The Orange Crush Part Deux
Chuck Ponzi March 28th, 2007
Some time ago, I wrote an article about Orange County’s real-estate led economy. (Remember how strong that economy was, and how it made sure that 15% was “in the bag”?)
Back then, I stated:
17% of Orange county’s employment base is Real-estate related. This represents the highest number, and the highest share of total jobs occupied by real estate on record. We have often heard that the 1990’s bust of housing caused by job-losses in the manufacturing sector; we are more diversified out of manufacturing since then and it doesn’t represent the same risk. Pish-posh. We are out of manufacturing and much heavier in real estate.
Now, Bloomberg backs up my prediction with their own story:
In Irvine, where just nine months ago office vacancies approached a three-year low, home prices were at an all-time high, and unemployment was less than the national average, at just 3.6 percent, the unraveling subprime mortgage market is ruining the recent prosperity.
Hometown lenders including New Century and Ameriquest Mortgage Co. already have fired more than 3,000 people, house and condominium prices are down 17 percent since June and office vacancy rates are poised to double this year, said John McDermott, regional manager for Orange County at commercial real estate broker Sperry Van Ness.
“It’s a huge engine that has been shut off,” McDermott said. “I don’t know where the new influx of jobs are if you take the lending market out of the equation.”
The entire story is a fantastic read about where we are headed (and we haven’t even had much of the layoffs yet:
“There are going to be massive layoffs and maybe something worse than that,” Ellis said. “You wonder what impact it’s going to have on other companies as well.”
Cracks in the mortgage market began to appear last year. U.S. subprime borrowers fell behind on their payments at the highest rate in four years during the fourth quarter, according to data compiled by the Washington-based Mortgage Bankers Association.
The Center for Responsible Lending in Durham, North Carolina, expects the foreclosure rate for subprime loans to exceed 22 percent in California metropolitan areas including Irvine, Merced, Bakersfield, Vallejo-Fairfield, Fresno, Stockton, Santa Ana, Anaheim and Riverside.
But, but, but, we’re immune here in OC. Who sounds like a whiny little complainer now?
Reminds me of a comment I got last year:
How does it feel paying those increasing rents? I have made $750,000 in real estate appreciation in the last 7 years, I am sure glad I did listing(sic) to a F*$&% idiot like yourself.
Feels pretty darn good right about now (BTW, my blog only started 2 years ago, so I don’t know how I could have lost him money). Rents go down in a recession. Good luck, all.
The ultimate irony. I think this says it all — the fraud-detection guy making $40K working for the $200K paper pusher has a liars loan:
“Ankur Kumar, 27, worked in Ameriquest’s fraud-detection department from mid-2004 until last May when he lost his job as part of the company’s layoffs. In his new career as a fitness trainer, he hopes to have an income of $30,000 this year, compared with more than $40,000 when he worked at Ameriquest.
`Something Risky’
Kumar lives in a five-bedroom Irvine house and pays almost $3,000 a month between his interest-only loan payment and taxes. Kumar rents out three of the house’s five bedrooms, which pays for about half his monthly housing expenses. The interest rate on Kumar’s adjustable-rate mortgage is scheduled to go up in October. He plans to refinance. “I’ll probably have to do something risky, to be honest,” he said.”
OMFG!!!! Looks Kumar is going to be Fubar!!
How’d you like to be living in their neighborhood with 4 or more cars to that (Kumar’s) house? I’m sure they don’t tandem park, so the street is full of junkers/clunkers.
If I were one of the neighbors, I’d be begging for a foreclosure.
Chuck Ponzi
Hey budy!!! I did buy the house back in december. I didn’t get a buyer’s agent, but I offered them 225 on a 250K house and they took it. Got a zero down 75/25 loan. Guess who the buider was!!! ‘Beazer’. Haven’t seen them in the news lately have you! Anyway…my house is in a 250K+ neighborhood, so the forclosure rates are normal. Not like their 100K and less neighborhoods. I refinanced my second mortgage and paid off ALL of my unsecured debt and bought an engagement ring. I’m at 115% on the house. Once my fico goes up, and god willing, I’ll refinance in 6 months. But I guess we’ll see who’s willing to refinance me. But my fico should be awesome, so I’m not that worried.
Remember talking about the housing market when we were getting our MBA’s! Remember when you sold your house! I love being able to say “I told you so!”. Reverse amoratizing dumbasses!!! You should get paid to write this thing. I love you budy! Hey,, come to Charlotte and buy a 200K mansion! -Spencer
I’m interested in what you guys would offer for new construction in Rancho Cucamonga. The house I want is in the mid 700K. Would you offer 100K less, 50K less, or what? I’m looking at a couple of the bigger builders in the area. They are all posting losses. What would you do?
Wait until the subprime and alt-a mess blows over…duh?!?!?
Why the hell is anyone with half a brain even considering buying residential real estate in SoCal right now? Hope you like catching falling knives suckers.
JWN,
Why are you such an insulting prick? Some people just want to buy a home to live in. Maybe they can afford it. Just because you are waiting for it to be 1980 again doesn’t mean everyone else should be too.
shill
Why? Well, I’ll tell you why. My wife and I earn very good incomes and we actually like to save money as opposed to spending it on Escalades, boob jobs, Mercedes, etc. I don’t like the idea of a the REIC continually pumping dumb buyers into the market and letting them fall victim to bad lending standards so some douche bag mortgage broker/realtor can make a ridiculous amount for doing NOTHING!!! Then, when the stupid borrower / buyer goes into default, he wants a hand out from the Govt because they made a bad financial decision. Well guess who gets to pay for that? I do.
For the past several years, the REIC has effectively waged a war against sane buyers and catered to the financially illiterate in the marketplace. Well, now that game is up and you have congress out there wanting for those of us who sat out the nonsense to pay for the excesses.
NO FU**ING WAY!!!!
Is that clear enough for you???
***** Profanity Edited by Chuck Ponzi*****
Not enough information to really give you an estimate. Basically the 700K is 10x median household income.
If the house is really big then maybe it is worth the money BUT it will be very difficult to sell.
Since that is a house for a family, I’d wait till the summer as forclosure properties will be pushing down comps and give you a better idea on the market.
Well said Evil Optimist. Well said.
shill 2
prick 2
You are shilling so what do you expect.
Your insults are weak. Just like the content of anything you write.
Just go off and rant on yahoo message boards.
This is to good to miss and I don’t intend to miss the bottom. I’ll be back in So Cal in April all I have to do is get a secure non RE related job and sit tight with my 700+ fico and cash position.
I have no problem renting for a year or two more while this shit sorts itself out. I left 18 mo. ago to the south (affordable). But Cali should be looking sweet soon. I figure sweeping anti immigration legislation and the foreclosure tidal wave should clean up the state. No fed bailout and an exodus of folks out of the state again like the last housing bust. Some people are just greedy plain and simple. There is no such thing as easy or free money you fools.. You play you pay. The taxpayer does not want your mess and the government is to rich and powerful to care about your shortsightedness.
The mainstream econ types were looking for commercial RE to buffer any housing troubles. For the OC it may be the CRE changing so fast it actually leads the “sticky” home prices.
Yeah, I tend to agree that it would be better to wait, but just got a good offer on my house out of state and hopefully it will close. I will have at least 100K in the bank from the sale and my wife is anxious to get into the home to raise our kids in. We are currently renting and really like some of the model homes we’ve seen. We can’t find a single, existing home even up to 900K that we like in RC. I guess we are persnickety regarding floor plans.
Do you guys understand the trouble we are all going to be in when we are older, have our knee arthritis and angina? Going up all those stairs is going to be tough. All these houses on postage stamp lots with all the beds upstairs is really not optimal. There needs to be a bedroom downstairs.
It is funny going into models in North Fontana and seeing a full bathroom downstairs but no bedroom. It is as if the builder copied some other floor plan from some one else and to cut costs didn’t put in the bedroom. Terrible.
The new houses we are looking at are priced in the 700K range. Our household income is about 250K and our jobs are stable. We are not in the RE business. However, it would be nicer if we didn’t have to forego vacations, etc. A mortgage payment on this type of property with a normal, prime loan is disgusting and most people cannot afford it. I’d like to wait if I thought the new construction would be offered at 100K less this summer. Perhaps no one knows.
Yeah, we can rent for now but it does cost some money and hassle to move if the landlord wants to move us out for some reason.
You guys keep talking about a crash, but I don’t see much comment regarding the new construction situation. Are the major builders, all of whom are reporting huge losses, going to lower their prices or not? They cannot be as “desperate” as individuals in the sub-prime mess. The builders, like OPEC, just reduce production until demand improves. Shareholders get pissed, but so what?
It’s just an honest question: Would you expect a 700K new construction to be priced at 700K 6 months from now? I’m just not seeing KHOV and friends changing their sales prices when I visit the models and look at their adds over the past 6-12 months.
Most of you guys seem pretty smart about these things. What do you think?
I’m not going to claim to be smart about any of this.
Where in the hell does everyone making 250K+ a year come from? I just assume people are lying on here as was iInvest about his thousands of holdings.
So, assuming you are being straight. The price declines will be very scattered over the next few months.
Rumors of potential bailouts abound. So people will go nuts trying to hold on.
Depending on who is holding the property the price reductions will vary widely. if its a bank it will probably be 10% or so. If it is a builder 1-2%.
The wave of ARM resets approaching is quite large. The REO will not appear on the market till the fall at the earliest.
That will be the first wave. but like the tsunami the wavelength is long so it will keep streaming in for several years.
There is substantial inflationary risk floating out there though. It is possible that China invests heavily in US industry and we see substantial wage growth & inflation that make the current prices more sustainable.
Of course the FED would react by raising rates so affordability remains crap.
I am very risk adverse so i’d advise renting for at least 1 year more or perhaps two years for the first wave effects to shake out.
Since you have a huge gain already and a monster income the risk on a 700k house for you is not that bad.
Good luck.
Yuck. I was hoping for a 10-15% drop in new construction. I guess I’m dreaming.
I’m in a similar situation/income as you. I haven’t seen drastic reduction in prices as yet…but I’m hoping for it everyday. I would ignore most of the extreme bears you read on this board. It is unlikely you’ll see a huge yoy decline of prices as some speculate here…if these doomsdayers are so sure….they’ll make a mint on the Shiller Index…but they’ll never put their money on the line.
With respect to buying your home, I’d wait until after september and see how the current market news (subprime, alt-a) affects market sentiment. With your income, taking out a traditional loan on 700k house will be a “walk in the park.” Get your home, make good memories for your kids and have a great life.
Great another 250K per year person…
Oh. I’m speculating on some pretty big drops and have options on LEND, CFC and a couple home builders.
probably dumb bets and just the type of speculation i council avoiding.
Some of the economists talk about the extent of this bubble but its not all that clear to me.
you can certainly argue we were very near the end of a credit cycle. Most people were only able to afford homes with IO, neg Am type loans. That looks like debt exhaustion to me. Inability to service the debt load.
The large number of speculative purchases… Large ammount of vacant homes.
A lot of downside risk out there. As an investment housing looks bad.
Since you guys are talking all this income.
What effect does the AMT have on your ability to finance a purchase?
If I had a nickel for each person that told me they make 250K (or thereabouts), I’d probably be making 250K per year.
My question as well to those better endowed workers… what do you do for a living? How did you come into that profession, how much work experience did you have? What amount is production based (commission or bonus) and how can I get a job like that?
I get paid pretty well, but nowhere near 250K. I’m still at least a scant six figures away from it, so for those of us who don’t have that kind of income, please give us some advice… how did you get that income in the first place?
Chuck Ponzi
I have a six figure salary and get paid OT so make around 150K. My wife has a small buisness and takes in around 30K (but took off for 3yrs for a baby… leading to second baby…). If she chose a actual paying career i’d be up there.
Still I see the stats… most of these people are full of it.
There are quite a few aerospace couples I know of in that range.
I think we have a division out there so its possible its legit.
The debt load says “med school” or lawyer.
BTW… I am a senior guy so not that many people are in the same pay range.
The starting salary for large law firms is now $145K/per (exclusive of bonuses). If you are married to another attorney, that’s $290K household income in the first year of practice. That being said, law school loans can be huge.
“I would ignore most of the extreme bears you read on this board. It is unlikely you’ll see a huge yoy decline of prices as some speculate here…if these doomsdayers are so sure….they’ll make a mint on the Shiller Index…but they’ll never put their money on the line.”
You are a presumptuous, arrogant and ignorant all at the same time. It would please me to learn you are a recent home buyer. If not, you should go out and buy one. Come back in two or three years and let us know how it is working out for you.
builders are already cutting
50-100 k off prices. I went to a grand opening in san juan capistrano, new almost 3000 sqft homes with some ocean view going for 980k, so somewhere around 310 per sq foot.
this was before the tidal wave of bad new over the past 3 weeks.
for those who make 250k that means you take home around 12-13k. rent for 2500(in rancho that would get a very nice house), put the difference between rent and morg payment (about 2k) in a CD. in a year or two you will have more money.
houses will have stayed the same (dont think so) or much lower (with credit tightening) so you get a bigger house for your money.
thats what I’m doing. GOOD LUCK
Let me answer your question with another question…
If you assume that demand does not abate, then there is no reason that housing prices will drop. Even housing bears agree that we have not repealed the laws of supply and demand.
However, if demand does abate… homebuilders were building houses (and making good money doing it) five years ago when prices were less than half of todays’.
In a strictly economic sense, there is no such thing as “overbuilding” in SoCal, since every new house has found a buyer (more or less). The question is more around the future demand… we are losing domestic population in many of the SoCal counties, which leaves births and deaths (pie sliced in smaller and smaller chucks), and international migration primarily south of the border (smaller pie). The real wildcard is whether people can afford housing at today’s (and future) incomes. Gary Watt’s camp sees a never-ending influx of millionaires. Bears see that housing created the millionaires here, and the only reason to be here with the high cost of living was the chance to be a millionaire. The primary expectation of bubble bloggers is that this expansion was built on the very thing it was affecting (a virtuous cycle) that is not assymetrical (becomes vicious) on the way down.
The fact remains… millionaires were CREATED here, not DRAWN here. Once the primary creators of millionaires goes away (SubPrime Lending and Homebuilding), so do the people.
Question and Answer session: What happens to prices when supply stays the same, and demand decreases?
Chuck Ponzi
PS. My psuedonym is a hint at the the main problem. There never was a strong fundamental economic reasoning to build on. Most of our economy was driven either directly or indirectly by rampant money supply expansion and lower interest rates which led to a rash of house building, lending, furniture buying, pool building, maid services, new automoiles, etc, etc, etc, It was a ponzi scheme in the very basest of sense… there was no wealth creation since everythign is priced at the margins. No productive capacity has increased other than the amount of housing (which would coincidentally lower prices, not raise them) and we are all much more indebted than we were 5 years ago. Why would anyone believe that it would be different on the way down than it was on the way up?
Yes, builders already have dropped prices $100K in San Diego and outlying counties. I would expect to see the same in RC sooner rather than later.
My income is nice, but the student loans from school suck big time. My wife and I are both professionals but have to pay about $3000 per month in student loans for the next decade. So, a mortgage at that level won’t be a “walk in the park” by any stretch of my imagination.
I’m not lying about my income, but income tells only part of the story of someone’s finances. I’m lucky that I don’t have other debt.
I’m sure plenty of people lie on this blog just like they lied to get a home loan. And I do appreciate the assumption that I’m straight with you.
I think I’ll talk to my landlord about signing a 6 month lease which will put us at about Christmas time. We really like one of the model homes and would be sad if we couldn’t get one, but even more devastated if we buy at the peak and can’t afford the essentials (let alone luxuries) in the future.
So you are a doctor?
My income fluctuates, since I work in sales (entertainment, NOT RE), but last year was my best so far and I made $190k…$100k base+comm. My wife made about $90k last year - her salary is more consistent. The are lots of people in my business who make more than I do. I’ve been at it for about 7 years, but only in six figures for the last 4. Other than my wife’s student loans (only $200/mo) we have no debt and own both our cars. We rent an apt in Santa Monica for about $2k/month. Neither of us has ever owned a house and it really wouldn’t bother us all that much if we never did. We’re in our mid-30’s and planning to have a kid or two in the next couple of years. Since our expenses are small relative to our pay, we just pay our bills, max out our retirement accounts and save whatever’s left over. I don’t really see how our lives would be vastly improved by owning a house. If we ever bought one, it would probably be up the coast in a smaller town or maybe up in Oregon or something, after we’ve saved enough to make a total lifestyle change. One thing for certain, we’ll wait until bloggers like Patrick K. and Rich Toscano and yes of course Chuck start talking about how the market has returned to normal…and that is probably a looooong way off.
Anyway, no reason to lie about my income. It tends to lag the economy and consumer spending to an extent though, so I am already expecting my commission will go down by about 25% this year. Owning a house was never our “American Dream” and I don’t think that’s going to change for us even after this crash is over. If it made sense economically, I would consider it. I’m thankful that my wife isn’t one of those harpies that harass their husbands into buying a cheap stucco shitbox four feet away from another house on both sides, though.
I don’t think there are any professions that are not at risk over the next few years.
The magnitude of the credit bubble could tank the world economy.
I’m in aerospace so we are a high end industry of dubious value.
As much as Iran is a threat, they spent a decade under sanctions. Iraq fought them to a draw. We rolled Iraq in a month of fighting (the occupation… meh). So, we could be poised for a major fall if some idiot peace candidate decideds we don’t need to be vigilant (very dumb).
Entertainment… that industry could really tank as consumer spending tanks.
In any case the reverse leverage we will see should be interesting. Basically the cash you have saved will leverage against the values of homes going down.
If you have 35K sitting around for the next year and are looking at that 700K home in Fraudera Ranch… Its a 5% downpayment. Credit tightens and prices crash to heck (500K). Your downpayment jumps up to 7% down. So you own 40% more of the house.
Your payments are far less (5K vs 3.5K) if interest rates stay stable (even if they jump by 2% you are still way ahead.
Its also hard to imagine that you would spend a lot more on rent than that 700K place. That is around 3000$ per month @6% not counting those melo-roos (subtracting out sweat equity).
You can rent a home out there for 2500 per month… 5/3 houses!
If your rent remains stable for 1yr and prices fall… you have saved an additional 6000 on your 35000 plus interest (3% after tax).
I’m also warning there is an AMT tax potential hit in here.
hehehe.. lots of you guys are lucky.. as the name suggests, I am a hungry teacher.. can’t buy a home.. ever.. O)
I make around 45k a year… that means I can afford… let see.. around 100k home… used to be possible.. in the 90’s… well.. ten years from now I’ll make around 50k… hope that’s enough for an apartment
“I am sure glad I did listing(sic) to a F*$&% idiot like yourself.”
Ain’t karma a bitch?
I’m glad he did listen to you either. I hope you still have his e-mail so you can send him a friendly “How ya doing?” in a year or so.
This is something I never understood. I would tell people why I thought (past three years) housing would correct but I was never mean about it and I always detailed the underlying fundamentals that showed why I thought it was over heated. The people who disagreed with me would 1.) try to imply I was stupid for thinking such heresay and 2.) NEVER be able to provide data why housing would go up 20% a year - it just would.
Expressing an opinion - even if it completely disagrees with your viewpoint - is not a valid excuse to start cussing someone out. So while I feel for many who could not/did not see this coming this guy will get everything he deserves. (Not for cussing at you - just for being an arrogant ass in general!)
Thanks for posting!
Question for Chuck (You seem to know alot)
I can afford to pay around 1k a month in payment.. which one is the better choice, purchasing a mobile home or renting an apartment? I’m renting right now, a studio in Riverside, paying around $900 for 500 s.f. Should I keep on renting or buy a mobile home? I can buy a beat-up mobile home for the same monthly payment… what ya think ?
Sit and wait in the apartment.
This housing bubble has made affordability impossible for the good people called to teaching.
Prices will eventually realign so that you can get a place. Otherwise we will also have to deal with rising wages to attract teachers soon.
So either prices drop or wages will go up sharply in the future. Have hope.
Mobile Homes are flotsam and debris in down markets. And, frankly, they are a lot more headache than I think they are worth. Your neighbors tend to be of a poorer quality than in an apartment. Unless you have a piece of land to put it on, I wouldn’t personally consider it.
Reselling one is a nightmare. They cost about 50K to build, and sell for 120K new. Then, you can resell them for 50K. The depreciation on them is absurd.
With that said, I’m not in your position, so I can’t really give good advice. What I would do and what you would do are 2 different things. I can say that housing will get cheaper, and that condos will suffer more than houses.
Chuck Ponzi
I would discourage you from buying a mobile home. Mobile Homes are not mainstream or the norm and financing is few and far between. That isn’t to say that you can’t get qualified because the financing does exist…it’s just to say that when it comes time for you to sell it you will probably have a difficult time trying to find a buyer to qualify for it, because qualifying for a mobile is simply very strict.
I say stay in your apartment and enjoy your summers off. Don’t buy the mobile home.Shop around and be sure to tell potential lenders you are a teacher. There might be special programs for you just as there are programs for veterans, health professionals, etc, in certain markets.
To the guy thinking of buying the $700K house in Rancho Cucamonga — I say go ahead and put in an offer at the price you want to pay. If the builder says “NO” you can always increase your offer. But always remember your first offer is the lowest you can go, so make it low (who knows, they might say yes)
I am facing a similar situation; I want to buy an existing home for around $500K, but everyone is asking over $600K in the neighborhood I want. I intend to make some offers at the price I think is fair — if they say no, nothing lost. I am torn between whether to start lowballing now or wait a year or so until lenders and borrowers are really hurting due to the mountain of impending foreclosures…
I expect prices to go down 20% over the next few years, so I am factoring that into my offering price. With more houses on the market due to foreclosures, and fewer buyers available since people with weak credit will no longer qualify for $600K mortgages, prices have to come down — simple supply & demand. The only question is how much?
I agree. I was low balled on my house up north and I just rejected the offer. The full price offer was not too far behind from the same people who were just “testing the waters” up front. I’m not terribly desperate to sell and can hang on for a long time if I have to (I’ll just continue to rent in So. Cal) but if I were desperate, I might have taken the 10% discount offer they started with. I think I’d start at 100K less than asking and just see in RC.
You are right, there is nothing lost in a rejected offer with no counter back. Just have to do it to find out how anxious/desperate the seller is.
I continue to wonder, however, where the big builders sit in all of this. How will they move inventories when there is so much existing product on the market? I’m confused as to why they haven’t lowered prices significantly. I think it is because they don’t have to—they are big corporations with different pressures than those of us individual home owners. Also, they still “sell” a lot of homes. It remains to be seen if those that are “sold” (read: they have a deposit) actually close in the way we are accustomed to using the term “sold”.
Chuck, I have my income because I stayed in school a very long time. There was no magic in it. I am blessed with my current employment situation. I also know I know very little about real estate: it is a different language. I like reading these posts because you all have taught me so much. My wife, thankfully, is also very patient, but the information I get here helps to reduce her anxiety over not owning our own home yet. I think it will be well into 2008 before we pull the trigger, but maybe Joanovarq has a point, low ball some people and just see what happens.
I have quite a few clients who are looking to steal properties these days. I’m happy to put in low offers but it’s not a reasonable expectation to hope to get a property for $500K in a $600K neighborhood.
Why? There is no desperation amongst sellers. Plenty of homes are still selling and the properties that are priced well sell quickly. No one is walking away from $100K in equity. If it is a neighborhood of $600K homes you can sell fast at $550K. Why take $500K?
I have clients who think they can steal a bank owned property. Banks don’t give away money. They sell at market value. All the bank owned homes you see listed (and I see new ones listed almost daily) are all priced at the low end of market value. They don’t want to hold these properties but know that they are still selling. Hence, banks reject low ball offers. Banks have a formula whereby if a property doesn’t sell at the asking price in a certain number of days, they will lower the price incrementally (2% to 3%) until they hit the price at which it will sell.
If you are hoping for 20% off, you are going to have to wait. It’s not going to happen all at once (if at all).
Regarding OC income, $250K household income for OC doesn’t surprise me. This isn’t a single breadwinner bringing home $250K - it is multiple people working full time. I am not saying this is the norm but it isn’t uncommon either.
Both my wife are in high-tech, late 20’s and together, we earn $225K+. I know this isn’t common but most of my friends who work at high-tech companies in OC make similar amounts and we are all about the same age.
What really surprises me are all the people who bought these inflated houses with much less household income when I can not rationalize putting so much of my gross towards the mortgage.
Don’t buy in the IE Nate. It’s going to be the land of massive foreclosures soon. I lived there for over twenty years. It’s become a crowded suburban hell mostly low pay service jobs and cookie cutter houses. It’s become overbuilt and expensive I remember not to long ago when nobody wanted to admit they lived there. If you have to live inland I would suggest Claremont it is at least within the LA county border. It is an academic town with classy educated people and the downtown is lovely. It reminds of an East coast college town. The homes there are more custom and they have a nice artist colony. I lived there for two years I enjoyed it very much.
Nate, I think the reason the builders aren’t lowering their prices is that they don’t want all the other similar houses in the same development to drop in value. That hurts the builder who is still trying to sell, and it pisses off all the neighbors who bought similar houses in the same development who bought last year. What I’ve read is that the builders are not lowering their official prices, but they’re throwing in incentives, such as upgrades, paying your closing costs, paying your mortgage for a certain number of months, giving away a cruise or a new car, etc. That way, they can still write on the deed that the house cost $700K but it really cost you less because of all the free stuff they gave you. But keep in mind that if the recorded sale price is $700K, that’s the price upon which your property taxes will be based.
Help-U-Buy Guy, you sound just like my Realtor! He is saying the same things, trying to convince me to offer more. Everyone is *asking* for over $600K in this neighborhood, but I have seen no evidence that any buyer has actually paid those prices any time recently. People paid between $550K-$625K between spring and November of 2006, but that was LAST YEAR, before all the subprime stuff hit the fan. Also, I’ve seen 2 houses in pre-foreclosure and one short sale in this very neighborhood, within a few blocks of each other, and although those people are still listing their properties for high prices, their Realtors say they are “very flexible.” So I think there are some sellers who might be willing to deal.
Although other sellers may have no urgency to sell, I also have no urgency to buy, since I rent a wonderful rent-controlled duplex which is nicer than half the stuff people are trying to sell for $500K. If I make an offer and the seller says no, what have I lost? I’ll just try again next year when the foreclosure rates are higher. There will always be another house.
I don’t encourage my clients to pay more. I do try to manage their expectations though. If a comp from November is $625K you should expect to pay a little less if the properties are the same, but if you’re hoping to pick it up at $50K-$75K off that recent comp it’s probably not going to happen.
I know a lot of you hate real estate agents but it’s a balancing act. I make low ball offers and encourage my clients to be agressive. However, I’ve lost more than one client that didn’t get a house they wanted because we came in low and someone else ended up getting the property. It sucks for me to lose an $800K sale because I was trying to save my client $50K and then I also lose the client.
Hey Brad,
I’ve found that most of the readers of bubble blogs don’t hate real estate agents. They hate liars. Unfortunately, there are too many agents who are allowed to opine about things they know nothing about.
Good negotiating tactics: yes, good agents have these, and this is critical in dealing with a specific property at a specific price.
Good forecasting abilities with respect to the real estate market: If any, usually only limited to near-term and in a specific microcosm. Not good for determining the direction of a region as large as the Southern California over the next 3 to 5 years.
Unfortuntately for many readers, their anger is misplaced. The better question is, why is the CNN news channel or the LA times pitting Gary Watts against Robert Schiller? That’s a mental giant compared with a toadstool (if you don’t know which is which, you need to research more). Watts makes up his figures; Robert Schiller works on nobel-prize worthy economics theory based on original research. The fact remains that there are incompetent people in every profession. Their profession alone does not qualify them to be quotable. In fact, if the media had a healthy dose of skepticism, they might ask if there is some motivation to see the market in a specific light.
The ignorant media is who people should be taking on. A cause that OCRenter has taken up at bubbletracking.blogspot.com by researching the “man on the street” background stories that the LA Times and its ilk are creating headlines about.
Newspapers can write anything their publishers will allow. It doesn’t mean it’s right.
I think you’re right. I think the market is still moving… albeit a lot slower and slightly lower. Time will only tell if I am right. I’m probably about as confident about my prediction as Watts’ was about his, though. The difference is that I have a healthy level of skepticism, he is slanted in a most inobscure way.
Chuck Ponzi
You can always have fun with the reverse pressure tactics. Look for someone that is seeling but not at a short sale.
Throw out a 500-525K offer with a short fuse.
Even if there is a huge drop; you will probably be OK over the long haul.
Give them some time frame like 2 Months.
After a month of nothing happening they might crack and dramatically lower their price.
The house next to my parents were sold just a couple of weeks ago in Orangecrest, Riverside… They bought the place a couple of years back in hope of making a huge profit… hahahah.. well, they didn’t. They paid 410k for the 2300 s.f. home early 2005. They sold it for only 550k.. minus at least 20k in fees… hehehe.. so much for real estat riches.. lol
Hungry Teacher: so they still made over $100K in profit? Sounds pretty good to me!
Help-U-Buy Guy: I don’t “hate” realtors. I’m a lawyer so I understand the concept of being in a hated profession. My only concern about my realtor is whether he will advocate for my interests, given his viewpoint that my price expectations are unrealistic. When he approaches the seller with my offer, is he going to take the “your house is a dump so you’re lucky to be getting this offer” approach, or is he going to approach the seller with an attitude of “sorry the offer so low, but my client is unreasonable — make a counteroffer and I’ll try to reason with her”? My realtor and I may have different views about how much property should cost — and I don’t care what he says to me in private — but I hope that when he talks to the seller, he’s out there negotiating hard for me to get the lowest price.
Hungry Teacher. So they bought something for 410k…sold it for 550k? My guess is after commissions and fees the probably ended up with 525k if not more.
So you are telling me that walking away with over 100k after having a house for 2 years is not good enough….so much so that you’ll laugh out loud about it? Wow.
Stick to teaching…but please don’t teach finances.
I think Hungry Teacher’s point was that the expectation was an unrealistic profit margin over the past few years. That can be something to chuckle at if the people were bragging about all the money they were going to make.
I think we all agree 100K in profit on a housing transaction is nothing to sneeze at.
I don’t hate lawyers or RE agents. That would be crazy. When you need a good one of either group, they can be exceptionally helpful.
RE agents are in a precarious position as their motivations are both for and against their clients simultaneously if you think about it. A high sales price both helps their own bottom line, and “hurts” the client, for example. I would find it difficult to work in that situation.
Hey Chris… hehehe.. was just being bitter you know… the house it not worth 550k… they got lucky.. some sucker bought it. Incomes in Riverside do not justify the home prices out here and yet people still buy. That’s what I was laughing at. :o) In fact, in 2001, it was valued at 210k (which I think is the “real” market value). It’s funny how suckers are still paying the these houses.. ARM financing.. for sure..
Just curious then…
What’s the housing situation in Irvine itself looking like? Where can I find out more information regarding how far prices are expected to fall / have already fallen for Irvine in particular?
Thanks!
Irvine Renter has a great blog and post dedicated to Irvine.
Check it out here:
http://www.irvinehousingblog.c.....it-bubble/
and here:
http://www.irvinehousingblog.c.....d-bad-get/