Friday, December 17, 2010

OC Home Prices Falling - Double Dip Confirmed

More evidence that Orange County home values are on the decline once again! This year’s price rally has faded, according to the OC Register.  If you are a home buyer, keep in mind that you are buying a declining asset and you will lose value every month, on top of your mortgage payment.  Renting is far superior at this point in time.

This data comes from CoreLogic, whose Orange County slice of its nationwide home price indexes shows local values falling at a 2.56% annual rate in October.
It was the second month of year-over-year declines following eight consecutive increases. Before that upswing, the CoreLogic index for Orange County had fallen 37 straight months on a year-over-year basis.


Anonymous said...

Your ongoing assertions about buying versus renting is getting too over the top. Hardly anyone buys "average". You have yourself documented some houses where the buyer dreadfully overpaid, while there have been other sales that have been very good bargains.

Likewise, paying overmarket rent is stupid. Getting a good deal on a house is obviously better than paying overmarket rent, just like paying a undermarket rent instead of vastly overpaying for a house is a good thing.

If you are renting a home for an amount approximately the mortgage payment, you are losing out. If you are renting a parallel property for less than a mortgage payment, at some point renting is better. But it all depends upon what you are paying, and for what, as obviously renting a shack "saves" you money compared to buying a manion.

Mr. Blue said...

Anon, let me help you understand.

You left out the MOST important scenario, which is - If you are renting a home for an amount much less than the mortgage payment, then renting is better. Almost ALL properties in the upper 50% of homes in Laguna Beach, Newport Coast and Newport Beach can be rented for MUCH LESS than the mortgage payment.

I lease a nice high end home and pay approximately 10%-20% of the cost of owning it. And I'm not missing out on any property appreciation - there is none. In fact, i'm missing out on the property depreciation, which my landlord pays for, day in and day out. When it looks like high end properties may start to appreciate again, the calculation may change and I will probably buy. In the meantime, I've literally saved more than a million dollars by avoiding high mortgage payments and loss in the owner's property value in the last three years by leasing. Of course, no real estate agent of any merit will tell you this, because either they do not understand or they want you to buy, buy, buy so they can get their pound of flesh, er..commission check.

There is no "overmarket rent" problem in the OC. If you have evidence to the contrary, have at it. This is a fabricated issue.

Mr. Blue

Anonymous said...

You are seriously asserting you are leasing a $2m house for $1000 to $2000 a month?

Well if you are, good for you, but that is not the norm, and not close to it.

The key point of course is where is the market rent for a house in relation to a mortage. Mortgages are running about $4,774 per million now. People renting $1.25m houses houses are likely losing out compared to the having the tax break on a million dollar mortgage. People renting a $2.5m house are probably saving compared to having a 2m mortgage of which only half is deductible. Renting a $10m house is probably a clear winner.

But its not a simplistic as you make it. Owning an asset that is a small loser now is likely to generate profits in the future. Most obviously, in 30 years, no matter how much the owner will have "lost" to the renter in that time, the owner will rapidly catch up because his payments will cease. Owning is plainly better than renting overall, but renting can be tactically sensible for a short period of time.

And then, whatever the tactical value of renting $2.5m+ houses now, that value does not compare with finding either a good deal now, or finding a house with great personal utility (2 minutes from work; view you want; privacy for three dogs; whatever). Those still should be someone's highest priority. Your generalization is too all-encompassing. Renting is not in all cases superior to buying, right this minute.

(And get over realtors. You sound like you'll explode when you talk about them. Realtors have little to do with high end homebuying these days as most people lean toward your direction... they look online and educate themselves. Realtors aren't needed to find high end properties, and they aren't going to convince many people to buy something they don't really want.)

Anonymous said...

The reality is that with most pundits, nobody takes the time to fact check all of the BS they spew...

In late 2009, Blue was ranting about 500sq ft, in Crystal Cove, like it was going to be fact. Look at the latest sales, except for condos, HE IS COMPLETLY WRONG.

Once you fact check him against all of his posts, you will see that he rarely is right. He just spews lots of soft "facts" that fits his view of the world.

If he is happy renting, then more power to him. How about joining our group for chips and salsa down at Javiers. Blue provides the entertainment every Wed. night.

Mr. Blue said...

Anon, I can tell you don't understand the math because of the simple but flawed rationale of your response.

I stand behind my statement.
Basically, my landlord has been losing at least $50,000 PER MONTH in home value in the last years. In addition, I know that his mortgage, insurance, taxes and HOA fees are about $20,000-23,000 per month. Collectively, the cost to own the home I enjoy ever day has been about $70,000 per month. There is no disputing that figure. And I do pay, and have paid, less than 10% of that cost per month to live in the house!

Mr. Blue said...

And to the last Anon - if you can find anything at all from late last year that qualifies as a rant predicting $500 per square foot home prices, please quote it - you sound like a real estate agent that is trying to discredit the sender while sneakily ignoring the true facts of the original message....

My advice to buyers is to run the other way if you hear anything like this hopeless spin from your agent.

Anonymous said...

Here is your quote.....
Wednesday, August 19, 2009
Crystal Cove Home Values Continue Downward Plunge

During the bubble, many realtors lured buyers of Crystal Cove homes for $1000 per square foot. That price point was thought to be a rock solid value even well after the market started plunging downward.

Not so anymore. Awash in foreclosures, the asking prices on some Crystal Cove properties are squarely in the $600 per square foot range.

And the sale prices probably will be less than the asking prices.

Hello, $500 per square foot! A 50% decline. And more declines will come after the summer buying season fizzles to a close. Your agent won't tell you that, but I will."



Mr. Blue said...

Anon, nice try but you are taking a quote out of context. That particular post was about the condo and Seabourne homes on the bottom of the hill - not all of Crystal Cove. To say i was predicting that price level for all of Crystal Cove is simply wrong.

All of the homes that i listed in the post that sold ended up selling in the $400-$500 per square foot price range. It is most useful if you compare apples to apples and comps to comps. That said, in the last 12 months there was only one sale of a Seabourne home at $806 per square foot. I think he overpaid.

Anonymous said...

Not sure how by quoting your entire post i was taking anything out of context.

In fact, by definition, the complete context is there.

At the end of the day, you feel you know better than the market.......

Makes me wonder...

Anonymous said...

Mr. Blue-

You are right on with your comments. All Crystal Cove Rents are well below the point where it would make sense to buy the same house.

Your other Anon posters should go to: plug in the numbers for themselves.

Values clearly need to drop to be in line with incomes and rents.