LA/OC home prices over-inflated (Santa Ana, Irvine: sale, to rent, mortgage)

[PsyFi]

relative to income?

I just read an article where some realtor association states they expect home prices in LA to increase in 2010

Realtors lol!

Your thoughts

[EscapeCalifornia]

Realtors always say that. That's how they can talk people into buying homes in a declining market.

The low end of the market has already been pounded but the high end has yet to really take their medicine. The funny thing is, if a house has been on the market at $1,000,000 for a year and finally drops the price to $850,000k to seal the deal, the median price will go up because that high dollar sale gets thrown into the equation. That's the only way I see prices going "up" for a while. That said, I don't really expect any of the nicer areas to become affordable relative to incomes because there's enough people with tons of money to crowd out the rest of us in the nicer areas.

[00molavi]

Originally Posted by EscapeCalifornia

That said, I don't really expect any of the nicer areas to become affordable relative to incomes because there's enough people with tons of money to crowd out the rest of us in the nicer areas.

This is true. The median to me does not mean much. I would rather have the median per square foot in each area. Even that is not good enough. In 2006 I wanted to buy but looked at the prices and household incomes and figured the prices are not sustainable. Now I am not sure any more. First, we might be changing like the rest of the world and have to pay more than 33% of income towards housing and just live poorer. So then the math changes. Also if we have some inflation, that might at least partially push the wages up, then the prices in the 600-700 range might be more palatable. All said at this point it is a crap shoot. The realtors want people to buy and sell every year, so anything they say is out the window IMHO. We finally bought for many reasons, but also accepted that at least in the short term (5 yrs?), we are going to be loosers.

[RobE]

Housing prices may not recover for at least another two years and it will be a decade or two more before they get back to what they were at the bubble's peak. Moreover, the market tends to overcorrect, where it will trough 10-15% below what will eventually be the new mean.

Realtors make their money selling houses. So of course they are going to blow a lot of smoke up your backside. They will quote recent headlines that would seem to indicate that the market is bottoming out, but what they won't tell you are the internal numbers in those stories that still show a market in an overall decline. Plus the recent tax credit has hyped up sales, but that credit is now just about over and things will slump again.

[PsyFi]

How much of a correction will there be in places like Irvine, HB, Laguna, etc? There has to be a correction b/c some of the asking prices are just ridiculous.

[user_id]

Prices in Orange County are still pretty high in relation to rents. The lower interest rates have helped the buy vs rent calculations, but its still cheaper to rent. But interest rates should go up and rents are going down, this will make matters even worse.

Its sort of funny, there is a decent amount of cash going into cash-flow properties, but this weakens rents further which reduces their cash-flow and the value of the property.

[k374]

OC home prices are going to rise in 2010 just like I am going to make gold from sand The Realtors have been barking this nonsense regardless of what year it is. There is going to be a further deceleration of home prices in the SoCal housing market through 2011, caused by:

- FHA pullback next Spring when the target of 1.25 Trillion in financings is reached but with private investor confidence still at almost zero levels
- Shadow inventory hitting the MLS
- Increase in interest rates, Fed has already indicated that they will do this soon enough
- Further bailouts to stop declines unpopular due to current astronomical deficits

[JohnG72]

Originally Posted by PsyFi

How much of a correction will there be in places like Irvine, HB, Laguna, etc? There has to be a correction b/c some of the asking prices are just ridiculous.

It depends where you are looking and what you are looking to pay.

In certain very nice areas of HB, prices are not too far off from incomes. In fact, if you remove retirees that have their house paid off, and people who have modest mortgages due to putting down large amounts, I think you will find several upscale HB communities that are correct in terms of income/mortgage ratio....or at least pretty close.

Really, not everyone can live in the best communities. Where I grew up, San Marino was the big deal, and Arcadia was next. In OC its Newport, HB, and a few of the smaller upscale communities. But someone has to live in Fullerton and Orange, and someone has to live in Santa Ana and Buena Park.

If you really want to know when HB is close to bottom, wait until prices fall to somewhere around 5-7x average income for that area. Normally its 3x for mortgage purposes, but there are enough people in that area that have been in their homes forever that you need to compensate for in some way. The reason is that people who have been in their homes forever have cheap mortgages and don't need to make as much money to support their lifestyle. So those people pull the average income down some. Note this really doesn't apply in the new build areas.