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02-25-2013 09:21 PM - edited 02-25-2013 09:24 PM
Back in mid-2011, I teamed up with an agent to buy some condos. Those deals felt through because I was mislead on the "fair market value" of the home versus what the seller (REO) was willing to let go versus what I was willing to pay.
I've been sitting on the sidelines since and my base salary has gone up 30%, my savings (down payment) have went up 2.5X, so I've got a lot more buying power now. I was only qualified for about $380k in 2011, now I suspect I am good for up to $600k. I've got no debt (student loans are history).
I've been reading a lot of internet stuff like "irvine housing blog", "oc housing news", "dr housing bubble", and of course this forum. Most seem pessimistic than optimistic.
I ran a filter on all available homes (condo, sfh) in all of Irvine and redfin came back with 211 results. When I ran a foreclosure radar search on Irvine, ca, I came back with 238 results of homes that are in default, auction, and reo status.
Yet, the entire industry seems to be telling me that there is a shortage of homes. How can that be? I assume, foreclosure radar doesn't take into account the shadow inventory that fannie mae is holding up as well.
I noticed many of the homes have gone up in price 5-20% since 2011. Some people suggested this is another mini-bubble brewing. If so, when will it implode or is it time for me to jump in and start drinking that kool-aid ? I don't intend to live at the home for a long time (<10 years), but I do want to "run-up" a home price and make some money on the appreciation when I decide to move within a few years or so.
Is this wishful thinking?
Right now, it appears to be a seller's market right? The "artificial" control of supply in Irvine combined with investors and foreign cash buyers competing with the locals. I was also thinking that maybe I should wait until the Feds raise the interest rates. That way, the principal price of the homes drop and it becomes more of a buyer's market since it makes it harder for more people to qualify for a loan.
Thank you for listening.
-Stil living with mom and dad and milking it....
02-26-2013 01:31 AM
"I've been reading a lot of internet stuff like "irvine housing blog", "oc housing news", "dr housing bubble""
That reminds me of Mitt Romney trusting Fox News to be his primary source of information about the 2012 election.
First, the BEST time to have bought a property would have been in the late fall of 2011 - just as I suggested ON THIS FORUM back in October of that year. Obviously I had no idea how absolutely correct my assessment at that time was, but it was based on some sound experience - over 34 year's worth, at that time.
Second, allow me to go out on a limb here, to emphatically suggest that housing prices in Orange County, California will never again be as low as they are right now - barring some sort of National calamity, which doesn't appear likely - not to me, at least.
The Doom & Gloom bloggers you mentioned have been tooting the "shadow inventory" horn - incorrectly - since January of 2009, clamoring - incorrectly all the while - that the forthcoming Tsunami of foreclosures would swamp home prices even further downward.
Well, that Tsunami never did materialize, and quite obviously never will. The FACT is this. Prices never DID get lower than they had been in that first month of 09, and are now considerably higher, after bouncing along that bottom, for the ensuing couple of years.
As far as your comment that you now have more buying power - join the club, dude. More than 30% of the sales in Orange County, California, over the past year and a half have been CASH purchases. You better have AT LEAST 10% down, in order to be even remotely competitive. It should go without saying that you should also align yourself with a GREAT lender - one who can close a normal transaction in 30 days or less. ( I have a few to recommend if you need a GREAT one.)
You - and your agent - should probably be prepared to put in quite a few offers, at least through the Summer of 2013, and be prepared to lose a few until you really get a sense of the market. Both you and your experienced agent partner, had better be "Johnny on the spot" and move quickly and agressively when a house comes on the market in the neighborhoods you're targeting.
It's not the greatest time to be a buyer right now, but there are opportunities out there. If you rely on your Doom & Gloom bloggers as your only source of misinformation, though, you're going to be almost as disappointed ( Read that as clueless.) as Mitt Romney was.
Good luck in your quest.
Bob Phillips - Realty ONE Group - South Orange County, CA
02-26-2013 01:58 PM
You should already know the essential importance of the rental-parity calculation. That's pretty much all there is to it. Shop for a neighborhood you like, get to know the houses you prefer, et cetera. But in the end: rental parity is king. DO NOT buy a house if its price is way above rental parity, and feel free to do so if it is at or below.
I'm a little surprised you talk about wanting a "run up" in price to make money, just like every other fool in California coastal real estate. If it was possible to do that with any degree of consistency and reliability -- if there was any way at all to be sure it will happen in any given circumstances -- don't you think it would already have been done? You're not the first, by a very long stretch, to think of this idea, and to make effort to make it happen. Indeed, there are lots of people out there with way more experience and way more resources than you hoping to make this happen. You are very unlikely to be able to "beat the market" here and out-trade everybody else. I advise you not to try.
Instead, buy at rental parity, and then you know on a cash-flow basis your investment is sound. You may or may not make money via capital appreciation, but you know you're paying less than renting, and you know you can always rent it out if you must move and can't sell, so that at worst your capital is earning 0%, and not -5% (which is what happens to bubble buyers and relentless housing bulls).
None of us knows the end-game of the monetary madness going on at the macroeconomic level. The business fundamentals are not good, we know that, and we also know from history that crazy money-printing almost always ends up in calamity. But what kind of calamity...? There, we are in the dark. The three major competing theories are (1) a complete collapse of demand, as unemployment just grinds everyone down, i.e. major deflation as in the 1930s; (2) a currency collapse brought on by ridiculous levels of money printing -- this year, the Federal Reserve will "buy" 70% of debt issued by the US Treasory by printing money -- that eventually ruins the value of the dollar, i.e. a major inflation, or stagflation episode, perhaps as mild as the 1970s when inflation hit 20% or so, or perhaps much worse, to the point of requiring a currency reform (1 new dollar = 100 old dollars, that kind of thing); (3) a Japanese-style "lost decade" or two, in which prices slowly deflate and debt is simply never paid back, with lots of zombie banks, zombie loans, and a teetering structure of cards that no one dares to touch.
The problem as you can see is that each competing theory the price of assets goes differently. If we are in for a 1930s bout of deflation, followed by recover, then you want to save your money (which will only get more valuable over time), buy at the trough, when everyone is in despair, and then do very well in the recovery. If on the other hand debts are going to be inflated away through money printing, then the last thing you want is cash in the bank, which will lose most or all of its value, so you should buy right away, and preferably with as much leverage as possible, because your debt, along with the Federal governments, will be inflated away to nothing, while the value of your asset (the house) stays constant, or even improves. And if we are in for a long Japanese style decline, then you can buy an asset if you like, but you should get used to the idea of it never really appreciating in value, although it won't fall much, so it doesn't really matter when you buy, but you should buy a house as a "consumer good" -- not as an investment asset.
I wouldn't try to read the macroeconomic crystal ball. If it could be done at all, people a lot smarter and better informed than you or I would be doing it, and things would not be as unclear as they are.
What I would do instead is just buy a house if it makes sense in terms of your living situation -- you have a family, you want to put down roots, you want to fix and fiddle with the property to improve it, you find a neighborhood you really really like -- and you're at or below rental parity. If not, put your capital somewhere else. The best possible place is into a business you start. Second best is job training and salable skills. Third is conventional investments, stocks and bonds and investment real estate. Fourth, consumption. Don't forget that. Life is meant to be enjoyed. Don't let fantasies of being fabulously rich someday steal from the very real enjoyment you could have today by buying that Beemer over which you've drooled, or taking a sweet vacation to Telluride or a cruise to Alaska, or buying your girl some gorgeous clothes.
02-27-2013 12:21 PM
This is just my perspective on the situation. I have been waiting to buy a home since 2004 and trusted my instincts during those days and they were right. If I had bought during that time I would be seriously underwater like many of my peers today.
Firstly, do not listen to any views on the market from realtors or mortgage professionals since they inherently carry a bias. This is understandable since they want to believe all is well since it's the source of their future income. Do your own independant analysis from various unbiased sources. Just remember that many realtors told me I was crazy when I said in 2005 that housing is going to come down
In my view, housing right now is in a 2nd bubble. Why do I say this? It's because housing prices do not rise so sharply after a downcycle. It never has in past boom/bust cycles and there is no reason to believe this cycle is somewhat special. If anything, the flat part of the trough in housing should be much longer rather than shorter. It's simple economic extrapolation from the past.
In addition, demand is coming from all the wrong places - from investors, speculators and buyers who are over-extending speculating that the economy is going to grow. Most indications are that growth has been due to artificial QE and low interest rates and is not organic. Considering that the US economy faces HUGE headwinds in the coming years the prospect for further QE is not good. Absent QE I think housing will suffer.
With incomes actually declining relative to inflation (good for you that yours rose 30% but that is extremely unusual), the buying power of normal buyers is severely diminished. This does not bode well for rising prices.
Prices are not rising due to growth in income but merely through speculation. Investor demand is one of those things that can suddenly turn sour - infact this is EXACTLY what happened when investor demand for Mortgage Backed Securities turned off, the market crashed overnight. In my view, this investor demand that we are seeing is going to turn sour and prices are going to come down rapidly again. This time around there is not going to be QE to save it because the US is broke and interest rates will be higher - a pretty toxic mix.
If you want to speculate go ahead and I wish you luck but this is NO WAY a safe bet like the realtors make it out to be. It is purely gambling just like in Vegas.
02-27-2013 12:26 PM
"Second, allow me to go out on a limb here, to emphatically suggest that housing prices in Orange County, California will never again be as low as they are right now - barring some sort of National calamity, which doesn't appear likely - not to me, at least."
Your statements absolutely make no sense whatsoever. If there is no organic demand at current price levels and interest rates (as much as 50% of current demand is from investors), how will there be demand at higher price levels and higher interest rates, especially when inflation adjusted take home income is trending downward. Please use sound math before stating these claims.
Your sentence reminds me EXACTLY of what realtors used to say in 2005, that the opportunity to buy will never be seen again.
02-27-2013 01:35 PM
zaxolot had this response to my remark which suggested that Orange County housing prices will never be this low, in the future"
"Your statements absolutely make no sense whatsoever. If there is no organic demand at current price levels and interest rates (as much as 50% of current demand is from investors), how will there be demand at higher price levels and higher interest rates, especially when inflation adjusted take home income is trending downward. Please use sound math before stating these claims."
My statement makes PLENTY of sense from my experience, where - over the 36+ years I've been selling real estate in South Orange County - after practically every downturn the market has produced, there has been an upturn, and the vast majority of those upturns have produced higher and higher prices - prior to the enevitable next downturn.
That's why the median price in this area is no longer in the $40k range. The trend, my friend, has usually been upward, and I see no reason for that to not continue to be the case.
As for your remarks regarding "organic demand" or interest rates, I've been through TEMPORARY markets of very slight demand, and others of very high interest rates, and yet the TREND has plodded forever upward, and onward.
Bob Phillips - Realty ONE Group - South Orange County, CA
02-27-2013 01:46 PM - edited 02-27-2013 01:56 PM
"My statement makes PLENTY of sense from my experience, where - over the 36+ years I've been selling real estate in South Orange County - after practically every downturn the market has produced, there has been an upturn, and the vast majority of those upturns have produced higher and higher prices - prior to the enevitable next downturn."
No, your statement said "Housing prices will never be this low in the future"...how exactly are you coming to this conclusion?
Every downturn in the past has indeed had a uptick in prices but not at this pace, it's a gradual uptick not the 10-15% year over year appreciation. This is usually the pace of a bubble not a sustainable recovery.
So housing prices have already appreciated 15% YOY, are you suggesting another year of 15% gains? That is purely bubble mentality.
I am not suggesting that prices will not continue to go up in the short term, what I am saying is that this run up is unsustainable and my opinion is that when investors take their gains there is no other support for those price levels...they will come crashing down.
02-27-2013 02:39 PM
Median price data isn't a grand way to tell what the direction of the market is. Here's DataQuick's analysis of prices for December since 2008
2008 December OC median - $398,000
2009 December OC median - $435,000 (Yay! prices are going up!)
2010 December OC median - $410,000
2011 December OC median - $400,000
2012 December OC median - $460,000 (Yay! prices are going up!)
2009's higher prices could be due to the FTHB tax credit. 2012's price increases may be caused by more higher priced homes selling while lower value first time homes being held off the market by nervous sellers and "buy to hold" investors.
Yearly trends are showing higher prices, but the volume is lower, investor penetration is high, flips are still strong, so by any rational means it's near impossible to tell in reality what's going on in this market. Add to it the uncertainty of when the Fed takes the punchbowl off the table and what impact it will have on prices is anyones guess. Is it wise for a buyer to purchase in an upwardly trending price market? It sure looked like a grand idea in 2005-2007, but we all know how that worked out.
Carefully playing devils advocate on risks and rewards of home ownership is the only way to make a smart decision in this market. It may make perfect sense to buy if the right home in the right area and the right long term payment can be had. For others, perhaps not. At minimum a well researched decision should be top of the list when figuring out if it's time to buy, and not influenced by the direction of price data.
Thanks for reading,
See all my reviews
02-27-2013 02:44 PM
zaxolot continued with: "So housing prices have already appreciated 15% YOY, are you suggesting another year of 15% gains? That is purely bubble mentality."
Where do you get 15% YOY? I've seen estimates for 2012 of between 5% and 12%.
I have also - over my 36+ years - seen multiple years in a row of 15% appreciation, or more, and yes, after a FEW such periods, there was a natural softening period, where prices either descended slightly, or just flattened out for a while.
In the early 90's there was our ( Orange County's.) first actual significant lowering of prices - by about 10%, followed later by natural gains.
I used the word natural a couple of times, suggesting that run-ups in price followed by periodic softenings, is a normal way for our local real estate market to operate, with a regular, upward trend - similar to the prices of most everything else we buy.
What happened to our market in 2002 through 2007 was NOT normal or natural, but was an anomaly born out of some business extremes we had never seen or experienced before, and hopefully won't again. I bought my last house in 2001, and felt uncomfortable ( Being optimistic.) from that point on, through the bursting of the bubble.
I still did business during that decade, as some people ALWAYS have to buy or sell their homes, but I wasn't one of the idiots clamoring that prices would never go down, and that you'd better buy now, or be priced out forever - as you've tried to suggest. After more than two decades - and quite a few real estate market cycles, already under my belt - I knew better.
The CLAIM I made earlier, is based on my experience, and a gut feeling - based on previous experience - that we have plenty of room to grow, before we enter bubble territory, once again.
YOUR gut feelings - to the contrary - like those of most Doom & Gloom bloggers, is based on a VERY small sample size, of ONE anomaly of a bubble, produced by unnatural forces, which aren't likely to be duplicated.
Bob Phillips - Realty ONE Group - South Orange County, CA