Why buying a house in the OC still looks like hell to me…

Irvine, which has decided it’s never a bad time to build new homes no matter how much prices are dropping, has several new housing developments under construction.

Not surprisingly, when I visited one of their new model homes this summer, and compared the pricing at that time to the current pricing, those same properties are down 2% on the low-end model and 9% on the high-end model.

La Casella in Woodbury, had three models at the following price points; $600,000, $645,000 and $709,000 for a 1,656 sq ft 3/3, a 2,090 sq ft 3/3 and a 2,643 sq ft 4/4, respectively.

Let’s not forget, these are townhouses folks…not even proper stand alone houses.

Just down the street from La Casella, I pay $1,800 a month for a 1,000 square foot 2/2 apartment.

On the pricing sheets for La Casella are laid out the monthly carrying costs even before the mortgage or interest payment.

  • Mello-Roos – $411
  • Woodbury Association – $105
  • La Casella Association Fee – $290
  • Property Tax – $520

The total monthly payment for this property, before you even start talking about mortgage and interest payments is $1,326.

Now let’s add the interest payment over a 30 year mortgage, per month, based on an FHA 30 year mortgage at 3.75%.

  • Interest Payment – $1,112

This brings the total expense per month to $2,438 ($1,112+$1,326) or about $638 more per month than I pay for my apartment.

Remember, that’s $2,438 that doesn’t actually pay for the house, just like my $1,800 a month doesn’t buy me ownership in the apartment.

What matters when you buy a house, is how much of the check you write each month actually buys the house. What you don’t want is $2,438 of your mortgage payment going to fees, taxes and insurance.

Other expenses that homes, or townhouses in this case, have that apartments don’t include home owners insurance, maintenance and higher utility bills.

Lastly, when interest rates begin to rise, and they will, that will put even more downward pressure on prices. Since the affordability of a house is the mortgage and the interest, as interest rates rise, prices will have to drop to compensate.

Combine that pressure with the pressure from shadow inventory, continued economic malaise and increased unemployment and it’s inevitable that home prices will continue to correct downward.

So I’ve decided that paying an extra $638 a month for a slightly larger property that doesn’t go towards paying for the house (just like my rent doesn’t), plus the additional expenses that being a home buyer requires, plus the inevitable continuation of price declines in housing, does not justify buying a home, especially not a townhouse and especially not in Orange County where the median average home price is $430,000 and this townhouse is $600,000.

I’d like to mention also that the prices I listed above for these properties were from their price sheet this summer. If you look at their website now, you will see that they’ve already reduced their prices. They currently have their price range as $589,000 to $645,000 for the same three properties.



Categories: Housing Market

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