June 6, 2010

The next generation of home buyers has too much college debt to buy a house

Last week, The New York Times ran a particularly depressing article about how college students are taking on too much debt to ever pay back.  Lenders were encouraged to do this, because not only were the loans government-backed, but the new bankruptcy laws don’t discharge educational loans.

The Times showcased a recent NYU graduate, Cortney Munna, who ended up owing over $100,000 in student loans and had to enroll in night school to avoid the unaffordable monthly payments that would start once the classes stopped.

While many viewed this article as yet another example of the Brazilification of the United States, thank goodness Danville Realtor Greg Fielding has put this story into the proper perspective.  Who’s Greg Fielding?  He founded the group blog housingstorm, and also runs Bay Area Real Estate Trends.

Greg Fielding believes that high college debt is a problem because indebted graduates can’t take on further debt to become homeloaners!

From a real estate perspective, this could impact the starter-home markets for the a decade or more as the next generation of first-time homebuyers is already burdened with too much debt.

And if they have so much debt they have to stay in night school forever, so much for saving up a down payment on that cute little 800 sf condo.  Just as the lenders threw money at anyone who could fog a mirror and wanted a house in 2006, it’s happening with college loans now.

All of these actions were taken in the name of helping students, but few ever stopped to consider that loaning an 18-year-old kid $40,000 a year might not be “helping” him. In fact, just like housing, the beneficiaries weren’t the borrowers, but the lenders, brokers, and sellers. It is their collective, repugnant greed to blame.

A Real Estate agent speaking against the excesses in the mortgage market (by way of criticizing the college loan market) is quite refreshing!  So, how bad is this problem?

60% of student loans are either in forbearance or default (with interest piling up). A full 60% of these predatory loans are NOT being paid back. This is a staggering number. A full 60% of recent grads are watching their loan balances grow with less and less hope of ever paying them back.

Wait, wait, wait.  Math class is hard, but can we agree that if 60% of the loans are not being paid back, that this does not mean 60% of recent grads are affected?  The example in the Times, which Fielding himself quotes from, has one student with four different loans.   Is it possible that the same people are defaulting on multiple debts, leading to a lower percentage of college grads at risk?

Okay, that’s a digression.  20% or 60%, this is a problem.  There is $730 billion in student loan debt, and only 40% of it is being repaid. The rest is either in deferment (no payments, no additional interest), forbearance (no payments but interest accrues), or default.  And this is a problem, because:

This generation will have a harder time qualifying for home loans, and will certainly qualify for smaller loans, until these debts are paid off. But we are making NO progress. In fact, the situation is only getting worse.

They will have a harder time qualifying for home loans.  Priorities!  And speaking of home loans, here’s an example from the Wall Street Journal article showing the difference between home loans and student loans:

Heather Ehmke of Oakland, California, renegotiated the terms of her subprime mortgage after her home was foreclosed. But even after filing for bankruptcy, she says she couldn’t get Sallie Mae, one of her lenders, to adjust the terms on her student loan. After 14 years with patches of deferment and forbearance, the loan has increased from $28,000 to more than $90,000. Her monthly payments jumped from $230 to $816. Last month, her petition for undue hardship on the loans was dismissed.

Fielding doesn’t just see this as preventing future home sales.  He questions whether all these people should be buying in the first place, or whether they should borrow for college.

But “more people in college” is not the answer any more than “more people in homes”.

Fielding wants these debts addressed in bankruptcy proceedings, but he thinks government is beholden to colleges and banks.  Then government will help colleges and banks instead of debtors.  More loans, not fewer.  More “debt slavery” rather than less.  This Greg Fielding makes too much sense.  He almost sounds like a Socialist.

It’s an interesting way to sell houses.

Comments (132) -- Posted by: madhaus @ 5:01 am

May 30, 2010

Backyard Cottages: Threat or Menace?

Here’s an article sent in by burbed reader nomadic, who writes, “The RBA needs backyard cottages too!  I bet Worried Mom would be happy to live in a cottage in her backyard while she rents out the main house to cover college tuition for her kids.”

This is another crazy idea from Seattle, which brought us too much coffee, Windows Vista, and not enough sunshine.  Why would we in the RBA (Real Bay Area) want to use them as a role model (we’re doing a great job this year on that last one)?

Seattle’s backyard cottages make a dent in housing need

John Stoeck sweeps the 437-square-foot cottage he's building behind
 his home in Seattle. The city changed zoning rules to allow cottages in
 single-family neighborhoods.

<< John Stoeck sweeps the 437-square-foot cottage he’s building behind his home in Seattle. The city changed zoning rules to allow cottages in single-family neighborhoods.  

Lynn Watkins, left, and her partner, Yolinda Ward, built a 
600-square-foot cottage behind their four-bedroom Craftsman-style house 
after deciding the "big house" was too big.

>> Lynn Watkins, left, and her partner, Yolinda Ward, built a 600-square-foot cottage behind their four-bedroom Craftsman-style house after deciding the "big house" was too big.

By Judy Keen, USA TODAY

SEATTLE — John Stoeck is building a one-bedroom, 437-square-foot cottage on the spot where his garage stood before a tree fell on it. Construction costs: about $50,000. When the cottage is finished this summer, he plans to rent it for at least $900 a month, which will make a nice dent in his mortgage payments.

His is just one of about 50 tiny cottages sprouting in backyards across the city as it tries to expand affordable housing options in established neighborhoods without resorting to high rises and apartment complexes. The city changed zoning rules to allow cottages in single-family neighborhoods citywide, rejected a proposed cap of 50 cottages a year and helped organize a design competition to spur creation of reasonably priced plans. The point is not just to allow the cottages, but to encourage them.

They may not making any more land, but would this work in the RBA?  Would rental cottages in the back yard make RBA homes more or less Special? A rental income stream is nice, but how does a tenant a few steps from your back door work for you when you want to slip out to soak au natural in your hot tub?  How can you water your own lawn when your cottage renter tore it out to put in a garden?  How can you enjoy being lord of your manor when you’ve downsized to a 600 sf Craftsman cottage, and you’re renting out The Big House to an Angry Renter?

Would this solution work for Worried Mom?  Could it work for you?  What would your city do if you put in a permit application for one of these beauties?  Renters, would you jump at the chance to live in a cottage in a SFH neighborhood instead of your current digs?

Then again, this is the RBA!  Maybe we can make it even more Special!  Instead of Backyard Cottages, we could have Backyard Garages, and incubate the next Web 3.0 startup! What’s even better than rental income? How about ground-floor equity?  After all, it’s your ground floor!

Comments (8) -- Posted by: madhaus @ 5:02 am

May 29, 2010

Good news! Record number of property value reductions in county

Record number of property value reductions in county

The Santa Clara County Assessor’s Office today announced $21.4 billion in property value reductions on approximately 118,000 properties in the county.

The figures, based on an initial analysis of the assessment roll by the assessor’s office, represent a record number of reductions. The numbers won’t be final until the roll is completed on July 1.
The decrease in assessed values means a further hit to already cash-strapped schools as they see their revenue from property taxes drop.

Assessor Larry Stone said the number of reductions in assessed value will likely greatly exceed the number of increases.

"The last 36 months is by far the worst economy I’ve experienced in the 45 years since I left graduate school for Wall Street," Stone said in a statement.

The reduction in assessed values is $4 billion greater than last year, Stone said.

To someone who is outside of California, this may seem like bad news… but in reality, this is excellent news. This means that homeowners will have low property taxes from now until forever thanks to Prop 13. This means less revenue for government, which means a smaller government, less services for people, which means more opportunities for businesses and private enterprise to fill in the gaps! And for these homeowners to become landlords and increase GDP.

Woot! Even better, according to the comments for this thread, houses in the Real Bay Area were not impacted at all! Double woot!

Comments (57) -- Posted by: burbed @ 5:00 am

May 23, 2010

PTA, Bunch of Others Sue State of California

And now, may I present a guest post.  Take it away, madhaus.  Why thanks, madhaus, don’t mind if I do.

Sacramento Bee: Education Coalition Sues California Over School Funding

California’s system for funding public schools is irrational, unstable and in need of overhaul, a lawsuit filed Thursday asserts, and prevents 6 million students from receiving the education they are entitled to under the state Constitution.

The lawsuit, filed by a coalition of students, parents and education groups against the governor and the state, puts California on a growing list of states slapped with what lawyers call "adequacy" suits

Thirty-three states have faced adequacy lawsuits, in which plaintiffs argue that a state does not give schools enough money to achieve that state’s academic standards. In most cases, experts said, the states have lost in court and been forced to come up with more funds and a new way of paying for schools.

image Now that’s the American way.  Something’s broken?  Sue ‘em.  The lead plaintiff in this case, Robles-Wong v. California, is a junior at Alameda High School.  Yay, Bay Area, We’re #1!  We’re #1!  And despite a press conference in Sacramento, the suit itself was filed in Alameda County.

A spokesman for the group noted California had some of the highest educational standards in the country, with some of the lowest funding rates.  Yeah, take that, New Jersey!  We do more with less!  We’re the best at writing standards, and the best at failing to meet them!  Boo-yah!

The article also described the method of determining each California school district’s unique funding as “a complicated funding formula.”  This is akin to noting that the General Theory of Relativity is “kind of tough,” as there are only four people in the entire world who understand how the state school funding algorithm actually works.  One of them has an unlisted phone, one refused to respond to repeated requests for comment, and the other two were driven insane by the process of mastering it.

Okay, assuming you were actually reading any of this, by now you’re saying, madhaus, you are just making that part up.  Am not.  See?

San Jose Mercury News: Schools, PTA sue California over education funding

For most of California’s roughly 1,000 school districts, the state budget crisis has caused per-student funding to fall for two years. But the complaint reaches beyond current cutbacks. For decades, California schools have budgeted according to a complicated funding mechanism determined by multiple laws and court rulings and resulting in unpredictable and different per-student amounts for each district. For example, in 2008-09, Evergreen Elementary School District in San Jose received $7,787 per student, but Palo Alto Unified received $14,214.

The suit contends that the state has neglected to do what the constitution requires: prioritize school funding.

See?  See?  “Complicated funding <miscellaneous noun>.”  Told you so.

Can’t get enough of this?  Read the lawsuit (PDF, 59 pages) by clicking here.

Comments (72) -- Posted by: madhaus @ 5:01 am

May 16, 2010

Marin income No. 1 in state; population grows

Marin income No. 1 in state; population grows

Mark Prado

Posted: 04/30/2010 04:49:10 PM PDT

Marin has once again topped the state in median household income, according to figures released by the state this week.

Also, the county grew in population by .08 percent last year and is now at 260,651, the state reported.

Although Marin led the state with the highest median income for joint returns for the 2008 tax year at $118,704, that was a decrease of 3.85 percent from 2007.

San Mateo County ranked second with $100,165, Santa Clara County third at $100,077, Contra Costa County fourth with $90,956 and Alameda County fifth with $88,138.

Marin, Contra Costa, San Mateo and Santa Clara counties have led California for 37 years in reported highest median incomes, according to the state Franchise Tax Board.

"That income level is important for our local economy," said Coy Smith, CEO of the Novato Chamber of Commerce. "If people are employed and earning a good salary it has a positive ripple effect on our local economy."

Congrats to Marin on this amazing accomplishment. The Bay Area is definitely on its way back to being at the top of all categories!

Comments (110) -- Posted by: burbed @ 5:25 am

May 9, 2010

Silicon Valley apartment rents nudge upward

Silicon Valley apartment rents nudge upward

After sliding since late 2008, apartment rents climbed in the first quarter of this year in Santa Clara and San Mateo counties — the latest sign that the region’s economy is stabilizing.

The average monthly rent for all types of apartments in large complexes climbed to $1,510 in Santa Clara County, up nearly 2 percent from $1,482 in the fourth quarter of 2009, according to a report from RealFacts. The company, which tracks rents and occupancy rates in apartment complexes of at least 50 units, said San Mateo County’s average rent inched up to $1,636 from $1,628, an increase of half a percent.

Despite the slight increases, rents are still lower than in the first quarter of 2009, when Santa Clara County’s average was $1,613, and San Mateo County’s was $1,741.

In the Bay Area and across the country, rents peaked in the third quarter of 2008, then fell as unemployment deepened.

"What’s been affecting rents and occupancy is really the economic climate that’s affecting the entire country," said Sarah Bridge, owner of RealFacts, which is based in Marin County. With modest improvements in the economy and job creation, she said, demand for apartments has increased and rents have followed — modestly.

"My guess is we’re not going to go back down," she said, referring to the uptick in Silicon Valley and peninsula rents after five quarters of decline. "We’ll either level off, or there will be a continued increase in asking rents and occupancy."

Yep. You missed the bottom. If you haven’t bought already, it might be too late. Better overbid on something today, or you might not even be able to afford to rent something!

Comments (69) -- Posted by: burbed @ 5:31 am

May 8, 2010

Why does Fannie Mae hate freedom and innovation?

Fannie Mae to make qualifying for interest-only loans tougher

By Les Christie, staff writerApril 30, 2010: 5:53 PM ET

NEW YORK (CNNMoney.com) — Fannie Mae, the government-backed mortgage giant, announced Friday that it will tighten lending requirements for the interest-only loans and adjustable rate mortgages (ARMs) it backs.

To get a Fannie Mae-backed interest-only mortgage, for example, homebuyers will have to make down payments of 30% of the sale price.

Fannie will only buy those underwritten to ensure that borrowers could still afford payments even if their interest rates reset to the higher of either 1) the loan’s initial interest rate plus two percentage points or 2) the maximum the interest rate the loan can rise to, known in the industry as the cap rate.

Thanks to Burbed reader Derek for this find.

Frankly, this is a sad day for America. Why does Fannie Mae hate freedom and innovation? Requiring downpayments? Requiring borrowers be able to pay?

Damn government! Get off our backs!

Comments (49) -- Posted by: burbed @ 5:23 am

May 2, 2010

New York versus California – Safe States

America’s 15 Safest States

15. New York

Assault: 25
Burglary: 47
Murder: 26
Motor Vehicle Theft: 45
Rape: 49
Robbery: 9

Ha ha! Look at that! New York is all the way at the bottom of the list of America’s 15 Safest States!

Let’s see where California ranks!

15 Most Dangerous U.S. States

#15: California

Assault: 18
Burglary: 25
Murder: 16
Motor Vehicle Theft: 3
Rape: 41
Robbery: 5

Booyah baby! #15 on the list of Most Dangerous States!

Further proof that if you can make it here in California, you can make it anywhere!

And while we’re at it….

25 Craziest Cities in America

2. San Francisco

Psychiatrists per capita: 1
Stress: 57
Eccentricity: 2
Drinking: 11 (tie)
Local Character: Samir “Sammy” Keishk spent 18 months and $12,000 working on a 2,260-pound rubber-band ball in a quest to set a Guinness world record.


7. New York City

Psychiatrists per capita: 4
Stress: 19
Eccentricity: 4
Drinking: 49 (tie)
Colorful Character: Robert John Burck, better known as the Naked Cowboy to anyone who’s ever walked through (or heard of) Times Square, stuns and entertains passersby with his outfit: cowboy boots, a hat, and briefs that he hides with a guitar. (AP Photo/Tina Fineberg)

Take that again New York!

Man… we are just rockin’ it out!

Comments (11) -- Posted by: burbed @ 5:30 am

April 29, 2010

$300,000 for a Water Meter

Thanks to Burbed reader madhaus for this guest post!

Everyone knows construction costs in the Bay Area are “through the roof” because it’s so Special here.  What everyone did not know is that some places are so Special that it will cost more for a water meter than a house almost anywhere else.

image Bolinas is north of San Francisco, but the residents don’t want you to find them.  The state has given up replacing any direction signs to the town, because they keep getting torn down.  And even if you can find your way there, don’t plan on moving into a new house.  There are exactly 580 water meters allowed in Bolinas, and they don’t come up for sale very often.  No water meter, no new construction.

One is coming up for sale very soon, and it’s going up for auction.  Minimum bid: $300,000.  It’s for sale because a the town, aided by billionaire venture capitalist Michael Moritz, bought a house that burnt down and is turning the lot into a park.  The auction ended Friday, April 16th, after this NY Times article was published.

For most of the last 39 years, “the only way a water meter came free was when a house burnt down, or fell off a cliff,” said Barbara Rothwell, a longtime Bolinas resident.

The meter moratorium has survived, even through protracted litigation, with the support of residents who like this isolated town the way it is.

The last water meter to come up for auction was in 2005, and it sold for $310,000.  Now, that’s Special!  How are your Special communities keeping out the riff-raff?
Incidentally, don’t you think The Bolinas Water Meters would be an awesome name for a rock band?


Update, 4/20/10:  Nobody submitted a bid for the coveted water meter. The deadline has been extended another week, ending on Friday April 24th.

Update, 4/28/10:  No bidders on water meter, auction extended to May 14th

Your chance to get a rare Bolinas water meter has been extended to May 14.

“We want to give people more time,” said Flower Fraser, owner of Seadrift Realty, who is ready to collect the bids.

The original deadline was April 16, then was extended to Friday and now until mid-May. Seven parties have inquired about the meter, but no one has submitted a bid.

Maybe some properties outside the RBA aren’t all that Special.

Comments (20) -- Posted by: burbed @ 5:16 am

April 25, 2010

Silicon Valley median home price rises 29 percent

Silicon Valley median home price rises 29 percent

In one of the strongest signs yet that the Silicon Valley housing market is recovering, the median price of houses sold in Santa Clara County last month shot up 29 percent from a year earlier, hitting $550,000, the biggest year-over-year increase in almost a decade.

San Mateo County saw a similar phenomenon, with the median house price leaping 27 percent to $700,000, according to a report released Thursday by MDA DataQuick. That was the county’s biggest year-over-year increase in nine years.

"In the last four to six months, we’ve been seeing multiple offers, and there are definitely a lot of incentives" for people to buy homes, including both state and federal tax credits for home purchases, said Karl Lee, president of the Santa Clara County Association of Realtors. "I think there’s an undercurrent of demand even without the tax credit. The two greatest factors are the low interest rates, and that buyers believe prices have come down to where they think it’s attractive."

Those low prices helped spur Richard Jackman and his wife, Gina, to buy a three-bedroom house in San Jose’s Willow Glen neighborhood last month. After a little remodeling, they hope to move in next week. The Jackmans began looking for a home a year and a half ago, and in late 2008, they made an offer of about $700,000 on one, but ultimately did not buy it. This time, they won out over three other bidders, and paid $560,000 for a house that had been priced at $540,000.

Did I call it or what? The Valley is back! 10% year over year appreciation here we come!

Comments (37) -- Posted by: burbed @ 5:04 am