No Country for Families – the demand for two and three bedroom housing in California. The Irvine condo market and the cost of going from 1 to 2 to 3 bedrooms.

I was talking with a few people interested in purchasing one bedroom condos in this current market.  It is surprising how many one bedroom condos are available in “good” Southern California cities.  In fact, you can find many one bedroom condos in the $100k and $200k range and given ridiculously low interest rates, it is likely cheaper than current rent payments.  But that isn’t necessarily the main story.  The big story comes from families or soon to be families driving up current demand for bigger properties.  There is an interesting dynamic between families and single person home buyers in the current market.  In California the typical household size for both renters and home owners is close to three people.  So how much of a premium is that one additional room?  We’ll try to answer that question today.

Looking at condos for sale in Irvine

I think the best way to gather what the premium for that additional room would be to examine the difference between a 1 bedroom and 2 bedrooms condos in the same complex.  Irvine has so many condos for sale that we are able to get this actual sample.  Take a look at this one bedroom with a pending sale:

condo 1

A condo for $124,900 in Irvine?  That is correct.  With a 20% down payment you will be paying $840 a month with PITI and HOAs included.  So if you were a single person who favors living close to their employment site and lives a minimalist life, it is hard to argue with the above given that one bedroom units are probably renting for much higher.  People are probably saying “475 square feet!” so that is not lost on me either.  This condo sold for $253,000 back in 2006 so this is a 50% price drop in Irvine.  So for those that think the days of discounts are gone they are simply not looking wide enough.

But that three person typical California family at a minimum wants two bedrooms.  How much is a 2 bedrooms condo going for in this complex?  Let us take a look:

condo 2

This is actually a really good case example because both of these places have current pending offers.  The 2 bedroom place is selling for $219,000.  We are essentially looking at a $95,000 premium for that additional room here.  Many that don’t live in California are probably shaking their heads.  In many markets you will see a two bedroom at say $150,000 and then a three bedroom for $175,000.  The jump is likely to be a small premium versus a 76 percent premium like we see in this Irvine condo complex.

No Country for Families

I think a lot of readers are noticing a surge in demand in 2012 for decent properties in mid-tier to upper-tier California places.  Yet I’ve also noticed that there are many 1 bedroom units that are selling for prices that will be much lower than rents.  But again, the demand for the 1 bedroom market is likely to be small.  Who knows who will be buying the place above.  Is it someone looking for an investment?  Or will they live there?  Hard to say.  Let us look at the pool of California housing:

housing units california rooms

Most of the buying demand in the current market is happening in the two to three bedroom sections.  The above is both for rental and owner-occupied units so keep in mind only half of this inventory is what will fall under the owner-occupied pool.  The available inventory on the market is rather low.  I’ve seen reports that based on current sales, we have anywhere from 3 to 4 months of inventory in the state.  The distressed pipeline is leaking out and still large but this is not on the MLS for sale.  Oh, and the state budget is a mess and the underemployment rate is over 20 percent but don’t let that get in the way.

It is interesting that the next three bedroom condo for sale is up to $300,000 (a premium of $81,000).  So there does seem to be some connection here and this is what is driving prices up in the two and three bedroom segments.  Families.  Debt keeps the system running.

I can’t tell you how many younger couples I’ve talked to where both are working professionals with multiple degrees and household incomes strongly above $100,000 that are having a hard time finding decent properties for sale without being caught in a bidding war.  I’ve also talked with folks living in $500,000 or $600,000 homes that are retired and are living on Social Security and small retirement payouts that are probably providing $1,000 to $1,500 a month in living expenses.

It is definitely an odd market.  Each area has its own little dynamic.  For the Irvine condo market, it looks like going from 1 bedroom to 2 bedrooms is going to cost you an additional $90,000 or so while going from 2 bedrooms to 3 bedrooms is going to cost you an additional $80,000.  Welcome to the California housing market.

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28 Responses to “No Country for Families – the demand for two and three bedroom housing in California. The Irvine condo market and the cost of going from 1 to 2 to 3 bedrooms.”

  • Well, Irvine has a lot less children 10 and under at 4.8 percent of the population versus a whopping 9 percent of the population in Santa Ana since it attracts Asians/whites who have less children on average they could if they only have on kid put a sofa/bed in the living room or if they have two kids go for a two bedroom and do the same thing.

    • Throwing around racial generalizations is pretty uncouth in 2012, Cynthia. How about showing some proof of your assumptions (i.e. a link to a reputable research on a reputable site), other than just pulling facts out of your nether regions?

      I think a more “fair” generalization that is actually supported by demographic data would be that folks of higher income and education tend to have fewer children.

  • I am a single person looking for a $500k small 2-bedroom home in Los Angeles. Why buy a one-bedroom condo, which is partially like renting (HOA), and on top of that you have to deal with neighbors complaining about your noise or community rules dictating what color you can pain your doorframe or whatever? I really don’t know why I’m even bothering to look in this market. I started looking based on listing prices, and thought we were at rental parity (I rent in overpriced Venice, but am going East obviously to own). But those listing prices you see are just a starting point. It’s like eBay. They might as well list everything at a dollar, and let that auction draw out.

    I’m out there competing with couples, and they get emotional, start picturing their kids in the bedrooms or something…and start offering way over from the start. Forget comps. Forget appraisals. I kid you not, I was in a scenario where a buyer (I’m going to guess an overeager couple – no offense), bid slightly above asking, and then later on the same day re-countered with $40k over. WTF? I’m working on negotiations now, but if I don’t get this current house I am done. Done. Finito.

    • If you are looking to buy in an FHA 3.5% down neighborhood then overbid, who cares. Look for a foreclosure flip, the sellers will need two comps to come in at or under the offer price. We reduce the agreed upon price in 50% of our sales because the appraisals are just not there to support the offer. The buyer turns up his hands and says, “we cannot make up the difference” rather than cancel the deal and wait for the 20% offer who can pay the difference we lower the price. Where I live in Pasadana, there are almost no FHA sales in the low end (under $450,000).

      • You make an interesting point. Could you clarify what you mean when you say an “FHA Neighborhood”?
        I assume that you mean neighborhoods in the under 600,000 range, but I am not sure. Please expand on this idea

    • Nancy
      Bidding Wars really are insane, aren’t they? We were in on 4 in our search, and the ones we lost prior to our current (in escrow) deal, actually were a good thing. Over zealot idiot future defaulters bid $50K over list, and we equally zealot idiot cash buyers bid $40K over list, and Thank God, lost the bidding war. We are paying 10′s of $1,000′s less for the home we’re in escrow on, and the floor plan is better, and it has a pool as well.Maybe the package doesn’t have some of the “wow” factor, but with the pile of dough we are saving, we can make it a “wow” factor in OUR taste.

      When we penciled out some of our prior emotional offers, we are so happy we had heartache and defeat. This home actually pencils out, and we feel blessed and smarter in this transaction. The COE date is our caveat. The seller keeps pushing it out, and we are getting a little ticked. Our nice is wearing thin…

  • How large are these Irvine units anyway.

    Historicly 1 bedroom units don’t hold there value & are harder to resell as compared to larger units. They also tend to cost more per square foot unless they are at least 900 sq ft. That is what I’ve noticed when researching condos in several cities.

  • Are you comparing a studio unit of 450 sqft to a 2 bedroom? That would easily explain your findings

  • The two bedroom in Irvine is actually cheaper than the one bedroom. Comparable real estate is appraised by the square foot.

  • Your 1 bedroom is a studio and NOT a one bedroom. Bedrooms are roughly 2-300 sq ft each. Your comparison is inaccurate for the first sample. Square ft doubles and so does price.

  • Anything under 600 square feet is also very hard to get regular financing on top of the fact it is a unit, which banks check for owner occupied percentage before allowing a note.

  • i usually like your analysis, but this one is terrible. sorry.

    at 475 sqft it’s most likely a studio. the zillow listing has the “no bedroom” option selected: http://www.zillow.com/homedetails/262-Streamwood-Irvine-CA-92620/2127024974_zpid/

    even if it was a 1bedroom (it’s not), you shouldn’t be comparing rooms. you should be comparing $/sqft.

    the studio is $263/sqft, while the 2 bedroom is $258/sqft so you’re getting more bedrooms –and– paying less for the living space per square foot on the larger unit.

  • “Only a small number of California homeowners — 8,500 to 9,000 — would be able to get mortgage write-downs with the current level of funds available, The Times had previously reported.”

    Exactly, and how much is the overhead to process the transaction? Only in California, a totally bankrupt state, would you find the state giving away taxpayer money to underwater home owners. Don’t they realize that this is only for the big boys, the friends of Ben, who can print money at will?

  • Up here in the SF Bay area the nicer areas are seeing bidding wars on the $500K to $700K homes. The mortgage interest rate dropping to sub 4% really kicked the market in the butt. And there’s not much inventory available. The very low end homes in the nicer areas that are listed at $350 to $400 are flying off the shelf. Listings go to pending in 5 days or less.

    • The 3.5% rates and no inventory will do that. It’s almost cheaper today to buy a place with a 400K loan than it is to rent a 1 bedroom apartment in a decent area. With QE3 here and the huge MBS buying program announced today, this madness will only continue. Renters, savers and those that have been waiting for a more normal market to buy in got the shaft in a big way.

      The government and powers to be have indirectly told people that they will be treated better being a loan owner than a renter. This is another thing diving the current frenzy. I keep hearing people say when it all hits the fan, homeowners will be royally screwed…I’m not so sure about that. At this point I think renters may be more screwed if the entire system blows up. Loan ownes can get principal reduction and mortgage holidays and renters will probably be told to pound sand.

      What an absolute corrupt system!

  • The first example is not a 1 bedroom condo. It is a studio w 1 ba. No bedroom, according to the ad. If it had a bedroom it would say so. Sorry to point out the error.

  • God I hate California.

  • I was reading an investor’s philosophy last year, who says his favorite purchase is 1 bedroom apts/condos because the renters tend to be single professionals who are quiet and keep their places in good shape. He had a whole list of ‘pros’ on renting 1 bedroom places, but i can’t remember what they were.

  • In manhattan condominium prices are a geometric function of size. For example in a particular building a 1 bedroom would cost $600,000, a two-bedroom would be $1.8 million and a three bedroom would be $5.6 million.

  • I am attempting another condo in south orange county. This is a 1bed 1 bath 866 sqft. It was listed as short sale for 139,900. I offered 150,000 first day listed. They changed the sales price to 149,000 on day two. I change my offer to 165,000 on day two. There are 11 offers already and 5 cash. They counter me day two, 170,000. I am all cash but so are the other five. I have been outbid each time and it is a little crazy. My price increases have been sizable but someone always does a little more. Day three I sign this counter. Who knows if this will be good enough?!

  • In the example used, the larger 2 bedroom unit was cheaper per square foot. Your selling housing by price per square foot. This follows a typical trend in a housing tract. The smaller the square footage the higher the price per square foot. You still have the expensive rooms in the small unit, the kitchen and bathrooms.

  • We Don't Make Those Drinks No More

    Bernanke pulled QE3 trigger today, full throttle…per Yahoo…”Unlike QE1 and QE2, no dollar amount or time-limit was placed on the program. The Fed essentially announced it will be purchasing $40 billion in MBS per month until further notice”. Real estate agents and Wall Street swoon. This party’s just getting started. The Devil’s pie will be sliced and served. Savers and fixed income spanked harder. Gold bugs buy bigger safes.

    It reminds me of that LA car chase yesterday where bank robbers threw cash out of the getaway car, surrounded by growing mobs trying to grab tainted money flying out the windows. We’re in unchartered waters now, folks. Good luck to you all.

    • The FED is forcing every American to become a gambler. We must throw the dice and hope whatever asset we buy is not overly propped up by zero rates.

      One bet I have made recently ( purely speculative, but isn’t everything these days?) is a position in Bank Of America. BofA, once a patient on critical condition, is a bank that will benefit like no other from a FED gone mad.

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