April 30, 2006

The new American Dream: Eternal Debt

My mortgage broker friend swears to me that this is normal – that not ever paying off a mortgage is the new hotness and that it is what everyone else is doing. I guess keeping up with the Joneses means eternal servitude to Wells Fargo.

ContraCostaTimes.com | 04/30/2006 | Homeownership a struggle for many
Homeownership’s advantages, such as tax credits and rising home values, mean people can increase their loan value and have extra cash on hand for other expenses.

“In some way, you say that’s someone owns a home they can’t really afford, but it’s an investment, it’s making money for them,” Lawson said. “It’s a big asset, it’s a big chunk of money that keeps going up every year.”

For some consumers, homeownership is as likely an option as winning the lottery.

“In California, the starter home market has really disappeared,” said Tamara Draut, author of “Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead.”

Younger adults are struggling to make ends meet, Draut said, because many have student loans and start with low wages, which make it hard for them to save and build wealth.

“Definitely, this generation has resigned itself to live in debt to live in a middle-class lifestyle,” she said. Many consumers are comfortable with debt, but too much debt leaves people vulnerable, living paycheck to paycheck.

Some homeowners take advantage of rising property values to take on more debt and use the influx of cash to pay other debts, such as credit cards.

“The market keeps bailing people out of trouble,” Lawson said. “Because people don’t really get in too bad of position, they never really learn the lesson, and a year later they turn around and get themselves in the exact same spot.”


Deborah Bennett considers herself lucky — she bought her home in Pleasanton years ago, and her career as a computer scientist has provided steady, well-paid work.

The 59-year-old said she goes on the vacations she wants and buys what she wants.

“I feel sorry for the people who (are) just coming in,” Bennett said. “I have lived here since ’68.”

This isn’t surprising though – the California real estate is designed to as a massive transfer of wealth (meaning: future earnings) to the previous generation. Case in point? Prop 13.

(Thanks to Marin Real Estate Bubble for this find.)

Comments (3) -- Posted by: burbed @ 2:42 pm

April 29, 2006

Think your home is a nest egg? Think again – Real Estate – MSNBC.com

Not that we as a country have good retirement strategies in general, but here’s another one by the wayside:

Think your home is a nest egg? Think again – Real Estate – MSNBC.com
Many, if not most, homeowners do expect to retire “on the house” according to the Center for Retirement Research at Boston College.

But at the same time they are reducing their own equity by borrowing against their homes for other expenses. They may be counting on inflated home values that could fall by the time they are ready to sell and move. They may be counting on a resource they never really want to sell.
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In other words, they may not be being very realistic.

“We all say people will sell their house and that’s how they are going to live,” says Bev Moore of MainStay Investments, a division of New York Life Investment Management. ”But the bubble might be in the process of bursting.”

Only 11 percent of older people who are already retired actually expect to live off of their home’s value, she says.

“Baby boomers have to stop going to Home Depot and start doing more planning and saving,” Moore said.

Click here to post a comment -- Posted by: burbed @ 11:09 am

April 28, 2006

What is low income in San Francisco?

SFHomeBlog.com – A San Francisco Real Estate Blog: CalHFA updates income limits on affordable housing
In San Francisco, the income limits for resale homes (for one or two people) is $135,720 for moderate units, and $81,432 for low income units, and for new construction (read: South Beach High Rises) $135,720 is the moderate limit and $95,004 is the low income limit.

How crazy is that? You’re low income in San Francisco if you make less than $95,000 per year. Looks like the lines for affordable unit lotteries are going to grow exponentially now…

Holy cow…

Click here to post a comment -- Posted by: burbed @ 5:00 am

April 27, 2006

There's a house! Really! $635,000 720sqft in Redwood City

MLSlistings Property Detail for MLS number 618415
736 6TH AV
Redwood City, CA 94063
Open House Showing
Sunday, April 23, 2006 1:30 PM – 3:30 PM
Great opportunity as a starter home. Turn key property.

This Single Family Residence has the following features:
MLS#: 618415 Approx Age: 50 Years Approx Sq Ft: 720
Detached Single Family 1 Story 2 Bedrooms

Where’s the house you ask? Much like Bigfoot, it’s hard to find. But here’s a snap of its backside:


Click here to post a comment -- Posted by: burbed @ 5:00 am

America's rags-to-riches dream an illusion: study

America’s rags-to-riches dream an illusion: study – Yahoo! News
America may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published on Wednesday.

The likelihood that a child born into a poor family will make it into the top five percent is just one percent, according to “Understanding Mobility in America,” a study by economist Tom Hertz from American University.

By contrast, a child born rich had a 22 percent chance of being rich as an adult, he said.

“In other words, the chances of getting rich are about 20 times higher if you are born rich than if you are born in a low-income family,” he told an audience at the Center for American Progress, a liberal think-tank sponsoring the work.

Quick! Think of the children! Buy a home in the Bay Area now so that they can be rich in the future!

Click here to post a comment -- Posted by: burbed @ 4:00 am

April 26, 2006

Who is buying homes? Undocumented Immigrants/Illegal Aliens

Check out this wild story:

The Mess That Greenspan Made: This May Take a While
I am a lawyer and I represent illegal aliens in deportation. In all but one of 35 cases I currently have on docket the illegal owns a home. But it is the loan terms that fascinate me. One lady finished school at second grade, speaks no English, and works for a recycling company binding cardboard boxes. She makes about $30K per year and is a single mom with three children. She has a $430K interest only loan that she used last year to buy a $430K condo – 100% financing – she paid $3,000 in closing costs. I tried to explain that her monthly payments will rise substantially in four years. She does not believe me, did not understand what I said and told me the loan and real estate agents specialize in real estate and would have told her if her payments could go up. If 34 of my clients with risky loans and no school past at best eighth grade are surprised by rising loan payments, we should be afraid. This is the last group desperate lenders pander to, meaning we’re near the end.

Sound bogus? Is it crazy that this segment of the population is getting Interest Only mortgages? Is this all made up?

Maybe not!

Banks help illegal immigrants own their own home – Aug. 8, 2005
Banking on illegal immigrants
Banks are seeing an untapped resource in providing home loans to undocumented U.S. residents

Bet you didn’t know!

Click here to post a comment -- Posted by: burbed @ 11:28 am

Huh? My ARM has an interest rate that can change?

WSJ.com – The Home-Mortgage Muddle
The study found that about 35% of people with adjustable-rate mortgages didn’t know how much the rate could increase at one time, and 41% weren’t sure of the maximum rate they could face. About 28% didn’t know which index of interest rates would be used to determine their adjustments; many others gave incorrect answers, such as the consumer price index or “the going rate.”

The study, by Fed economists Brian Bucks and Karen Pence, says people with low incomes and less education are more likely to be unsure of the terms of their mortgages.

Oh that can’t be a good thing.

Click here to post a comment -- Posted by: burbed @ 5:00 am

April 25, 2006

Free BMW with Condo – sort of

Developer Hopes To Get Mileage From BMW Offer
Forget about free plasma TVs, gift cards or upgraded cabinets. What about that free BMW Z4 Roadster that just popped up in ads for a new Fairfax County condo?

“Ask how to receive a FREE BMW Z4 Roadster or 325i,*” says the ad in newspapers and on the Web for Legato Corner, a six-building complex being built near Fair Oaks Mall by Texas developer Fairfield Residential LLC.

Builders are using more incentives in a softening market, but a car is a rarity. It’s “definitely different, and much more eye-catching than just saying ‘no condo fees for a year,’ ” said Tim Liu of condo guide DClofts.com.But hold your horsepower. Developers of the 202-unit complex aren’t actually giving away the $38,000-and-up sports car or its $32,000-and-up four-door cousin. Buyers of two- or three-bedroom units get a free two-year car lease, according to a sales representative who said she was not authorized to comment publicly. Two-bedrooms start at $356,900 and three-bedrooms at $408,900, according to the complex’s Web site.

Sounds like the real estate market isn’t doing so well suddenly elsewhere. Fortunately this is the Bay Area, and there’s no better place to live than here.

Click here to post a comment -- Posted by: burbed @ 9:21 pm

$599,000 for… well… house in Redwood City?

MLSlistings Property Detail for MLS number 608961
Redwood City, CA 94063


This Single Family Residence has the following features:
MLS#: 608961 Approx Age: 98 Years Approx Sq Ft: 1150
Detached Single Family 1 Story Traditional
3 Bedrooms 2 Bathrooms 1 Shower over Tub

Frankly, I think the signs should read “BEWARE OF HOUSE” instead!

Click here to post a comment -- Posted by: burbed @ 5:00 am

April 24, 2006

"The negative equity epidemic"

Check out this silly news from MSN Money:

MSN Money – The negative equity epidemic

* Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.

* The situation is even grimmer for recent borrowers. Of those who bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more.

* Interest rates on about a quarter of all mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Economy.com. Homeowners who opted for extremely low teaser rates in recent years could see their payments eventually double, said Christopher Cagan, First American’s director of research and analytics.

* Defaults and foreclosures are already on the rise, thanks in part to higher interest rates, cooling real-estate markets and overextended borrowers. Nationally, 117,259 properties entered some stage of foreclosure in February, according to foreclosure-monitoring firm RealtyTrac, a figure that’s up 68% from February 2005.

Here’s the kicker though:

A 1% teaser rate on a $300,000 mortgage that rose to a market rate of 6%, for example, would increase a family’s monthly payment by 86%, from $965 to $1,799 a month. If the old payment represented 30% of a family’s gross income, the new payment would represent over 55% — a squeeze that few families could endure for long, Cagan said.

Isn’t most of Silicon Valley paying close to 50% of their gross income already? Bah. This is totally doable.

Click here to post a comment -- Posted by: burbed @ 5:00 am