The Irvine housing blog is often referred to as a "bubble blog". I have been following the blog for a mere 10 days, however, I have met with the primary writer for the blog twice and the founder of the blog once. They are both extremely intelligent and knowledgeable professionals. Apparently most agents are not fans of their blog, I am. They offer a refreshing perspective on real estate in Irvine and knowledge that can be gained from their blog can apply to real estate all over the country. Although some would argue that they are overly bearish on real estate, I found that they take a well educated value approach to the market. They would probably be the first to tell you that they do not have a crystal ball, that no one can be 100% correct, and and that there are some aspects of demand such as the amount of buyers coming in from overseas in Orange County and particularly Irvine that makes the bottom really hard to predict. Irvine and Orange County still offers fantastic employment opportunity, unbeatable weather, some of the best real estate in the country, and they are still not making anymore land. Nevertheless, it is clear that they saw the affects that sub-prime and and ARM loans would have on prices long before Gary Watts who's widely seen the premier real estate forecaster in California.
For a long time, I too have wondered why ARM loans were offered to so many when rates were historically low. Once prices rose to a certain level one of the few benefits of purchasing was the ability to finance the property using a 30 year fixed loan at historically low interest rates. As the prices rose the loans became more outrageous, I remember asking friends, "where can you go beyond a negative amortization loan?" Our only idea was the bank pays you loan. Of course neither loan makes sense. That being said we are now returning to responsible financing and more and more good deals are beginning to spring up every day. How can purchasing a home for $650,000 be justified when renting the same house only costs $2100/month? If only people were educated and had the tools to understand. The calculator created by the Irvine Housing blog is one of the better calculators I've seen. Furthermore, it seems to me that if a deal can punch using the calculator developed by the Irvine Housing Blog, the blog that is widely seen as the premier bubble blog in Orange County, we might be on to something. Below you will find Larry Roberts (IrvineRenters) description of the calculator. To access it click on the link.
The wheels of progress keep turning here at the Irvine Housing Blog. Some of you may have noticed that we have introduced a new rent versus own decision calculator. It is still a work in progress, but it is good enough to put on the main site. We hope to add some formatting and create a stand-alone version for people to download and use.
Our goal was to create an accurate and detailed accounting for the true cost of ownership. This is a point-in-time calculator. You are not asked to make assumptions about inflation or appreciation. There are no projections for the future. People who invest in real estate (I am not talking about stupid amateur speculators) always look at the stabilized cash flow in the first year of ownership. If it doesn't make sense in year 1, then it isn't an investment, it is a speculative gamble. There are a variety of rent versus own calculators out there. Most are put up by realtors. They are totally biased and ignore costs and exaggerate benefits. Some are put up by bubble bloggers that are biased the other direction. We want to be accurate.
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Most of the underlying assumptions are documented in the post Rent versus Own. Most of the inputs are in the left-side column, and most of the outputs are on the right (the exception is the HOA fees which are plugged in directly on the cost side). Play with these assumptions at your own risk. As I documented in the Rent versus Own post many of the costs are underestimated, and many of the benefits are overestimated. The most common mistakes are to ignore maintenance and replacement reserves and to overestimate the tax savings. The true tax benefit is not the highest marginal tax rate you pay.
The primary function of the calculator is to determine the true cost of ownership to compare to a base rent. However, we have added a reverse calculation that allows renters to put in the rent they are currently paying and show them how much house they can afford. Since this is not a spreadsheet calculation and we could not iterate to run the calculations backward, we cheated: we use a percentage of rent that goes to the cost of ownership beyond the payment and subtract this from the rent to compute the purchase price, downpayment and loan amount. You will see the two methods produce very close results both forward and backward.
Any comments or suggestions for improvement will be appreciated.
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