!
And I’m a renter (by choice) in Huntington Beach, not a beleaguered homedebtor. I’m also an analyst who helps manage billions in fixed income securities (for those who don’t know, that means I have experience with interest rates)
I’m also an analyst who helps manage billions in fixed income securities (for those who don’t know, that means I have experience with interest rates
Lots of people have experience with interest rates and many of them have been wrong. Many of them are part of the reason we are in trouble. Are you one of them?
I would not want you to be responsible for investing my money.
I make a simple, factually-based argument and you conclude I’m incompetent. Make an argument yourself, like calculating the payment shock on a 2005 Option ARM. And that chart that shows resets spiking again in 2009 is at least 2 years old, and does not factor in ANY refinancings that have taken place since then. And given the huge push by the mortgage industry to get you homedebtors back into traditional fixed-rate mortgages (at the exact wrong time, I knew/love it), there has been a lot of refis since Credit Suisse published that chart back in early 2007.
Get a clue, write something useful.
Are you claiming that the majority of OptionARM holders are now in 30 year fixed and easily making the new higher payments? It does not make sense since most of these people took OptionARM because they could not afford under the 30 year fixed model. To say that all of these borrowers can now suddenly afford it and have since refinanced sounds foolish.
I have no idea whether you are imcompetent or not. All I know is that you are exhibiting signs of “the bull” to come here and proclaim that the OptionARM problem is contained. It sounds extremely suspicious if not outright deceptive.
Thanks for the reduction in hostility. What I am saying is that some Option ARM holders have successfully refinanced or already been foreclosed on, and that the chart (which I happily showed to everyone back in Feb 2007 when it first surfaced) is out of date. I had my parents, brother, and Uncle all get Option ARMs in 2004-2005, and all 3 have refinanced since then.
Moreover, IF interest rates stay where they are, one cannot argue the payment shock will force refinancing and thus foreclosure if refinancing is unavailable due to high LTV or DTI levels. That argument was perfect in late 2007 when short-term interest rates were high, but ARM resets are no longer AS BIG AN ISSUE as they once were.
I think it is funny/sad that everyone rushed back to traditional fixed-rate mortgages over the last year when an “exotic” 1/1 ARM would have kicked butt in this low short-term rate environment which will inevitably continue for the next couple years until the global economy recovers.
What’s that old saying, there are two types of people in this world, those who think they know where interest rates are headed and everyone else.
The moral is no-one knows where interest rates are headed, although the smart money is on low rates for at least the next 2-5 years depending on how bad the recession gets.
The downside for you youngins is that bad old Mr. Volker, the man who blasted interest rates up to 18% in the late 70’s to “stop” inflation will be making a return appearance at the Fed.
If you bought in 2005 with an option-arm, and tried to refi in 2007 you would not qualify. No lender would refi you into a loan with >> 100% LTV, and most of those properties would have seen significant price decline, so you would not have been able to get a appraisal high enough to justify the new loan. To get the refi, you’d have to make up the difference in lost equity and at that point, the homedebtor would walk instead.
Nor does it show the recasts on option arms that really flatten out that second spike and push it to the 2009-2010 period. Nor does it show the minority of of people who have long since sold nor the ocean who have long since given up and walked away.
Keep in mind to that by the fed’s estimates over 40% of all ALT A loans have already reset.
Bottom line, I dont think the ALT A problem lies in the future – the problem is here, the problem is now. Thus, there is no serious “future” ALT A problem to deal with.
Wow, I didn’t know ALL Option ARM loans were 100% financing ($0 down). Of the 3 Option ARM holders I know (who have since refi’d), my parents refi’d their home in 2004, extracted equity, but kept the LTV below 80%, my brother purchased a new home and put 20% down (borrowed from my folks) and used an Option ARM for the rest, and my uncle also put 20% down. So wow, MOST BUT NOT ALL people will have trouble refinancing the Option ARMs.
Think about things first eh…
Did you think? A loan did not have to be 100% financing for it to have a > 100% LTV ratio after 2 years. You could have put 20% down, as a few of the properties IrvineRenter has profiled, but the appraisal value, based on comps could easily be below the amount of the original 80% mortgage. My in-laws neighbor’s 80% first mortgage is 180k higher than their current asking price and their home has been on the market for a year. If you bought in Miami 2 years ago, your appraised price would be around 35% lower than the original price, easily wiping out a 20% DP without any neg-am (why would you be using neg-am unless you had to?). Just 1 year ago in Miami would put you down 25%. Prices there probably have another 20% to fall, so where does that leave the 15000 buyers of homes and condos from 2007? Even the bearish Tilson estimated that 30% of alt-a & option arm loans will be fine.
Do the Traders know that you are “helping to manage the fixed income securities” as an Analyst? They must be very grateful for your help.
The Traders affect the trade on my recommendation. Do you think Analysts just analyze for the hell of it?
Yes, and I know many BSD’s would agree.
Bond Trading is high stakes gambling, pure and simple. Hundreds of people owe millions of dollars in their earnings to Volcker’s decision to let rates float. How ironic that he is back in the picture again despite all of the lightly regulated high-risk risk taking that resulted from this move.
I worked at Citi when the Solly guys were rescued and “integrated” into the bank. I know the culture. “Liar’s Poker” is a true reflection of the relative attitudes of the Traders when it comes to Analysts, Salespeople, Trainees etc.
Bond trading is driven by the dramatic assymetry between personally profiting from gains and sticking the institution (read shareholders) with the losses. It is amazing how much traders expect to keep of their profits but how unwilling they are to cover a portion of their losses from their personal account.
Peronally I think it should be illegal to bury trading desks within large institutions. Investors would be better off in trading houses were standalone instutions that investors could analyze as the gambling houses that they are. This won’t prevent future LTCMs, but will at least allow investors to understand the risk they are taking.
I am sure your focus on fixed income markets has made you an expert in the field. It is not that complicated after all. However all trading desks have access to this research. That is not how money is being made (or lost). How is PIMCO lately anyway?
I had a couple chances to work there, but I’m currently working for a smaller competitor that is performing much better.
I thought Analysts just put together working group lists?
Jason,
LOL!
Who said we were in hyper inflation? I said IT’S COMING. Just look at what the Fed is doing. Where have you been? Did you not notice how the dollar is starting to tank again? You say you know something about interest rates, but you seem to have no idea about supply and demand.
idrnkurmlkshk: You’re not as smart as you think you are.
The dollar has tanked in recent weeks, yes. The last time the dollar was weak in 2007-1H08 we saw higher inflation, interest rates and commodity prices. Yes, good job.
This time it is different, for the reasons I discussed (BRIC stands for the four largest emerging economies, Google it). BRIC growth drove commodity prices higher, creating global inflation. The weak dollar contributed to that bubble, but didn’t cause it. BRIC growth is slowing SUBSTANTIALLY, you cannot have massive inflation in a global recession. Trust me you’re 6 months too late on that argument, stop watching 60 minutes and reading the Journal, do your own research
While true we are in a deflationary period, hyperinflation is hardly dead. The government is printing money at such a massive rate that after this short term deflationary period you will see a inflationary period, unless you really believe that a near 0% feds rate has no effect. I mean do you really believe handing out money to banks for free is not going to cause inflation years from now? I know assets are imploding, but once the feds print enough money to surpass these loses you will see inflation.
my 2 cents
A logical argument, the Fed’s current policy is absolutely inflationary. But in the big picture, the global economic crisis (and resulting demand destruction) has clearly overwhelmed the Fed’s attempt to stimulate the economy. The “effective” Fed Funds Rate has been near zero for months now, and the Fed pumping money into the banks is simply filling the whole left by bad mortgages. If the banks had excess money to lend they would have already.
A agree with your logic, except that I believe the global economy is a lot worse off than current estimates (China still growing 7-8%… no way). IMHO, the global recession will dominate any inflationary stimulus for the next few years.
That is how I see it as well. Perhaps the exchange above lacked some clarification on the timeframes involved.
I think we will continue to see deflation for the next several months, perhaps even all of 2009. At some point, inflation will rise above the FED Funds rate (which is what Bernanke wants) then the economy will start to improve as the velocity of money increases. In a few years time, I don’t see how interest rates cannot rise in response to all the money we are printing, unless you believe Bernanke can shut down the printing press as soon as deflation ends (not very likely, IMO).
Besides, we are at zero interest rates, does anyone think that will go on forever?
“If the banks had excess money to lend they would have already.”
I don’t believe this is true. They are currently holding excess reserves. Of course, they probably know they have many more write-offs coming, so they may not be truly excess.
If the $600,000,000,000 they are holding in excess reserves where put into the fractional-reserve lending system, there is the potential to write almost $6 trillion in new loans.
http://globaleconomicanalysis.blogspot.com/2008/12/humpty-dumpty-on-inflation.html
http://4.bp.blogspot.com/_nSTO-vZpSgc/STY1HJ0P6TI/AAAAAAAAD6M/raKNktX8fWo/s1600-h/excess+reserves.png
Ok, fair enough, I’ve heard a lot of rumbling about the banks not loaning people and businesses money over the last year or so. Lending standards have tightened and thus rates are higher and supply is down. BUT, we should also consider that demand for money is ALSO down substantially, as people and businesses don’t want to borrow money if it costs them an arm and a leg and if their economic situation is uncertain. People are so quick to blame the banks, when it is clear that people are simply deciding to postpone purchasing new cars, remodeling their homes, and taking fancy vacations. So it’s not just supply, its demand.
0% Fed Funds can easily last a couple years without creating meaningful inflation. This economic recovery won’t occur until housing prices stabilize, which is at least 2010.
And finally, nobody knows what will happen to interest rates any more than IrvineRenter knew housing prices would fall. But obviously a little research and common sense can point you in the right direction. I’ve done the research into what drives interest rate, its the common sense that commonly gets clouded once you start focusing on past economic cycles and ignore the fact that THIS RECESSION WILL BE UNLIKE ANY OTHER.
People are still trying to borrow money. They are being denied.
Jason,
Not sure where to start. It’s not used home sales that predict the end of a recession, it’s new home sales. Used homes sales involve moving a product which already exists between two owners. Prof Leamer has some pretty convincing articles on this topic.
Regarding not loaning money, well it depends on how you look at it. There are a lot of credit lines, standbys, etc., that are not drawn on, yet. While banks have been shutting some down, many are irrevocable for a period of time. Many of them are to companies or individuals that they really wish they hadn’t extended a guarantee credit would be available.
0% Fed Funds rate and a similar t bill rate means the Fed Govt can continue to act as the world’s largest hedge fund. It also creates a lot of perverse incentives for anyone who can borrow at those rates.
I am interested in anyone’s opinion on something that might be called “the other oil inventory”. It’s not crude or gas, it’s the final products and delivery. There is a great deal of food that is being grown using fertilizer and transport that were more expensive. Plastics that were made when oil and gas were more expensive. Products delivered when gas was more expensive.
Without lowering anybody’s wages, the next round of similar food and products will be cheaper. Given production cycles, I’m guessing that effect will last 12-18 months. I have a hard time believing that deflationary effect can be overwhelmed during the 12-18 months. After that, it sure seems to me that 0% interest rates and dropping money from the sky will cause a lot of inflation.
The only way hyperinflation is coming is if the US government defaults on its debt. That could happen, but it is years away if it ever happens at all. Budget deficits do matter. Time to introduce a new top tax bracket of 50% to prevent a default from ever happening. We can’t cut government spending without making the economy worse so the only choice is to raise taxes on the people who aren’t putting their portion back into the economy.
Kirk, raise taxes on the rich? Are those the ones not “putting their portion back into the economy”? I hope this is not what you meant.
Alright I’ve got to get back to work. It’s almost mid-day on Wednesday, which means I start earning money that I actually get to keep. I live in CA so my marginal tax rate is already near 50%.
I’m in favor of a new 50% bracket (or as I like to call it, the “playa hata bracket”). I don’t really see a reason not to soak the actors, athletes, lawyers, doctors and others pulling in seven figures. I can’t imagine a significant number of those people are going to work less if confronted by a higher tax rate.
So, where would like like your 50% fed bracket to kick in? Do you think households earning $250k+ are “rich” like Obama?
My wife and I can pay our housing costs and student loans on either of our incomes. If the fed rate moved up to 50% for a good portion of our joint income, we would certainly consider working less and/or one not working (on a payroll).
He said seven figures, so I’m guessing $1mil.
Autolykos and I think alike. I think it should kick in at $1,000,000. Keep in mind that this is *taxable* income. So, the bracket would vary depending on deductions – it would always be higher than $1,000,000. I like the $1,000,000 idea simply because it can be sold to the general public without a whole lot of blowback. We need to pull in more revenue for the government and work towards a balanced budget while at the same time we need the government to spend its ass off to pull us out of this crisis. Try doing that without raising taxes. I call this the patriot bracket.
As far as high income earners not contributing their portion to the economy: This is absolutely true. The more disposable income you have, the less it is used to drive a sustainable economy. Instead, you get asinine capital flows into “investments” that make zero sense. It does not help the economy in the long run to have venture capital to start some internet company that thinks it can issue rebates so you can get TV’s and whatnot for free and simply rely on the fact that people are probably too lazy to fill out a small form that saves them thousands of dollars. Time to spend this capital on useful stuff such as roads, public transport, the power grid, health care… you know, stuff we need and the stuff that drives actual sustainable jobs.
It’s time for a trickle up economy – the only type that works.
Will be difficult to pay down ANY mortgage (even a cheap one) if you don’t have a job…
What about all the loans tied to LIBOR?
From http://www.bankrate.com/brm/ratewatch/other-indices.asp:
“The LIBOR is among the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages. This page also lists some other less-common indexes.”
I think you underestimate the problem by assuming all these ARMs are tied to 1-year treasury rates.
These cortile homes are tiny doll houses inside. 1,200 sq ft! It seems to me that their whole design comes from the delusional concept that a 2,000 sq ft home in Woodbury should cost $800k, so to make a home ‘affordable’ at $600k than it must be proportionally less. You can can’t turn around in these places without hitting a wall. The bedrooms are closets.
When capitulation finally drives 2,000 sq ft homes down to $450k (where I am waiting money in hand) than where will these Cortile doll houses wind up? Assuming we don’t see a massive immigration of hobbits from Middle Earth..
You mean asians?
No, I mean only 4ft-tall halflings would find these homes spacious inside. Asians are too big, especially Yao.
Thank you, thank you, I thought no one was going to mention the house and the “gourmet kitchen”. That is absolutely the worst designed high price kitchen I’ve seen on this blog. Nasty little condo. All the oomph was put on the outside.
I’ve been following this very interesting blog for a little over a year and I have not seen a single comment about that crook George Bailey who’s scamming the poor working class into buying instead of renting their homes. I apologize if I missed the thread but we really need to expose these S & L vultures for the crooks they are.
It really is a wonderful life, isn’t it? LOL!
The median is skewed because there’s more sales in the lower end area. This causes the median price to appear lower than where we are.
We are way down anyhow…
Just keep that in mind.
Median does not mean average.
Duh!
IF there are as many low-end sales as before, but half as many high-end sales. The median will move down even if the price of homes would be flat.
Duh!
What is your point?
There will always be a larger pool of qualified buyers for cheaper properties in any market; independent of a recession.
You suggested that the median is unreliable because it is “skewed” and not representative of “where we are”.
Perhaps you need to qualify “where we are” so I can understand the point that you are trying to make.
Here’s an example.
10 properties sold in 2008: 4 of them were $300k, 2 of them $500k, and 4 of the were $1M. Median = $500k.
8 Properties sold in 2009 (all equivalent on a Case-Shiller basis meaning a $300k home sold in 2008 still seels for $300k):
6 of them were $300k and 2 of them $500k, and 2 of the were $1M. Median = $300k.
This indicates a drop of 40%. This is not true, the mix of property sold caused the median to drop. Note that the actual value of each home satyed flat.
In the current market, there’s more sales in lower-end areas that already saw big drop in prices. This causes the median to drop more than th actual drop in home prices.
Does that make more sense?
Yes, I see what you are saying now – good explanation. I didn’t realize that you were assuming the median price of only the houses that sold.
So yes, I agree with you.
Yeah, not stated that clearly in IR’s post or in the Register one, but the DataQuick numbers are only for completed sales.
The median numbers are a bit misleading due to the increased activity at the low end. The median is artificially high when a bust first starts, and it is artificially low when it nears the end.
I agree. The other thing that could happen is, what happens when the low end foreclosure pipeline stops, and the high end properties are marked down? In these cases, the high end (even severely marked down) are still way above median. If they start moving, and if the ocean of low end foreclosures starts to dry up, you could actually see median RISE even though in actuality, “prices” for lack of a better term, are still falling.
In fact, I would not be surprised to see say a +5% jump in median towards the middle of next year. Many will proclaim that “its over” but in actuality, its just the mix of housing that changed.
Yes, we could very well see that phenomenon occur. At the very bottom of the cycle, we will see rising home prices and a falling median as the velocity at the bottom takes over, but in the interim, we could see a temporary bounce in the median while house prices are actually falling.
Could get even worse if incomes don’t rise as projected, but continue to stagnate or even drop.
Irvine Renter:
I haven’t had time to look up the cites, but I think I have been pretty vocal that you were not bearish enough in your projections. This is a different from the perma-bear-donkeys who said you were crazy for projecting an increase. I digress.
AZDavid is being particularly moronic this morning. His characterization of Bks is unfounded and unreasonable, and his critique of Jason is just stupid. My poker tournament travel partner has Bill Gross’ numbers in his auto dialer. Suffice to say Jason knows more than you, and I know more than you.
Stick to the photo shops and leave the comments to folks with a brain.
David adds a lot to this blog. No need to get personal. Put on your big boy pants and act like an adult.
And if it’s bad tech, so much the better right?
Eat me.
Stay classy, no_vaseline!
no_vaseline –
Let me know where I have strayed. I’m more than willing to hear your reasoning and even let you change my mind.
Let me know when you are done chanting slogans and have wiped the froth from your mouth.
I remember the old days when people were laid off from jobs, and there were other jobs available to go to.
Once, (this is years ago) I left a job at noon, and was sitting at the desk of the new job before the executive lunch service was completed. Ah, for the old days of living “paycheck to paycheck.” What a comfort to know I have somewhere to go every Monday morning….
I was in IT at New Century. Of course I got laid off, but I had jobs asking how soon could I start.
Now my friends out there looking are not finding new jobs so easy to come by.
Question is, just how bad will it get?
Guess I better save my pennies and be a good boy at work.
Irvine Renter,
In your second graph showing comparisons between fundamental valuation, DataQuick projections and future price correction curves, it is interesting to see that the gulf between DataQuick’s projection and future price correction projection is widening as DataQuick’s curve seems south bound at a much faster clip. I believe by mid 2010 we should have dipped below fundamental valuation into the ‘adverse’ correction zone.
When have prices in Irvine ever been in sync with the fundamentals?
Never, and they never will be….
get over it…
Sure there will be additional price decreases but those will end far before they get in line with your estimated rent/median/income ratios…
“When have prices in Irvine ever been in sync with the fundamentals?”
Prior to 1975, from 1983-1986, from 1995-1999.
The periods missing are the bubbles from 1976-1982, 1987-1994, and 2000-now.
“Never, and they never will be….”
Do you understand what fundamentals are? Fundamental values are those to which asset prices fall after crashes. That is why they are called fundamentals.
I know I should just let the homeowners in denial keep up their illusions, but I couldn’t help myself. Yes, prices will remain elevated above fundamentals forever, we are at the bottom, and prices will be back at the peak by the end of 2009…
Your definition of “fundamentals” are when values of an asset price fall after a crash?
Eh, smarmy blog guy? Did you invent this new definition?
Prior to 1975 how many houses even existed in Irvine? What a lame benchmark.
how many houses added since then? what about a commercial and industrial uses added since then (think job base)…
yes prices in irvine will remain above fundamentals forever…smarmy blog guy…not sure were you got the rest of your smartass remark. I am not sure I stated we are at a bottom or that prices will back to peak by 2009…but hey, whateveas…let me know when we are back in line with your fundamentals…
Lol
This condo was actually lived in, and (apparently) not additionally remortgaged/HELOCed since the purchase. (OK, maybe they wanted to but couldn’t when the price didn’t go up 20% per year.) It could be “just” a bad gamble, and more sympathetic with less schadenfreude than the more usual profiles. Serious lack of rational thought to buy it though. Sad for the kids sake.
Excellent as always, though 6.5% is quite high. 4.5% 30-year fixeds should be here any day now if they aren’t already.
I think the market under 417K will start to go from horrible to a bit more steady, while prices above will be under great pressure.
I agree, today’s no points rate is 4.875%.
That makes ownership cost $2770.
Thanks for the updated chart. I was wondering when someone would re-do the older data with fresh info.
Now, getting a REALTOR to understand what it means…that’s another story.
:shut:
Heh. Speaking of stereotypes. AZ, aren’t you coming to IR2’s rescue? :cheese:
I guess that’s the thing with Bkshopr’s generalizations — they weren’t negative — they were just observations he believes have a particular effect on Irvine real estate prices.
Whereas some of the comments here about “all realtards” being of subhuman intelligence, or all being crooked, or whatever (cf HydroCabron above) have definitely made me cringe.
There are good realtors out there. When I eventually buy a house again, I will most likely use a realtor as they do provide a valued service – there are just some lazy ones that make you wonder.
I think IR2 is most likely one of the good guys even though he called me a “bunghole” on the forums one time (I forgive you, IR2). The data that he lets us all look at is very helpful too.
What’s more common–an ethical realtard or an ethical politician?
…OC median at $400,000. It’s lonely at the top….
November price declines exceeded 30% throughout Southern California, though Orange County’s November median price of $400,000 remained the highest among the six counties despite being down 31.4% from a year earlier.
San Diego County recorded a slightly smaller November drop than the rest of the Southland — its median price for November was down 30.7% to $305,000, while Ventura County’s median of $355,000 was 31.9% lower.
San Bernardino County’s 43.9% price decline from the previous November was the steepest in the Southland, and its median sales price of $185,250 made it the only county in the region to have a median price below $200,000. Riverside County prices fell 38.3% in November from a year earlier to a median of $220,000.
http://www.latimes.com/business/la-fi-homes17-2008dec17,0,2443063.story
For anyone interested in how these money changers, Fed and Wall Street, are manipulating the money and debt go to: The Long Wave Analyst web site, he gives you a very clear picture. It is mind blowing.
do you have a specific link? That site is too big to sift through otherwise.
“I think you are correct that my contributions pale in comparison to those by IrvineRenter, graphrix, ipoplaya, IrvineRealtor, Lee in Irvine, MalibuRenter and awgee.”
“I would not be a member of any club that would have me as a member.” – Groucho Marx
AZdavid – Trust me on this. Bk’s observations, accurate or ridiculous, have nothing to do with racism.
Personally, I think some of the conclusions he draws from his data are a bit influenced by his own assumptions and preconceptions, but he is accurate wayy-y-y-y-y-y-y more often than offbase.
AZDavid has had a negative impact on a wonderful blog.
The reality is that Bkshopr understands why Irvine is different. Eliminate that element and Irvine is just another Mission Viejo with average schools and there is not even an Irvine Housing Blog.
$2500 rental price for 1275 square feet? I don’t think so. That seems more like an $1800 rental to me, if that.
I haven’t actively been following the rental market, but I almost rented one of these Cortile Plan 3 units three years ago. The landlord was asking $2500 back then too.
Check out IAC rates. I don’t think rents have changed that much but $2K gets you 1000 sq ft, 2 bedrooms, and one attached parking garage. So another $500 bucks adds another parking spot in the garage, 275 more sq. ft, an extra bedroom and 1/2 bath, and a detached unit. There is more uncertainty if you go the private landlord route since you really have to worry about them getting foreclosed on however. From what I hear IAC does take good care of their tenants.
Very nice post, a lot of effort went in to it. It’s hard for me to tell if we are a head of your market or behind it. In the Tampa Real Estate market we are starting to see inventory levels dropping and buyers are coming back to the market. Prices still seem to be falling a little but not near as fast as a couple months ago. We are still having issues getting loans closed, they seem to be taking twice as long. The good news is rates are great if you can get the loan.