In The Great Housing Bubble, I predicted Irvine resale prices would not reach their bubble peak for over 15 years. The analysts at Fiserv Case-Shiller have drawn a similar conclusion.

Of course, the owner of today's featured property doesn't believe that. In his world, prices never stopped appreciating in 2006.

Irvine Home Address … 35 WOODS Trl Irvine, CA 92603

Resale Home Price …… $2,589,000

{book1}

If I could … Maybe I'd give you my world

How can I … When you won't take it from me

You can go your own way Go your own way

You can call it … Another lonely day

You can go your own way Go your own way

Tell me why … Everything turned around

Packing up … Shackin’ up’s all you wanna do

If I could … Baby I'd give you my world

Open up … Everything's waiting for you

Fleetwood Mac — Go Your Own Way

Every seller must go their own way. Some accept the reality of the market and price accordingly. Some do not. Every owner wants house prices to take flight, particularly those who are underwater. Unfortunately, fundamentals that support the housing market can only go up so fast, and in case you didn't notice, wages are going down.

Bubble-era home prices won't be seen again until 2025 or beyond in California, Florida, Arizona and Nevada

BROOKFIELD, Wis., Apr 08, 2010 (BUSINESS WIRE) — Fiserv, Inc., the leading global provider of financial services technology solutions, today released an analysis of home price historical trend data and forecasts for more than 375 U.S. markets based on the Fiserv(R) Case-Shiller Indexes(R), which is owned and generated by Fiserv, data from the Federal Housing Finance Agency (FHFA) and Moody's Economy.com. The Fiserv analysis indicates the markets that experienced the greatest price bubble, including certain metro areas in California, Florida, Arizona and Nevada, won't see home prices return to peak levels until 2025 or later. That represents an unprecedented market cycle that will last a full generation from the top of the market in 2006-2007. Many other markets, including major urban centers in the Northeast and industrial Midwest, may need to wait a decade or more until prices return to their market peaks. "Nationally, Fiserv Case-Shiller data points to a further seven percent decline in home prices through the end of this year, with a prolonged recovery beginning early in 2011. In many markets, the emphasis is on the word 'prolonged,'" said David Stiff, Chief Economist, Fiserv. "We see several powerful forces in the market that will severely hinder the housing recoveries of many metro areas, particularly in the hard-hit states of California, Florida, Arizona and Nevada. It will take these markets 15 or more years before home prices climb back to their peaks." … Home sales grew dramatically, jumping from 4.5 million units in January to 6.5 million units in November 2009, the highest gains since 2006. This was attributed to lower prices, almost record-low mortgage interest rates, and the $8,000 tax credit for first-time home buyers. Another factor that temporarily slowed the erosion of home prices has been the financial institutions' inability to effectively sell homes with distressed mortgages. … Detailed home price data and information on the Indexes can now be found at the new Fiserv Case-Shiller website at www.caseshiller.fiserv.com. At that site, users can get the latest housing news and find detailed information and home price forecasts for 381 U.S. markets.

In The Great Housing Bubble, I noted the following:

Table 11: Summary of Predictions for Irvine, California Home Prices Method Total Decline Appreciation Rate Recovery Year S&P/Case-Shiller Inflation Support 55% 3.3% 2039 Median House Price and Historic Appreciation 45% 4.4% 2023 Price-To-Rent Ratio 22% 4.7% 2019 Price-To-Income Ratio 43% 3.2% 2029 ===================================== ======== ============ ========= 41% 3.9% 2028 The range of predictions for the decline of home prices in Irvine, California, is from 22% to 53% with an average of 41%. The predicted time of peak-to-peak recovery ranges from 2019 to 2033 with an average of 2028. Of course, since Irvine is in the heart of a bubble-prone market, recovery may happen more quickly, but then again, that would mean prices have entered another unsustainable price bubble.

My predictions of the bottoming price look unlikely at this point. The Federal Reserve has raised the trough with its activity. I think this pushes the bottom forward, perhaps to 2012 or 2013 and raises it. Nothing changes the underlying fundamentals. Unless we inflate another housing bubble, prices will take a very long time to reach the peak.

What is happening in Irvine?

One measure of price activity in a market is dollars-per-square-foot. In The Great Housing Bubble, I described it this way:

The median is a good measure of general price activity in the market, but it does have a significant weakness: it does not indicate the value buyers are obtaining in the market. The houses or structures built on the land compose the most significant portion of real estate value in most markets. These structures deteriorate over time and require routine maintenance that is often deferred. During times of prosperity, many people renovate homes to add value and improve their living conditions. The impact of deterioration and renovation of individual properties is not reflected in the median resale value. Also, at the time of sale, there are often buyer incentives which inflate the recorded sales price relative to the actual cost to the buyer. These buyer incentives also distort the median sales price as a measure of value. Many data reporting services measure, record, and report the average sales cost on a per-square-foot basis to address the problem of evaluating what buyers are getting for their money. For instance, in a declining market if people start buying much larger homes at the limit of affordability, the generic median sales price would remain unchanged, but since buyers are getting much larger homes for the same money, the average cost per-square-foot would decline accordingly. This makes the average cost per-square-foot a superior measure for capturing qualitative changes in house prices; however, this method of measurement does not capture the relative quality of the square footage purchased, only the price paid for it. High quality finishes may justify a higher price per square foot. There is no way to objectively evaluate the impact finish quality has on home prices. The main problems with using the average cost per-square-foot to measure price is that it does not provide a number comparable to sales prices since it has been divided by square feet, and it is not widely measured and reported.

The change in market mix will also impact the $/SF measure. Larger properties generally sell for less than smaller properties on a $/SF basis; therefore, when the mix changes to larger properties, the $/SF will decline. That is much of what is driving the slide witnessed in the $/SF measure since last September, a period within which the median went up.

If the Federal Reserve had not propped up the market last year, we would likely be seeing $275/SF to $300/SF across most of Irvine. We still might get there depending on interest rates and inventory. It doesn't seem likely that prices will go up given the current market head winds.

Didn't get the press release

The owner of today's featured property obviously did not get the Fiserv press release. In his world, there was no housing bubble, and his house kept on appreciating while the remaining housing market collapsed around him. This property value went up 20% since the peak in summer of 2006. WTF?

The owner put a large amount down, and he has only recently obtained a few private loans to get him through the recession. In his mind, he is still a millionaire.

Irvine Home Address … 35 WOODS Trl Irvine, CA 92603

Resale Home Price … $2,589,000

Home Purchase Price … $2,171,500

Home Purchase Date …. 6/18/2006

Net Gain (Loss) ………. $262,160

Percent Change ………. 19.2%

Annual Appreciation … 4.4%

Cost of Ownership

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$2,589,000 ………. Asking Price

$517,800 ………. 20% Down Conventional

5.24% …………… Mortgage Interest Rate

$2,071,200 ………. 30-Year Mortgage

$550,820 ………. Income Requirement

$11,424 ………. Monthly Mortgage Payment

$2244 ………. Property Tax

$417 ………. Special Taxes and Levies (Mello Roos)

$216 ………. Homeowners Insurance

$410 ………. Homeowners Association Fees

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$14,711 ………. Monthly Cash Outlays

-$1851 ………. Tax Savings (% of Interest and Property Tax)

-$2380 ………. Equity Hidden in Payment

$1076 ………. Lost Income to Down Payment (net of taxes)

$324 ………. Maintenance and Replacement Reserves

============================================

$11,879 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$25,890 ………. Furnishing and Move In @1%

$25,890 ………. Closing Costs @1%

$20,712 ………… Interest Points @1% of Loan

$517,800 ………. Down Payment

============================================

$590,292 ………. Total Cash Costs

$182,000 ………… Emergency Cash Reserves

============================================

$772,292 ………. Total Savings Needed

Property Details for 35 WOODS Trl Irvine, CA 92603

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Beds: 5

Baths: 4 full 1 part baths

Home size: 3,583 sq ft

($723 / sq ft)

Lot Size: 9,270 sq ft

Year Built: 2006

Days on Market: 12

MLS Number: U10001525

Property Type: Single Family, Residential

Community: Turtle Ridge

Tract: Arez

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Beautiful Tuscan-style home in the Arezzo enclave of the guarded Summit development with 5 bedrooms & 4.5 baths. The home has approx. 3600 sq ft & is situated on a premier lot with 9270 sq ft. Beautiful panoramic views to Shady Canyon, the mountains, parkland & city lights views at night. The stylish flag-stone patio with fountains, built-in stainless steel BBQ & sideyard offers an incredible venue for outdoor entertaining. The gourmet kitchen with stainless steel appliances & granite countertops opens to a great room leading out to the backyard. A formal dining room is adjacent to the living room. Bedroom & full bath on the main floor. 2nd level has 4 bedrooms including a spacious master bedroom with private master bath appointed with Travertine. Large balcony from the master bedroom offers another incredible viewing opportunity out to the mountains & gorgeous parkland. Over $450K in upgrades! The Summit development offers a resort-style pool & clubhouse. Go to www.35WoodsTrail.com