Observations from the front lines of the Irvine housing market… (Orange: for sale, real estate market)

[USCTrojanCPA]

I am currently working with a several buyers, including 2 cash buyers, who are actively looking for a SFRs in Irvine. From working with them, I have the following general observations:

1) Short Sale listings tend to have the best pricing but the pricing on these short sales is getting closer and closer to market price
2) The % of short sale listings that are getting approval and close have been on the rise over the past 6+ months
3) Many home priced around market gets multiple offers, including over list price (some even sight unseen)
4) There are very few REO properties for sale (this makes sense as foreclosures keep getting postponed at the foreclosure auction)
5) Most of the organic sellers who have equity list their homes for WTF prices, at times extreme WTF prices that are even higher than bubble peak prices (I wonder if they are serious sellers or are they fishing for suckers?)
6) Organic sellers are taking a while to lower their WTF asking prices and when they do lower the prices it is by $10k-$20k
7) TIC has been able to sell the Woodbury home collection in relative short order and there have been announcements of new home developments due to the strong demand

The attached spreadsheet illustrates the strength and pick up in the Irvine real estate market since last May. Things really started to pick up in Oct of last year and the re-sale number would have been that much higher if TIC would not have come along with the Woodbury home collection. That being said, there would have been a limitation on the number of sales due to the lack of inventory. Inventory levels continue to be low and buyer demand is very strong (as validated by the fact that there are only about 3 months worth of homes on the market). About 1 in every 5 of 6 homes in bought for cash and the majority of the rest are bought with significant down payments of 40%+. The foreclosure wave is not coming, banks will slowly bleed inventory into the market which will be absorbed by the buyers.

On a more specific note, one of my cash buyers has been getting outbid on their search for a Irvine home by both financed and other cash buyers. One of my other buyers purchased a condo over in Northwood recently. We got into escrow by asking quickly when the listing came out and bought it at $9k under list price. The interesting thing was that several offers at and above list price ($10k-$20k above list) came days after the seller signed our counter offer. I don't think a lot of the bears understand how strong the buyer demand for Irvine homes is out there. I too was a bear but after what I saw with my every eyes over the past 6-9 months, I began to realize that the strength was for real.

We'll have to see if the European debt mess spreads and we get a replay of Sept 2008. It'll be interesting to see what will happen over the next few months with the tax credits going away. I think there might be a little pause, but as long as Europe doesn't implode and drag the rest of the world with it, including us, the real estate market in Irvine will keep ticking along. We shall see...

[Charles]

Gut feeling, how would this analysis translate for the remainder of South OC including RSM, MV, LR, CdC, AV, and LN? Pretty much the same tendencies? It "seems" these places have had more risky loans (Alt-A, Option Arm) as many of these homes I mentioned were built 2000-2005 or so during the bubble and when the risky prime Alt-A (not subprime) loans were popular. Irvine may not have been as vulnerable.

Does it seem the short sale closing times are trending down? Meaning, the message many "live in, owner occupied" (not investor) buyers received a year or so ago was that short sales were so complicated and the process so drawn out that they were (rightfully) intimidated by the process. Redfin, for example, doesn't even address these properties. If a person was relocating for example, they simply didn't have the time and couldn't take the risk of entering a risky short sale process. Does it seem like short sales are becoming easier in these regards? Are conventional buyers closing short sales more frequently?

We've read a lot of homeowners who are living in their homes though they are not making mortgage payments. Some of them may not be making HOA payments. Have you seen HOA adjusting HOA fees which is placing the burden of delinquent HOA members onto the non-delinquent HOA members? In other words, are some HOA members picking up the slack for the dead beat HOA members?

How will shadow inventory affect South OC housing prices?

Finally, what is your opinion (gut feeling) on the the Alt-A Option Arm reset "tsunami"? Is this going to be a big factor in the next year or so? Will South OC home prices be significantly affected? Or, are there enough countering forces (government, continued low interest rates, less job losses/more job gains, banks hesitating to market homes, etc) which would offset a major impact by those loans' resets?

[00molavi]

My crude analysis of the current situation in Southern CA is that we are going to yo-yo around the same price points a bit for the next few years. Banks are smart and would not flood the market with REO's. Interest rates will be kept in check "as needed" by the powers to be. With that the reset would be affordable to whoever was paying. Some owners will strategically default but most of them are already out of the box. There would not be an uptick in the price until employment is back and then we will see inflation through the roof. In this midst, the middle class might shrink even more, a bit like the 3rd world.

[BRinSM]

can banks afford to hold onto said "shadow inventory" for a few more years? at what point will banks be forced to recognize these losses? where are these cash buyers coming from? foreign buyers? move up buyers? When will unemployment get back to historical average rates? IMO the answers to these questions are what will determine the fate of the housing market.

[OC Investor2]

Thanks for your take USC.

What's your take on the rental market, particularly as it concerns SFH or townhomes ( as opposed to IAC type properties?)

[Mr. Fantastic]

This analysis is completely wrong.

Never trust a full-time real estate professional to have your best financial interest at heart (they have no incentive to).

[CmpEngineer]

When the "Big One" (earthquake over 8.0) hits, all of your houses will be turned into rubble. You will live in a tent in your backyard.

[native56]

No way. Obama will give you a house from his "stash".

[native56]

For the uninformed the source of my jibe comes from an interview with a welfare applicant in line in Detroit. When asked where the money she was applying for came from she credited Obama. When asked where he got it from she replied "his stash".

As good a place as any to get government money nowadays.

[MonkeyKid]

@USCTrojan

You sound like a true salesman, though I wouldn't expect less.

Yes, the European fiasco will spread into the US. I think the US has bigger problems than Euroland but we have a printing press and that is why our problems have been delayed. With all the inflation the government has created the Fed will soon be forced to raise interest rates. When that happens real estate prices will drop like a stone, more people will become underwater etc. Real estate is dead for another 10 years or until Obama and his henchman decide to let the free market work. The true bargains in real estate will be coming in min 5+ years.

Seems like a lot realtards have no understanding of economics. I met a real estate agent this past weekend and I told him why I think real estate is currently a bad investment and that prices would be dropping big time soon. He replied, "This is Orange County, everyone wants to live here, prices will never go that low" . . . . and you wonder why they call them realtards.