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O.C. homes seen as 10.6% too cheap
September 9th, 2009, 2:00 am · 58 Comments · posted by Jon Lansner
Click to enlarge
Orange County homes were priced 10.6% too low in the second quarter. That’s based on a mathematical/economic formula from HIS Global Insight.
IHS uses regional real estate and economic data — blending selling prices, incomes and interest rates — to put current buying patterns into historical context. Basically, they’re saying … “all things being equal, based on pure economics homes sell 10.6% below where they should.” From the report …
- By this math, Orange County homes have been undervalued by buyers for five consecutive quarters now.
- Undervaluation is by no means any guarantee of a quick turnaround. In this last downturn, Orange county homes were seen as undervalued for one quarter short of 10 full years — up until 2002 — as the local market shook off the aftershocks of the last housing collapse.
- The previous 5-year period of overvaluation peaked at 34.6% overvaluation in Q1 2006.
- Driving the undervaluation is falling prices. Orange County home values, by this math, are down 7.3% in a year and off 29.2% from the cyclical peak. In Q2, Orange County prices did rise 1.5% from Q1. “Nationally, HIS noted that “”extreme home price overvaluation is essentially nonexistent. Only Atlantic City, NJ, remained extremely overvalued, in stark contrast to 2005 when 52 metro areas, fully one sixth of the nation’s metropolitan areas, were extremely overvalued.”
<span style=”color: #ff0000;”><strong>Real estate trends:</strong></span>
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If this R.E. crash is as bad as the nineties it looks like we have a long way to go before bottom. I think that most people would agree that this time it may be much worse. I was looking for the end of 2011 for bottom but it may take a little longer.
Then, according to the previous article on this blog, you would be alone. So, should we believe 41 economists, or……ed.
LLLLLLLLLLLLOOOOOLLLLLLLLLLL
Don’t worry ed, you’re not really alone. There are plenty of haters on this blog that tout their opinion as fact. And none of it matters. The cycle takes it’s own course. Nothing on this blog will make an ounce of difference, but if you think you’re somehow significant, then just keep thinking that. We all need someone to lean on.
Ed,
This crash is just getting started…….the crash will be more like a mud slide. In the next 12 months many of the home owners in the better areas will be ready to sell at greatly reduced prices, just to get rid of the nightmare of owning a home that they cannot afford.
The Chinese are finished lending crazy money to people who can’t pay it back.
The dollar has been debased, yet the effects of trillions dumped into the market hasn’t kicked in yet.
I can’t tell you whether or not these homes are undervalued (I don’t think so). But, I’m pretty certain that the average OC home price may soon be $2 million, thanks to the plummeting dollar.
I guess all of the folks in OC making 70-125k, i.e., well above median, will just “gobble up” all those 2M homes…. Too funny. UE on the rise, underemployment skyrocketing, incomes going down.
VOR: that was for a nationwide poll
41 economists comments on the national market - not the local
let’s stick to relevant material and stop the frickin’ irrational exuberance
OK, I’ll stop the “irrational exuberance” (?) when you stop the irrational fear-mongering-psuedo intellectual-blabbering about things you know nothing about but can write on+on+on ad infinitum.
Deal.
What’s this “haters” thing?
How old are you?
Jon,
This report is a joke.
Home values are still up over 200% from pre-bubble prices. (Liar Loan Prices)
I’m reading reports that state 2008-09 vintage mortgages are starting to default in numbers.
The treasury department says millions of mortgages are still going to foreclose.
To report that prices are too cheap is an insult to everyone’s intelligence.
Where do you find such nonsense?
USA and California Existing Single-Family
Resale Median Price 1970 - 2009 (Graph)
http://www.doctorhousingbubble.com/wp-content/uploads/2009/09/1975-05_medianus.gif
From: September 6th, 2009 Dr. Housing Bubble article -
What Should a California Home Cost? Price and Income Ratios. Various Market Ratios to Determine Real Estate Valuation.
Lansner,
What broker is paying you off to report this?
According to this graph, O.C. real estate has spent more time since 1985 undervalued than it has spent being overvalued. I don’t think so…
Undervalued? Isn’t “value” defined simply as what a market is willing to pay for a certain item?
So if buyers are not willing to pay at these prices, then who is to say it’s “undervalued”?
The biggest shock is that they are able to calculate this discrepancy to a precision of 10.6% LOL if that’s not the biggest hogwash.
So Trojan, does that mean when people were buying at the peak the homes weren’t overvalued?
VOR: what kind of reasoning is that?
Just because their subjective statement that homes were overvalued is true, you are insinuating that their numbers are literally correct?
Trojan is referring to the NUMBERS - and not the DIRECTION!!!
Geez louise - where did you people get your education - sesame street?
VOR: OC Trojan is referring to the numbers - they are VERY SUSPECT
He did not state anything concerning the DIRECTION they claimed!!!
Do you know how to read?
OCT’s point is that their metrics are completely based off a few data points obviously seeing they do not take into account sales volume, or other real market trend data
What is extremely suspect are their numbers - reports void of actual data and calculation methods are not worth the paper they’re printed on
Exactly. “Value” is dynamic, it changes at the flip of a switch. If people are waiting in line to pay $1000 per ounce for gold, is it over valued? Right now, no, but in 5 years, maybe. What about 4 years ago when gold was less than $400 per ounce, undervalued? How about if I told you that the U.S. Dollar will be 40% depreciated in 2 years and gold flies through the roof at $1500 per ounce?
The fallacy that “value” can be measured beyond what people are willing to pay today is exactly why bubbles happen. You can never accurately project value beyond demand measured TODAY. People projected the value of subprime mortgages, and they got it wrong… woops.
These economists who say that real estate is undervalued OR overvalued are just selling bad information based on faulty logic. Economists were declaring that OC real estate was overvalued back in 2004! What happened? It continued to go up for the next 3 years. And then now it’s going down for another 8 years maybe, but guess what? It’s going right back up again. As you can see, value has zero relevancy as it can never assist in one’s decision-making as to whether or not to buy something. If I charged you $100 for a gold watch that you knew you could sell to a pawn shop for $500, you’d buy this watch. The problem is right after you buy my watch for $100, the pawn shop goes out of business… is the watch now overvalued or undervalued? The constantly changing circumstances of the market and human emotion renders “value” nothing more than perspective and opinion.
Value is ALWAYS relative to time and perspective. Things can never be accused of being overvalued or undervalued as long as their is an identifiable market willing to pay a price for it.
If I sold you a gold watch for $100, and you knew of a pawn shop that would buy it for $500, you’d buy it because you believe I undervalued my watch. Then on your way to the pawn shop it catches fire and is burned to the ground, never reopens. You can’t find anybody to offer more than $50 for this watch. So, is the watch overvalued or undervalued?
Value is a fallacy that traps investors all the time. Depending on who determines the value and their self-interest (Moody’s overvalued all the mortgage pools, woops, but they did make a profit by providing these false values, didn’t they?) and the circumstances that CONSTANTLY changes.
What is valuable today can instantly change tomorrow. Gold at $1000 per ounce today, overvalued? Not if somebody is willing to pay $1500 for an ounce next year right? But if the dollar strengthens and it drops to $500 next year, then what? Value is accurate to the degree buyers exist and are ready to buy NOW.
I guess folks in my neighborhood missed that memo - they keep reducing their prices b/c they cannot sell…..
Millions of home owners facing foreclosures (Reuters) cnbc.com
Hey SC,
It’s easy to understand all this.
Those homes in your neighborhood and so many other neighborhoods are undervalued.
They are undervalued by at LEAST 10.6% - probably undervalued much more than that.
The problem here is understanding the meaning of undervalued.
We’re not talking price as value. We are talking about those homes being overvalued by potential sellers and UNDERVALUED BY POTENTIAL BUYERS.
The potential buyers just don’t place as high a value on buying as the sellers wish they would.
The vast majority of the houses on the market are undervalued by me. I see no value in my buying at the prices the sellers wish for.
SC2,I’ll have to thank your neighbors for their relentless efforts to bring our prices to a national average norm , instead of urgent , frenzied , I have to have it now, no matter what the cost or how irrational the prices are!
The dollar is being trash, and there would create a deflation, and then eventually an inflation, but NOT enough to go back to what used to be.
I would like to see a list of cities and average family incomes. Even three years ago, the incomes reported were not sufficient enough to support the home prices during that time period. I believe that will still be the case. Unless purchasing homes priced at 7x,8x, 9x and even 10x your annual income will once again become the norm. We could then begin another recession (unless this recession is still in progress).
WTF?
Common since says otherwise. Do people actually get paid to do these studies?
We’re back to bidding wars in one year; it’s fun to watch. I’m looking forward to stories profiling crazed buyers writing impassioned letters pleading with sellers to consider them worthy to buy their house, happily agreeing to any and all seller demands. I recall a few years back one story about a buyer who was furious the house she wanted was sold to another bidder who was pregnant; the woman had an unfair advantage! I can’t wait for this phase in the cycle to begin. Good times…
Gimme a break. People are continuing to lose their jobs and take deep pay cuts. If they could afford these houses they would have been purchased. The fact is that people don’t have the money and that make homes over priced.
This report is quite invalid. It fails to take into account many other metrics.
For instance - looking at that graph - although home prices literally tripled or quadrupled (read 400%!!!) in value locally over 7 years or so, they show only a minor increase in overvaluation over the bubble from the 90’s - that in itself shows this report as being suspect. All other charts showed that home prices literally “ran off the charts!!”
Sorry to tell ya - but incomes have NOT increased by that amount - they at most doubled over the last 14 or so years - at best - and that is pushing it optimistically.
Without being provided the actual math/logic behind the data used for the charts - this report fails to PROVE the point on what is shown here.
Stating “pure economics …… blending income data, price data, etc.” does not tell us anything. i would like to see what they used for income data seeing all other data including tax information shows incomes have not risen that fast as these charts are insinuating.
Hell - they don’t even mention if they use median pricing or actual paired sales analysis, etc.
Well, I guess anyone with a house on the market should raise his or her price by 10.6%. I wonder why they are leaving so much money on the table!
Oh lord,
OC umployment rate is 9.5% and a house on market is getting multiple offers. According to Steve Thomas, a house on sale stays on market less than 1 month. And now, OC homes currently is 10.6% undervalued.
Maybe, maybe OC economy is not that bad at all. It is not all doom and gloom in OC.
You guys are really pathedic. First, get a life. You all remind me of a bunch of wild dogs that attack any glimmer of hope the housing market may have. My question is why? Are you looking to buy a house for close to nothing? Are you just bored and unemployed, therefore feel like one of the have nots? I read these comments from time to time trying to get a read on what is going on, but these comments are so out in left field and meaningless. Unless you have something constructive to say, please don’t bother commenting. Better yet, how about doing something constructive.
Yes, lets only post positive things! Reality doesn’t matter, it’s how you feel that’s important. Remember what the realtors say, it’s the psychology that matters, not economic fundamentals. Let’s all ride our unicorns into our million dollar 1200 sq. ft. condos that back to the freeway. As long as it makes us feel good who cares how much it costs! Good job Troy, way to get this blog back on track.
or you could state your opinions without the attacks and name calling.
Linguistical,
You speak of riding our unicorns………….
Don’t ever forget the sage advice; Never play leap frog with a unicorn.
Well said. Although, maybe that’s what shockg is asking for when he says “bottom.”
“Unless you have something constructive to say, please don’t bother commenting. Better yet, how about doing something constructive.”
Like questioning an “experts” opinion? How many experts predicted the meltdown of 2008? Roubini and a handful of others? A few years ago, I recall Larry Kudlow yelling “Buy the Farm!”, and Suze Orman advising people to “max out” their 401Ks…after the crash of Fall 2008, I believe she advised people to cash out of stocks and roll into Money Market funds. Remember the “Goldilocks Economy” and the “Soft Landing” back in 2007? Remember “experts” with crystal balls predicting RE profits were “in the bag”?
The great thing about the US is that we express our opinions, not worrying about offending some “Dear Leader” and being sent to a labor camp.
Fly a flag in front of your residence 9/11…never forget those who died that day, and the brave souls past and present who protect our liberties.
And your constructive contribution is to accuse posters of being pathetic? Kettles and pots.
LOSER
Troy,
Your comments sickening. Are you really that much of a sap?
BTW: they are showing undervaluation beginning in what appears to be Q3 or Q2 2008 - prices were not more than 20% off from peak
Man - this whole report is very suspect
Another example of OC RE agents ‘dropping the ball’
pricing too low lol
lansner has no shame
where is the oc registers real estate ad revenue numbers?
the vast vast majority of economists didnt see this recession coming
but now they are gonna tell us whats under or over valued? only
a complete fool- like the ones who bought a house the past four years-
would listen to these buffoons
Yup, let the good times roll!! All you renters are fools if you think you will just sit back and wait for it to fall further. All I can say is thankyou for making me rich :)
Gunner’s baiting us with his regular “RE prices flying up on a magic carpet” sermon.
Preach it Bob Phillips! Oh wait, that’s median going up as price per sq. ft. goes down. Solid advice to buy now.
yet most posters here own homes - many own several
we can always count on Gunner for stating the ridiculous
I bet $$ everything in that statement is a lie - beginning with the insinuation that you’re rich
Wait - you also mentioned recent buers were now rich as well - boy - you must be dirt frickin’ poor
Thank you Gunner and other like you for making me rich and richer. Not buying when idiots like you were saying BUY BUY BUY made me much wealthier.
A development firm owned by the son of Irvine Co. Chairman Donald Bren has filed for Chapter 11 bankruptcy because it can’t repay its bank loans due to slow sales
Gunner, why don’t you tell him about what a good deal RE is?
For every one of those development firms going under, there are 100s doing just fine. Sure, point out the outlier to try to make a point…lol. RE prices are amazing and there are multiple offers on just about every correctly priced house out there. That bidding is only going to heat-up as more and more people see the price rising trend and want in.
famous quotes of the “experts” from the great depression–
keep them in mind as you hear our current “experts” blather
on with–
the recessions over — and the housing bottoms in
http://secret-teachings.blogspot.com/2008/02/famous-quotes-from-great-depression.html
yeah boy– those houses are definitely under-valued alright
that would certainly explain this–
http://mortgage.freedomblogging.com/2009/09/09/millions-more-foreclosures-coming-cramdown-bill-coming-back/17287/
MILLIONS MORE FORECLOSURES COMING
Someone out there coming up with these reports must be in bed with the RE Lobbyists… What knucklehead would ever buy into this crap? Reality check for everyone out there not in the day to day financial snake pit…. We are still 2.5-3 years away from OC hitting bottom. Unless we are going to see an influx of Millionaires ie; Lottery winners.. not, East Coast Retirees..not a chance..it’s tooo hwot, Chinese coming out here to watch their assets simmer… Now that just maybe our saving grace..haha
I wish Lansner would fix the scaling on this graph. All it really tells me is that the 90’s cycle was between 18-36% undervalued when it bottomed, and the current cycle is between 0-18% undervalued. Plotting the graph with 18% intervals lacks the precision to draw any conclusions beyond that.
But assuming the data is sound (a big IF!), then it shows we may only be 1/3 to 1/2 of the way to reaching bottom if you believe this cycle will be at least as bad as the 90’s cycle.
Overvalued - based upon what real metric of income to housing?
My law firm gets at least one call a day from mortgage and real estate brokers who’s homes and ‘investments’ are underwater and looking to ‘get out of it’. They are the only ones right now that wish prices would shoot up, besides those that have been refinancing $100k a year out of their homes for the past five years.
For engineers, accountants, lawyers, doctors, and hardworking people who don’t make 3% churning homes or peddling option-arm mortgages, this decline has been welcome. Yes, the low end has stabilized a bit, but the $1m + homes are in freefall, and that’s because their is little in gov’t subsidy (Yes - $5m or higher might be immune, but the $1m to $4m crowd is hanging on by a thread)
Perhaps California can soon attract talent from other states now that housing is somewhat more affordable, and will likely get more affordable.
Oh - what happens when interest rates go up in the next 1-2 years - since there are no Option-Arm mortgages anymore, how do you get people to qualify when the monthly payments shoot up 35%? what do you think that will do to home prices?
this will all soon become a moot point– the severity
of this recession will rival the great depression–
even the governments lying statistics will no longer
be able to hide the awful truth– the debt weve accumulated
has become unsustainable– its no longer about if
its all about when– and that time is rapidly approaching–
readers who want to learn the truth need to forget the oc realtor
and start reading blogs like this one
http://theautomaticearth.blogspot.com/