OC-specific prices

[patientrenter]

I love the housing POV here on Piggington. But I live in OC, and most of the reports of price drops on Piggington are about San Diego or its environs. To help OC’ers, I am starting a thread here for prices and price changes specific to OC.

I’ll start modestly with a recent price drop I’ve noticed here in South Orange County, courtesy of Redfin.

I am just starting to see some 2+1 condos for less than $300K, mostly in Lake Forest and Mission Viejo. 11 at last count (excluding the 55+ homes). The ice is melting here, PD.

Here’s one:
23300 ORANGE AVE #1
Lake Forest, CA 92630
Listed at $270K, 28% off 8/2006 purchase price.

Sales history is
Date Price Appreciation
08/30/2006 $374,000 19.5%/yr
03/12/2004 $241,000 20.0%/yr
01/29/1999 $95,000 36.4%/yr
11/18/1997 $65,500 —

I could have bought for $65,500 in 1997! What was I thinking? But $270K beats $374K by…. $104K.

Patientrenter in OC

[no_such_reality]

Hang tough, those cruddy 2/1 apartments will probably be $100K when it’s done.

You don’t buy those to live in them, you buy them to cashflow. The condos HOA fees and the new developments mello-roos crash cash flow in a hurry.

As a rental, these old units can’t compete with the new soaring average rent. Rent increases have been driven by new units with larger floorplan, more functional space, greater amenities, garages and updated/upgraded accoutriments.

This is dated, worn, has a carport, lacks amenities and I suspect the floorplan is classic wasted space with hallways common in the late 70s/early 80s.

In other words, these will be tough rents going forward and they will need to compete on price for a price sensitive tenant.

[no_such_reality]

Hang tough, those cruddy 2/1 apartments will probably be $100K when it’s done.

You don’t buy those to live in them, you buy them to cashflow. The condos HOA fees and the new developments mello-roos crash cash flow in a hurry.

As a rental, these old units can’t compete with the new soaring average rent. Rent increases have been driven by new units with larger floorplan, more functional space, greater amenities, garages and updated/upgraded accoutriments.

This is dated, worn, has a carport, lacks amenities and I suspect the floorplan is classic wasted space with hallways common in the late 70s/early 80s.

In other words, these will be tough rents going forward and they will need to compete on price for a price sensitive tenant.

[patientrenter]

nsr, here’s my buy or rent calc.

I’m a price sensitive tenant. I pay $1425/mo for an old 2+1+garage apartment condo here in Eastside Costa Mesa. On Craiglist, I don’t see much for less than that in Lake Forest or Mission Viejo or Laguna Niguel. So I assume it would cost me at least $1300 for about the same old 2+1+garage in one of those areas.

If my total expenses when buying are $3K / yr for HOA and 1.5% for maintenance and 1% for taxes and 2% for occasional upgrades and miscellaneous, then I am paying about 5 – 5.5% on $300K after tax, or about $1300 / mo. So if I can get an old 2+1 with a garage for $300K, my outlay is about equal to renting.

My hope is to wait, as long as prices are decreasing, so I can get something better for $300K, but if price decreases slow and I can buy something similar to what I live in now for less than $300K, I probably will pull that trigger. I have to hold myself back from making a premature move by also requiring that I can pay for it out of money market savings, which are less than $200K now and growing slowly.

Patient renter in OC

[patientrenter]

nsr, here’s my buy or rent calc.

I’m a price sensitive tenant. I pay $1425/mo for an old 2+1+garage apartment condo here in Eastside Costa Mesa. On Craiglist, I don’t see much for less than that in Lake Forest or Mission Viejo or Laguna Niguel. So I assume it would cost me at least $1300 for about the same old 2+1+garage in one of those areas.

If my total expenses when buying are $3K / yr for HOA and 1.5% for maintenance and 1% for taxes and 2% for occasional upgrades and miscellaneous, then I am paying about 5 – 5.5% on $300K after tax, or about $1300 / mo. So if I can get an old 2+1 with a garage for $300K, my outlay is about equal to renting.

My hope is to wait, as long as prices are decreasing, so I can get something better for $300K, but if price decreases slow and I can buy something similar to what I live in now for less than $300K, I probably will pull that trigger. I have to hold myself back from making a premature move by also requiring that I can pay for it out of money market savings, which are less than $200K now and growing slowly.

Patient renter in OC

[no_such_reality]

PR, In general, your idea is sound, when owning is cheaper than renting, own. I don’t follow your math though in your example. What about the mortgage? That’s another $2000/month. Some other assumptions may be a bit high, but

Rents are frustrating, as you point out, a quick check of Craigslist list shows little in Lake Forest most 2 bedrooms are $1450. However, those are 2/2 dual master set up, with a garage and slightly larger. And a check also shows several pushing the reductions. The competition will heat up and a 2/1 without garage will lead prices down.

Honestly, I wouldn’t be surprised to see these units end up at literally 1/3rd their peak price. Several items point to them losing 60-70% of their peak value.

If you go 100X their rental value you get $140K currently and likely falling. Look at the 1999 sales price and add 5% a year you get $130K. Look at the 1997 bottom price and add 5% a year and you get $105K. With these places actually having sold for $390K in the last year, there’s a lot of loss coming this way.

[no_such_reality]

PR, In general, your idea is sound, when owning is cheaper than renting, own. I don’t follow your math though in your example. What about the mortgage? That’s another $2000/month. Some other assumptions may be a bit high, but

Rents are frustrating, as you point out, a quick check of Craigslist list shows little in Lake Forest most 2 bedrooms are $1450. However, those are 2/2 dual master set up, with a garage and slightly larger. And a check also shows several pushing the reductions. The competition will heat up and a 2/1 without garage will lead prices down.

Honestly, I wouldn’t be surprised to see these units end up at literally 1/3rd their peak price. Several items point to them losing 60-70% of their peak value.

If you go 100X their rental value you get $140K currently and likely falling. Look at the 1999 sales price and add 5% a year you get $130K. Look at the 1997 bottom price and add 5% a year and you get $105K. With these places actually having sold for $390K in the last year, there’s a lot of loss coming this way.

[PD]

PR, when doing your calculation, you need to add in the opportunity cost of your downpayment. If you put 200k down, at 5% you would have made 10k for the year. So your cost of owning goes up $830 a month.

[PD]

PR, when doing your calculation, you need to add in the opportunity cost of your downpayment. If you put 200k down, at 5% you would have made 10k for the year. So your cost of owning goes up $830 a month.

[patientrenter]

nsr and PD,

Thanks for the comments. When I buy, it’ll be all cash, so I have no mortgage calculation. I may just leave out the opportunity cost too, because that applies only if I assume the home won’t appreciate at inflation or the rate of other assets. I simply won’t be able to bring myself to buy if house prices are still moving down at a clip. So my assumption at purchase will be that the condo/house asset I’m purchasing could appreciate or depreciate just like stocks or anything else I could buy. I could be wrong, but then I could be wrong if I buy stocks too. Simple calcs, but it makes it easy to decide.

I went through the boom of 1987-1990, and the drop of 1991-1996. I moved from LA to OC in 1996 and didn’t buy because I was very familiar with what houses here cost in the 1970’s. (I was a RE nut even when I was a teenager in the 1970’s, so I knew prices in So Calif even though I lived 5000 miles away.) That experience taught me to not be greedy and not to use absolute historical price measures, and instead to just buy when I can lock in my current living situation at around my current cash cost….. unless prices are dropping so fast that I am convinced the market is still going down. I never again want to read in my rental about prices that are too high for me and going even higher.

Patient renter in OC

[patientrenter]

nsr and PD,

Thanks for the comments. When I buy, it’ll be all cash, so I have no mortgage calculation. I may just leave out the opportunity cost too, because that applies only if I assume the home won’t appreciate at inflation or the rate of other assets. I simply won’t be able to bring myself to buy if house prices are still moving down at a clip. So my assumption at purchase will be that the condo/house asset I’m purchasing could appreciate or depreciate just like stocks or anything else I could buy. I could be wrong, but then I could be wrong if I buy stocks too. Simple calcs, but it makes it easy to decide.

I went through the boom of 1987-1990, and the drop of 1991-1996. I moved from LA to OC in 1996 and didn’t buy because I was very familiar with what houses here cost in the 1970’s. (I was a RE nut even when I was a teenager in the 1970’s, so I knew prices in So Calif even though I lived 5000 miles away.) That experience taught me to not be greedy and not to use absolute historical price measures, and instead to just buy when I can lock in my current living situation at around my current cash cost….. unless prices are dropping so fast that I am convinced the market is still going down. I never again want to read in my rental about prices that are too high for me and going even higher.

Patient renter in OC

[Author]

Posts