San Diego Housing Bubble News and Analysis

I think national median price will drop significantly to around $180k or so (17% decline), I think OC median price will drop down to around $280-300k (51% decline) or so (170% of median). Irvine median may be slightly higher than that, about $320k or so.

The reason I say this is because inflation adjusted income growth has been MARGINAL or NONEXISTANT since 2000. Current income levels do not support anything more than the above price points. I don't care about anything else, I firmly believe if people don't EARN more then higher home prices are not warranted.

Just my $0.02

Income is up up up. Haven't you got the memos? JK.

I think the 2010 census will be rough. If the American community survey samples SoCal between 2007-2008, it'll be interesting to observe what I predict will be an income drop in the area.

We're way out whack on current income numbers which have benefited from a massive run up due to RE commissions, construction O/T and premiums and 30,000 anybody's with a pulse being able to re-sell house in 6 months for a $100,000 profit.

It is my observation that incomes are indeed up, substantially, and not just mortgage bankers or loan AEs. Just look at the starting salaries of police officers, school teachers and the likes. I remember when they were pretty lowly paying jobs, but no more. I know a couple of highway patrol guys that make over $100K a year. And many teachers make over $60K for nine months of work. And don't forget the hordes of mom and pop self employed. Much of their reported incomes are very conservative. Someone has been buying all these overpriced properties, and they're not all subprime. Just something to ponder.

cashman, incomes of 100k are not as common as you think. Per official statistics about 30% of households have incomes over that figure, let's say 40% just for argument sake and taking into account incomes from entrepreneurs may be under-reported. Even so, most of those families are already homeowners and not creating demand for homes..a small percentage of those may be trade up buyers. However, trade up buyers are dependent on selling their existing homes to first time buyers who are typically in their late 20s/early 30s. Most in this age group do not have established careers to earn such a high income!

Secondly, a mortgage is not the only expense, most families have kids, car payments, vacations, kids college expenses, emergencies etc. that are very substantial. A family making 100k with other expenses combined is completely priced out of even the median home.

Put that 40% number up against the hoemownership rate of about 60% and things dont look so bad. Plenty of first time buyers have 100K HH incomes. Starting salaries out of college for many fields are over $50K. Put two of them together and you got.........

Especially in the OC. Lots and lots of professional positions, upper management, and of course the two income family is the norm, not the exception. Meet Mr. and Mrs. Irvine: he's in his mid twenties, working a few years at the OC Sherriff making $70K. She's teaching at an Irvine middle school making $60K. Add it up, that's $130K just like that! With mortgages still available at 6 percent or less, seems like there really are people able to buy at todays prices. What happens if rates go down too 5 percent, or less? They have been there before.

Median household income in Irvine is 83K according to the Census Bureau. Such households cannot afford a 600K home, even at 5 percent rates. Get your facts straight cashman.

Median household income in Irvine is 83K according to the Census Bureau. Such households cannot afford a 600K home, even at 5 percent rates. Get your facts straight cashman.

Comparing median income to median priced homes is a flawed argument. 50% of people in OC make more than 83K. What is the home ownership rate ? Suppose it is 60%.
Therefore, it is not the median income family buying the median income house. The median income family is in the bottom 17% of homebuyers (assuming income proportional to price).

It would be more correct to compare say the 70-75th percentile income to the median price, if you want to take statistics and make an appropriate example out of them.

According to the 2005 Census Bureau estimates ...

41.2% of Irvine Households make more than 100K
21.1% make more than 150 K
10.2% make over 200K.

So, the typical median home buyer likely makes between between 100-150K, not 83K. Still overpriced at 600K, but not as out of whack as comparing median household income and median price makes it to be.

http://factfinder.census.gov/servlet/ADP...
(NOTE: Based on Household Income... the Family income numbers also reported on the link indicate that almost 54% of Irvine families make more than 100K)

FWIW ...

30% of Orange County Households make more than 100K.
13.5% make more than 150K
7% make more than 200K

San Diegan I know plenty of folks who are single income households, make around 75k and own a median priced home. This was very possible just 6 years ago. It's only now that this is not possible due to the income/home price ratio going completely out of wack.

Remember, there are many retired homeowners with little income who bought 20 or 30 yrs ago that equally skew the statistics in the other direction, for example my Aunt is 70years old, owns a home worth $800,000 in Laguna Hills but earns like 35k/yr from her retirement and benefits! so your math is of little value!

My point is that ultimately income drives how much house people can qualify for and/or afford (not always equivalent).

The median price home sales are for people who are buying today, not those already in during more affordable times.

I am not saying that prices are not out of whack. They are.
I'm simply stating that comparing median household income to loan qualification standards for a median priced house is flawed.

for example my Aunt is 70years old, owns a home worth $800,000 in Laguna Hills but earns like 35k/yr from her retirement and benefits! so your math is of little value!

Kev - Is she buying the home on her 35K income ? NO.
You have it backwards.

Your example has no relevance to the discussion.

Comparing median income to median priced homes is a flawed argument.

I didn't say the median household should be able to buy a median home. My point was that cashman has mischaracterized the facts.

The median income family is in the bottom 17% of homebuyers (assuming income proportional to price). It would be more correct to compare say the 70-75th percentile income to the median price, if you want to take statistics and make an appropriate example out of them.

I don't know what the median homeowner household income is and neither do you. Those stats are not readily available. The idea that you can derive it as being proportional to price is laughable. You are throwing out guesses. Also, there are a non-trivial number of households above the median who rent.

I was responding to this ...
Median household income in Irvine is 83K according to the Census Bureau. Such households cannot afford a 600K home, even at 5 percent rates.

I don't know what the median homeowner household income is and neither do you. Those stats are not readily available. The idea that you can derive it as being proportional to price is laughable. You are throwing out guesses. Also, there are a non-trivial number of households above the median who rent.

I was trying to make a concrete point via a thought experiment that required some assumptions.

CA has a huge underground economy. But of course that is where the liar loans comes.
Cool.
Cow_tipping.

I don't know what the median homeowner household income is and neither do you. Those stats are not readily available. The idea that you can derive it as being proportional to price is laughable. You are throwing out guesses. Also, there are a non-trivial number of households above the median who rent.

If we assume that people have to actually qualify for their loans based on income, I would conjecture that the buyers of median-priced houses are those above the median in income.
Would you agree ? disagree ?
Any realtors have insight into this ?

Regardless, here is another shot at getting my point across with a simpler example and fewer assumptions ...

You are right that the median household income of 83K cannot afford the 600K house. However, over 21% of the households in Irvine have incomes over 150K and could easily afford the 600K house. In fact over 41% of Irvine households have incomes that exceed 100K per the 2005 Census bureau. These households would likely afford homes in 470K + range, assuming 20% down.

I believe that these incomes (if sustained) would support the median price in the 450-550 K range going forward.
Obviously this will be lower/higher depending on incomes, interest rates, unemployment, psychology, etc.

1. "Median income" - per Census definition, includes income earned by anyone 15 yrs old and up. So a 15 yr old working 2 nights a week at Blockbuster is factored in to the median income stats. Think that might drag down the median a bit? Or is it offset by the billionaires in The OC?

2. The calculations in this thread appear to relate to the first time buyer only. For instance, and $83K household income can certainly afford a $600K house if that household has already made $250K profit on a prior home purchase and they roll that profit into the $600K purchase.

Your example has no relevance to the discussion.

I was just making the point that not all renters are below the median income and all homeowners above the median like you're making it out to be. There are plenty of homeowners who are way below the median income.

Bottom line for anyone sharing an optimistic viewpoint is this..

Logic and reason went out the window on the way up during this boom and logic and reason will go out the window on the way down.

Sorry, but I am not buying any of the "it's different this time and here's why" arguments, as I have heard them all before and seen them all fail to hold up. At the end of the day, the pendulum will overswing on the downside, regardless of your optimism.

Goodbye housing market...farewell "Carnage" (Orange) County...you are headed where no-one but a few of us housing "bears" have predicted.

Yes, median homebuyers probably have above median income. But I disagree that people have had to qualify for their loans based on income. Loose lending standards and liar loans are a big part of how the bubble formed. So although homebuyers make more than median, the cost of homes doesn't provide much useful info about how much more.

To be fair, I suppose I was making a stupid guess of my own with the 600K number (which is about 100K below the Irvine median).

It just gets annoying to hear people try to paint Irvine as more affluent than it really is based on untrue stereotypes like Mr and Mrs Irvine. Irvine is not Laguna Beach or Newport Coast. Once the bubble bursts, I strongly suspect that median households will be able to afford more than a humdrum 2 bedroom condo, because they were able to before the bubble.

bigmoneysalsa -

I agree with you that loose lending standards led to excessive home price appreciation.

Based on rational lending standards, in my view the current (well almost current since the numbers are from 2005) income profile of Irvine is consistent with median house prices near 470-550K. That means they are perhaps 25-40% overvalued based on my guess-timate using half-baked assumptions.

I don't think the average couple I painted of Mr. and Mrs. Irvine is that out of line, bigmoneysalsa. A police officer and a school teacher seem pretty average to me. I grew up in Woodland Hills, an LA suburb in the valley similar to OC's Irvine, and my father was an aerospace engineer and my mother a school teacher. We were very middle class. Certainly Irvine has couples above and below this example, but for the most part, Irvine is a middle class, family oriented city of professional-type couples. I'm certainly not trying to boost Irvine's image above what it is, but you must admit OC as a whole is considered an affluent area, and housing prices have always supported that perception. Therefore it must be fact.

My mistake cashman. Clearly your anecdotal evidence is far more accurate than any objective statistics I could muster. Your words are the epitome of truthiness.

I have to agree with B M salsa on this one.

If you scroll down to the bottom of this page you will note that it reads "In God We Trust. Everyone Else Bring Data."

When you look at the data, it is interesting to note that as of 2005, according to the census bureau, 53.75% of families in the city of Irvine make over 100K. The Mr and Mrs Irvine example of a couple making 130K is not really too far out of line with what these data show.

Other than those sellers who need to sell ...
Is there anything else that will force sellers to reduce prices in the short run ?

My side neighboor is a business owner of fast food restaurant in a mall, the front neighboor owns a small biotech startup, i live on the corner lot, we are both scientists with combined income 300K, not counting stock
options.

Income Down Income Up No Change

kev374 X
no_such_reality X
cashman X
sdrealtor(biased) X
big_money_salsa X
formersandiegan X

Each one of you won the argument, Congratulations! =)

Now go back do some work...

--
i bought my home in 1998. I have lots of cash on top of home equity. if you are one of the ones who outbid my offers for the last 3 years, I am just laughing at you and how does it feel now to be a sucker?

Carnage at High End

This is from an Irvine blog:
http://www.redfin.com/stingray/do/printa...

New Asking Price: $1,950,000
Old Asking Price: $2,249,000
Purchase Price: $2,206,500
Purchase Date: 6/15/2006
Address: 19 Fresco, Irvine, CA 92603

1st Loan $1,544,232
2nd Mtg. $220,600
Down payment $441,668

The seller may end up losing it all. And all this in a year. Pretty dramatic. One would think someone with half a million $ cash has a little more sense!

Thanks for bring an old thread back to life with a nice illustration. Quail Hill is not even worth $1 million in my view.

A 2 million dollar track house.

Forget the 500k homes, it's these houses which will see the largest drop %. bye-bye liar loans. Irvine doesn't have enough (non-mortgage) workers making 500k+ a year to afford a 2 million dollar house.

not even worth $1 million

I think a knife catcher may buy this at a "bargain" price of around 1.5M before it ends up at or below a million. It will be fun to watch a lot of Trump wannabes get their fingers burnt in this cascade.