Aug142016
Entry-level houses scarce because underwater owners can’t sell
Entry-level housing is not available for sale because many owners of these properties are still underwater and unable to list and sell their homes.
From 2000 to 2005, house prices more than doubled in many areas of the country. Although rates of home price appreciation that high can’t be sustained, most people don’t know or believe that. In fact, most people who bought late in the rally extrapolated the short-term rally to infinity. They really believed they were going to make a fortune, and all their dreams were coming true.
It didn’t work out that way.
Only the strongest markets across the country are back above the housing bubble peak. Late buyers and refinancers who used amortizing loans and consistently made payments are above water, but many others are not.
Borrowers with loan modifications endure larger mortgage balances because the fees and missed payments added on. Further, many (if not most) private loan modifications don’t amortize, so those borrowers are likely still underwater. Those borrowers don’t list and sell their homes today because the consequences are too severe, particularly with the tax on forgiven mortgage debt back in full force.
By far the majority of these people are still trapped in their entry-level homes. Many obtained loan modifications, but many others struggled to make sky-high mortgage payments, and they struggle to this day.
How the property ladder works
In the real world, most first-time homebuyers use an FHA loan and buy a low-cost property because it takes too long to save 20% for a down payment on a conventional loan. First-time homebuyers use FHA loans because the 3.5% down payment is within reach. Further, once these buyers are in a property, they merely wait five or ten years for loan amortization and wage-based appreciation to magically give them 20% to 30% equity in a property to use on their move-up purchase.
Once the owner has enough equity to get a closing check large enough to fund a 20% down payment on a move-up property, they can complete a move-up trade. Since this is usually quite some time after buying their FHA financed property, it’s likely the household’s wage earners are making more money. They take their larger family income and their 20% down payment and buy a more expensive move-up property.
The broken property ladder
For the property ladder to work, home prices and wages must rise steadily and borrowing costs must remain stable, or better yet, mortgage rates should fall gently. If any one of these features is missing, the property ladder becomes unstable.
During the housing bubble, prices rose very rapidly, but rather than enrich an entire generation of homeowners, lenders allowed them to borrow and spend their equity, so while house prices doubled during the bubble, aggregate home equity actually declined. This left an entire generation of homeowners over-indebted and trapped in their starter homes. This lack of move-up equity and lingering problems with underwater borrowers explains the unusually low levels of for-sale housing inventory.
Today’s entry-level homebuyers in Coastal California must pay upwards of $600,000 in nicer areas. With as large as that number is, the number is financeable by many entry-level buyers with high family incomes. If the previous generation would have only paid $450,000, those owners would have $150,000 in equity they could use to move up to a $750,000 home, and the property ladder would function.
However, that’s not how much the previous generation paid. Many entry-level buyers from 10 years ago paid $650,000 to $750,000 with their option ARM loans with teaser rates. Any while many of those buyers lost their homes to foreclosure, many more obtained loan modifications, so rather than $450,000 or less in debt on their starter home, they still have $650,000 or more in debt, and they can’t sell.
Since the owners stuck in entry level homes carry too much debt, they aren’t listing and selling their homes, and they can’t make a move-up trade. Housing analysts concoct many plausible reasons for the lack of for-sale inventory, but the real reason is the excessive debt still carried by the previous generation of homebuyers.
The problem with a lack of inventory is most acute at the entry level because an entire generation of entry-level buyers is stuck. And since they can’t sell until they get enough to cover their debt, and since most won’t sell until they have enough left over to make a move-up trade, entry-level housing is scarce.
In recovering housing market, the starter home remains elusive
By David Randall and Nichola Groom, Aug 10, 2016
Low interest rates and an improving job market have created a wave of prospective first-time home buyers, but they’re being stymied by a dearth of available starter homes.Nationwide, the inventory of homes costing $250,000 or less fell more than 12 percent between June 2015 and June 2016, according to the National Association of Realtors.
Bear in mind that the inventory at the bottom of the housing market becomes more scarce as house prices move up. However, the lack of inventory at the bottom of the market isn’t due to the general increase in all house prices.
The shortage stems from higher labor, land and building permit costs that have caused construction companies to focus on higher-end homes that bring more profit. In addition, institutional investors are snapping up affordable homes by the thousands in select markets nationwide and converting them to rentals.
The two reasons given above have little to do with the problem.
Builders would provide more entry level homes if they believed they could sell more volume. Builders shun this market today because despite the shortages, they can’t sell these any faster than they’re selling more expensive homes. Since they make more on more expensive homes, that’s what they build.
The shrinking supply of affordable homes is one economic trend among many that is conspiring against younger workers and families in building wealth as their parents once did.
Real average hourly wages of often debt-laden college graduates fell between 2000 and 2014, according to the Economic Policy Institute, while the Case-Shiller U.S. National Home Price Index jumped more than 25 percent, adjusted for inflation, over the same period.
The rally of 2012-2013 was obviously not based on improving fundamentals. The higher house prices were engineered by lender policy with an assist from the federal reserve’s low interest rates.
Younger workers who can afford to save for a down payment, meanwhile, are forced into bidding wars for the dwindling number of houses they can afford.
This is exactly what the powers-that-be were hoping for. The only way to raise prices rapidly and bail out the banks was to force the few buyers to compete for even scarcer real estate.
Some decide instead to strain their budgets for a home that would have been traditionally considered a trade-up.
Not here in Coastal California. Very few entry level buyers possess the income or down payment to obtain the first level of move-up homes.
Over the past four years, the number of entry-level homes for sale – defined as those priced in the lower third of a local market – has fallen by 34 percent, according to a Reuters analysis of data compiled by listings firm Trulia.
“We don’t see a lot of value today in running out into the exurbs and buying a lot of lots,” PulteGroup Chief Financial Officer Bob O’Shaughnessy said at an investor conference in May.
If there’s another housing downturn, he said, “that is the stuff that will shut down first.”
The Millennials currently cope with excessive student loan debt, which is also preventing them from buying houses. Millenials delay marriage, and they don’t form new households at the same rate as previous generations. Most housing market analysts blithely assume Millennials will follow the same path as preceding generations once they have opportunity, but what if Millennials decide not to buy homes? Baby Boomers don’t want to think about that possibility.
What happens to the housing market if first-time homebuyer rates fall to record lows and remain there for many years? Over the next decade, we’re going to find out.
Perhaps an improving economy, strong job growth, and strong wage growth will cause house prices to rise as much over the next 25 years as they did for the baby-boom generation. If mortgage rates remain permanently below 4%, that could happen. Perhaps we really have reached a permanently low floor in mortgage rates.
Due to the stability in housing brought about by Dodd-Frank, I don’t believe today’s homebuyers have much to fear, but that same stability means prices won’t shoot up wildly like past bubbles either, so today’s homebuyers don’t have much to gain. Buying a house as a family home is still a good idea. It’s reverted to the old stable and boring retirement piggy bank it used to be. And in my opinion, that is a good thing.
[listing mls=”OC16178334″]
Regulations, not rentals, are responsible for high cost of housing
Homeowners and travelers beware: The city of Anaheim is targeting homeowners who allow paying guests to spend the night in their homes. Responding to the growing popularity of websites like Airbnb and Homeaway, powerful hotels and vocal neighbors are successfully urging cities to ban or severely regulate home-sharing, which hurts local tourism and violates people’s rights.
Anaheim officials haven’t just imposed massive penalties on homeowners who rent their homes; they have also enacted ordinances that force websites like Airbnb and Homeaway to police homeowners who use their websites.
Rules like these go beyond restricting property rights. Punishing people for sharing information treads on free speech rights guaranteed by the First Amendment, as well as the federal Communications Decency Act, a law that bars government from holding website owners accountable for things other people say on their websites.
Yet, officials lament that they must resort to such extraordinary measures because home-sharing, they say, is responsible for the lack of affordable housing in California.
Rather than blaming property owners, city officials should point the finger at themselves. It isn’t home-sharing that’s driving up the cost of homes; it’s having to ask the government for permission to build on and improve property. In a recent Wall Street Journal article, builders explained that excessive regulations are responsible for the high cost of new homes. Among others, the article cites a recent report from the National Association of Home Builders, which showed a 30 percent increase in the cost of complying with regulations in just the last five years.
In fact, rather than increasing the cost of housing, home-sharing helps Americans afford to keep their homes in the face of soaring costs. Airbnb reports that in 10 of America’s largest cities, over half of its hosts would not be able to pay their bills without the extra money earned from home-sharing, and 13 percent would have faced foreclosure. In New York City, 76 percent of Airbnb hosts use their home-sharing income to stay in their home.
Destroying property rights in an effort to make housing more affordable isn’t just misguided – it’s immoral.
Streamlined CEQA review of mega-projects goes to governor
A bill to streamline court challenges to mega-developments on environmental grounds passed the California Senate on Thursday, sending the measure to Gov. Jerry Brown for signature.
The bill, SB 734, extends for two years an existing measure to shorten challenges under the California Environmental Quality Act, or CEQA. Without the extension, the measure would sunset in January.
Under the 2011 measure, dubbed AB 900, projects winning the governor’s certification get priority over other cases if challenged in court. Such lawsuits go straight to appellate courts, which would have 270 days to resolve the dispute.
To be eligible, a project must cost at least $100 million, must pay construction workers prevailing wage rates, and not increase greenhouse gases.
Six projects have been certified under AB 900, including a new Golden State Warriors arena in San Francisco, Apple’s new headquarters in Cupertino, and the Qualcomm Stadium reconstruction in San Diego.
Passage comes as debate is heating up over efforts to reform the 46-year-old environmental law, sparked in part by Brown’s own plan to bypass local CEQA review for developments containing affordable housing.
Warning signal? What O.C. property index’s first dip since recession might mean
The local real estate slice of the Big Orange Index is dipping for the first time since the recession ended.
A sneak peak of my Big Orange Index, a compilation of three dozen measures of local economic patterns, reveals weakness in its Property Owner Index for the spring quarter: a 0.3 percent drop from a year ago. That’s the first year-over-year drop since the third quarter of 2010.
The full Big Orange Index report will appear in Sunday’s Orange County Register.
Why the slip? Here’s what my trusty spreadsheet says about the benchmarks that comprise the Big Orange Property Index – stats from the Employment Development Department, CoreLogic, S&P/Case-Shiller indexes, Federal Housing Finance Agency, Chapman University and Real Answers.
To the upside in the past year:
• Local real estate and finance jobs jumped 8.3 percent.
• Orange County homes sales rose 4.8 percent.
• Local home values rose 5.9 percent.
• The effective rent collected by Orange County’s large landlords is up 5.7 percent in a year.
On the downside:
• Mortgage-making of all sorts in Orange County is down 22 percent vs. a year ago.
• Residential building permitting countywide is down 1.7 percent in a year.
These two declining yardsticks could be seen as positive signs, actually.
Bankers report heavy use of cash in real estate purchases, big and small. This lowers lenders’ business levels but also cuts overall real estate risk.
And builders says cooling construction plans are due in good part to a shortage of skilled laborers. Basically, contractors are sold out.
But considering real estate’s outsized impact on the local economy, this is a trend to carefully watch.
Note: In the last cycle, Big O Property Index first dipped year-over-year in 2006’s fourth quarter, starting a four-year run of declines that encompassed the bursting real estate bubble and the Great Recession.
Silicon Valley housing market is ‘looney-tunes,’ real estate broker says
The housing market in Silicon Valley is “looney-tunes,” real estate broker Fred Glick said Friday.
That’s because it’s all about supply and demand, with people flooding to the area from around the world.
“We just keep adding people like crazy and we can’t get enough supply. That’s why people have to share houses. That’s why renters know that they have to pay an exorbitant amount of money,” the CEO of real estate brokerages Arriva and U S Spaces said in an interview with CNBC’s “Closing Bell.”
The median home price is $1.1 million in San Francisco and $2.5 million in Palo Alto, according to Zillow.
Things have gotten so pricey that this week alone two high-profile people have been driven out of the Bay Area. San Francisco Federal Credit Union CEO Steven Stapp said he’s taken another job in Portland, in large part because his rent in San Francisco is too high.
And a member of Palo Alto’s planning commission, Kate Vershov Downing, posted a public letter of resignation on Medium, saying she and her family can’t afford the $6,200 rent of a house they share with another family.
Glick said the real estate market is a local issue, with different cities facing different conditions. In Philadelphia, for example, it is “generically busy,” with houses in good areas with good prices being snapped up quickly. In Tuscan, Arizona, however, there is two to three months of inventory for houses under $300,000, he said. And Houston has an overbuilt luxury problem, he said.
“It depends on where you go,” said Glick.
Tim Kaine just called out Donald Trump’s history of housing discrimination
Tim Kaine began his career as a fair-housing lawyer, a lesser-known detail about the Democratic vice-presidential nominee now mostly recognized for his mild-mannered dad-ness and goofy Trump impersonations.
For years he sued Richmond landlords and lenders who discriminated against blacks, which gives him deep expertise in a topic that, until now, has not figured into this presidential election. As one civil rights lawyer said to me after the Virginia senator’s introduction as Clinton’s running mate last month, there hasn’t been such a strong fair-housing advocate on a presidential ticket since Walter Mondale, who helped write the 1968 Fair Housing Act.
Kaine tells some of this personal history in an op-ed for CNN today, recounting the story of a black woman named Lorraine who was baldly denied an apartment then offered to a white tenant. Then he ties this history to another less well-known story about Donald Trump’s past:
Progress has been slow because there have always been people willing to discriminate for profit. In fact, before I started my career fighting this problem, and while my running mate, Hillary Clinton, was going undercover to expose school segregation in Alabama — our opponent, Donald Trump, was occupying himself in other ways.
Around this same time, if a woman like Lorraine attempted to rent an apartment from Trump’s company, federal investigators were told that employees would have added a piece of paper to her rental application with the letter “C” on it. As the Department of Justice would later discover, “C” stood for “Colored.”
Before Trump moved into the business of luxury high-rises and casinos, he helped run a rental empire built by his father in New York that catered to working- and middle-class tenants. In the early 1970s, the Justice Department accused the family of discriminating against black tenants across 39 properties the Trumps managed. The Trumps eventually signed a consent decree that required the company, among other things, to proactively list units in minority publications.
Trump / Sterling 2016?
The Housing Non-Crisis
The Census Bureau kicked off the mini-panic when it reported two weeks ago that home ownership hit a 51-year low in the second quarter. The last time only 62.9% of U.S. households were occupied by owners, Barry McGuire was topping the pop charts. But this doesn’t mean we’re on the eve of destruction.
Far from it, unless you forget that the home ownership rate peaked at 69.2% in 2004. That was amid the late and unlamented housing bubble. Politicians had made a fetish of the ownership rate during the 1990s and 2000s as a symbol of upward mobility. We even fell for it ourselves once or twice.
But the ownership increase turned out to be a mirage built on the sand of subsidized mortgage credit peddled to borrowers who couldn’t afford the carrying costs. As the housing boom turned to bust, the ownership rate fell to 66.5% in late 2010, and it has kept falling. Banks aren’t making liar loans anymore and credit standards have tightened. Isn’t that what the politicians who passed Dodd-Frank wanted?
The home ownership rate is a largely meaningless statistic that has more to do with politics than economics. For starters, it promotes the myth that owning a home is the key to middle-class savings and a driver of economic prosperity.
A home is valuable as a form of shelter but it is not typically a good investment. In 2014 in these pages, the great financier Michael Milken cited research going back to 1890 showing that the annual inflation-adjusted return on houses was barely above zero. “Factor in real estate’s heavy transaction costs and that number turns negative,” Mr. Milken wrote, while stocks over the same period enjoyed a real average annual return of about 6%. Housing is best understood in economic terms as a form of consumption, not investment.
How quickly the housing lobby wants Americans to forget. Its echo chamber is busy using the falling home ownership rate to lament that too many Americans can’t afford a home.
But if that’s true, it isn’t because government doesn’t subsidize housing enough. It is because the economy isn’t growing fast enough to raise middle-class incomes. In certain markets in particular—California—government has also imposed barriers to cheaper housing with zoning laws, environmental rules and other building restrictions.
Our concern is that politicians will use the falling home ownership rate to once again ease standards for credit and down payments. Hedge funds and their pals in Congress are already lobbying to restore Fannie and Freddie to their former grandeur as purveyors of private profit but taxpayer risk, and the clamor will grow.
“Our concern is that politicians will use the falling home ownership rate to once again ease standards for credit and down payments.”
This is why every discussion related to the 2016 Presidential election is germane to housing.
The CFPB is preparing to regulate the auto finance industry. The 2016 Presidential election could affect this effort. If you think Wall Street learned its lesson collateralize-ing subprime debt and would never return to this activity in housing, please revue the current auto lending industry:
John Oliver explains the terrifying, predatory, Wall Street-feeding descent of used-car dealers
http://theweek.com/speedreads/642938/john-oliver-explains-terrifying-predatory-wall-streetfeeding-descent-usedcar-dealers
I don’t have cable but I do enjoy many of John Oliver’s show. Thank you for the link.
It pretty much matches up to what I observe in real life. Many times the down payment almost covers the dealers cost of the car in the first place. It is truly expensive to be foolish in the United States.
I remember when I first discovered this industry when shopping for cars when I was 18. I saw these jalopies that came straight from the auction where the deal paid about $300. They would sell these cars for $300 down, then they would finance another $900 that was pure profit. After the sale, they would sell these loans and get their cash. It was such an obvious ripoff that I wondered why anyone would do it. I guess there are enough desperate people out there.
It is especially strange when you can get perfectly serviceable cars used from private parties. When I was younger, I used to get used cars at about $1000 (you can tell if it is on death’s door if you listen carefully during the test drive) and drive them for several years until they fell apart (one did catch fire on the freeway). Not caring about how “successful” you look sure saves you a lot of cash.
In maybe 2005 or so I got a coupon for free valet parking at Fashion Island. So I roll up in my 88 Accord with the dented fender, peeling paint, X4 tags scratched on the trunk, and creaking CV boots. The attendants thought it was hilarious to park the car between a Lexus and a Ferrari. I still have that picture. 🙂
Once I had kids, though, I shelled out for the air bags and crumble zone. Priorities.
After a certain point the cars really don’t depreciate either. You can buy an old car drive it for a year or two and get all your money back when you sell it.
Almost all cars build this century will last into the 200k mileage range. You can get 100k+ mileage cars for a few thousand dollars and drive them for years. People in the US just don’t value older cars and give them away for peanuts.
I bought a 2001 Toyota Avalon with 150,000 miles on it 4 years ago for $5,600. I have 195,000 miles on it now, and I could probably get most of my money back. As Carl noted, if you don’t buy for status, it’s amazing how inexpensively you can buy and operate a reliable and comfortable car.
Housing industry hoping for change after Obama
http://thehill.com/policy/finance/291312-housing-industry-hoping-for-change-after-obama
Housing industry advocates have a message for the next president: It’s time to move on from the crash.
The housing market collapsed nearly 10 years ago, yet the sector’s growth remains stagnant, with sales and construction well below their peaks in the early 2000s.
The industry is looking to Hillary Clinton or Donald Trump to get things back on track. They are pushing the presidential candidates to shift the focus of housing policy to cutting and clarifying regulations and reforming the nation’s mortgage giants Fannie Mae and Freddie Mac.
“We have two candidates who are at least talking about housing and growing the housing market as opposed to what the current administration is doing,” said David Stevens, head of the Mortgage Bankers Association.
“[The Obama administration] walked into a housing recession, and it was all about regulation and enforcement. It was not about creating opportunity, it was about protecting homeowners, putting tougher rules in place and stopping bad practices,” Stevens said.
Stevens said he doesn’t blame the White House for their sweeping regulatory efforts because President Obama inherited a “terrible recession” brought on by a housing collapse. Still, he said the next president would have an opportunity to change the dialogue.
“I think the way we should all be looking at this is at its core we have a chance to pivot here with a new administration, whoever it is, because both are coming at this with much more of a blank-slate approach with a clean table of options without all of this mess in the front window related to a housing recession,” he said.
“They’re trying to look at both sides with ways to extend homeownership, and regardless of anything else, just that attitude is going to be welcomed.”
Both presidential campaigns talked to homebuilders this past week during industry meetings in Miami.
Jerry Howard, president of the National Association of Home Builders, who hosted the Clinton and Trump campaigns, said it is time to get beyond the implosion of the housing market.
“We’ve now gotten far enough past the housing crisis, and I would suggest respectfully that the efforts since the housing crisis have been band-aids. And now we really need to look at the root of the problems and how to correct them,” Howard said.
Builders plan to ask the next administration to look more closely at the goals for the industry. Specifically, they are calling for federal rules to be clarified to boost homeownership while making sure that consumers are protected from any sort of “unseemly activity,” Howard said.
“You need legislation that simplifies the home buying process while protecting the homebuyer,” he said.
Howard noted the Thursday economic message from Clinton, the Democratic nominee, called for reduction of red tape and said he hopes translates to reducing some of the burdens on the market.
“Again, being an optimist, I’m hopeful cutting red tape means cutting the problems that business people have in complying with regulations due to the slowness of bureaucracy to react,” Howard said.
On average, regulations imposed by all levels of government account for 24.3 percent of the sales price of a new single-family home, according to a May study by the NAHB.
Trump, the Republican nominee, seized on that data during his Thursday remarks, calling what is happening on the regulatory front under the Obama administration “horrible.”
“No one other than the energy industry is regulated more than the home building industry,” Trump said. “Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about 2 percent.”
The Republican presidential nominee vowed to wipe out a majority of the regulatory burdens starting with a moratorium.
“We will impose a temporary moratorium order on new agency regulations,” Trump said.
“We’ll cancel all illegal and overreaching executive orders signed by President Obama,” he said.
“We will eliminate all regulations that kill jobs. We will remove the bureaucrats that only know how to kill jobs and replace them with experts who know how to create jobs without regulations.”
Stevens said a wholesale elimination of regulations from lending and servicing to construction would be difficult.
“A pledge by a candidate to roll back regulation is not as easy to complete as it is to say it because a lot of it would require Congress to roll it back,” he said.
Stevens and Howard said there are plenty of areas where a new president could start making changes, including the promotion of home buying, adding incentives for building entry-level housing, improving technology to better manage the mortgage approval process and working to speed up the regulatory process.
The industry also is calling on Congress to overhaul Fannie and Freddie and wants the new administration to look at improving qualified mortgage rules and streamlining others to create more liquidity.
Howard wants a the next president to insist that bureaucrats implementing regulations do so as quickly as possible “because the time and cost it takes to comply is absolutely and directly due to the slowness of the regulators in making sure there is compliance.”
Clinton has said she would seek clarity on housing rules and has proposed a broad agenda that includes help for first-time homebuyers seeking to save a down payment.
Gene Sperling, a top economic adviser to Clinton, spoke to the homebuilders and said that even though housing finance reform is “really tough,” any legislation must include a government guarantee to protect the 30-year mortgage.
“You need a backstop to ensure the United States of America still has a 30-year fixed mortgage,” Sperling said. “That is something that gives people the opportunity to become home owners in this country.”
Builders and mortgage bankers cite statistics that Americans want to buy homes and say conditions must be improved to make it happen.
Housing reform won’t happen for another decade. Any change in the system that weakens the direct government guarantee will raise the cost of borrowing and lower the value of housing. Since this outcome is intolerable to far too many people, it will never happen — or at least not for a very long time.
Again trying to justify yourself through illogical, obscure reasoning.
Im sure everyone here will agree that E V E R Y discussion about this election is germane to housing…
It’s a blog. Relax. Chill out. When a thread meanders into a tangent unrelated to IR’s original post, it’s okay. If the discussion strays from housing altogether, it’s no big deal.
Agreed, but even YOU have to admit your logic is getting pretty tortured though… 😉
What logic is tortured?
This is why every discussion related to the 2016 Presidential election is germane to housing.
When you think of the many Trump-related discussions we’ve had over the past year, very few of them had anything to do with housing. Most of them were related to Trump’s character or trying to understand the nature of his supporters. While entertaining and topical, we were not discussing these things with housing in mind.
Fair enough, but this guy is fascinating. Believe it or not, I do self-censor here. I’m shocked nearly every day by something he says, but I don’t comment here regarding every outrageous thing Trump says.
I mean, did you hear/read his speech today? Wow!
+1
5 tips to bounce back after a foreclosure or short sale
2. CHANGE YOUR BAD MONEY HABITS: Focus on paying down debt, creating a solid savings strategy and avoiding new splurge purchases. Saving for a down payment and closing costs is one of the biggest hurdles that homebuyers face. Start socking away bonuses, windfalls, tax refunds and other extra cash in a savings account. Setting up automatic deposits to your savings account is another way to grow your down payment reserves, and it removes the temptation to spend money unnecessarily.
3. REPAIR YOUR CREDIT: The FHA’s minimum credit score requirement for maximum financing is 580. Some lenders offer loans at that minimum, Carlisle says, but other mortgage lenders require a FICO score of 640 or higher. Paying off high-interest debt on time each month and not taking out new loans or running up your credit cards will help build your credit score. Also, ask your utility providers or landlord to report your on-time monthly payments to the major credit bureaus to have those count on your credit report, too.
Opting Out
Here’s a story about how some young adults refuse to take towns’ no-build policies and astronomical housing prices lying down.
It’s one family’s story. So, why has Kate Vershov Downing’s public resignation from a position on Palo Alto, Calif.’s Planning and Transportation Commission struck such a profound chord?
The 31-year-old, whose day job is as a tech firm product attorney, and her family plan a move to Santa Cruz, 45 miles to the south of Palo Alto. The reason? She and her 33-year-old software engineer husband can’t afford to buy a home and raise a family in Palo Alto.
Here’s how Downing does the math:
After many years of trying to make it work in Palo Alto, my husband and I cannot see a way to stay in Palo Alto and raise a family here. We rent our current home with another couple for $6200 a month; if we wanted to buy the same home and share it with children and not roommates, it would cost $2.7M and our monthly payment would be $12,177 a month in mortgage, taxes, and insurance. That’s $146,127 per year — an entire professional’s income before taxes. This is unaffordable even for an attorney and a software engineer.
For the 15th consecutive quarter, San Francisco-Redwood City-South San Francisco, Calif. was the nation’s least affordable major housing market. There, just 8.5 percent of homes sold in the second quarter were affordable to families earning the area’s median income of $104,700.
The five least affordable small housing markets were also in California. At the very bottom of the affordability chart was Santa Cruz-Watsonville, where 14.7 percent of all new and existing homes sold were affordable to families earning the area’s median income of $85,100.
Over the last 5 years I’ve seen dozens of my friends leave Palo Alto and often leave the Bay Area entirely. I’ve seen friends from other states get job offers here and then turn them down when they started to look at the price of housing. I struggle to think what Palo Alto will become and what it will represent when young families have no hope of ever putting down roots here, and meanwhile the community is engulfed with middle-aged jet-setting executives and investors who are hardly the sort to be personally volunteering for neighborhood block parties, earthquake preparedness responsibilities, or neighborhood watch.
Part of the challenge throughout California and plenty of other communities, he once pointed out to me, is that we tend to make local policy — and housing policy in particular — as if the only people who matter in a community are the ones who go to bed there at night.
We don’t think of people who work but don’t “live” there, or who’d like to live there but can’t afford to, or who once lived there but had to leave, or who could access better jobs if only they could move there, or who commute through there as part of their daily lives.
This is a bit overdone. Why does she have to live in Palo Alto if she works there? It is a suburban area. Palo Alto has a population of roughly 50,000 in a metro area of millions. She could live 5 miles away in Sunnyvale and pay half. Or live 15 miles away in South San Jose and pay 1/3 of what she is currently paying. But no, she has to try to get attention and publicly resign.
To put it in an OC context, it is like her complaining that her family can’t live on Balboa Island even though she’s on the Balboa Island planning commission.
Thank you for pointing that out. Just because you work in a city doesn’t mean you can afford the quality of housing you desire there.
How many maids and gardeners work in Laguna Beach?
Is it necessary to provide enough affordable housing in Laguna Beach so the maids and gardeners can work there?
Perhaps, but the housing crunch goes beyond Palo Alto itself. A family working on Balboa Island can find reasonable housing in Santa Ana, Fountain Valley, West Side CM, etc.
Not so in Palo Alto. There isn’t much within a 1 hour commute that is reasonable for a middle class family.
Tried to edit my comment, but it appears I cannot. I didn’t read your reply carefully enough. You indicate that there are reasonable substitutes within a close proximity of Palo Alto. The feedback that I have received from friends in the area is that even those substitutes are outrageously priced. But I must confess that I don’t have have enough local knowledge to make an educated firsthand comment.
No worries. I agree the alternatives to Palo Alto are outrageously priced, but you can be both outrageous and affordable (at least to professionals, as the author is) I live in the Bay Area now (I don’t live in OC anymore) so I can at least speak from experience. The prices of a lot of regions 15 minutes from Palo Alto are expensive to be sure, but affordable to an attorney married to a software engineer (like the author).
Palo Alto is about like Corona Del Mar in terms of price. Mountain View is more like Irvine, Sunnyvale more like Tustin, and East San Jose like Santa Ana in prices with a small multiplier making the Bay Area more expensive.
For professionals (like engineers) the higher salaries in the Bay Area make the standard of living similar to OC (I lived in Irvine and could afford Mountain View). For middle class folks like teaches and police officers it is much more difficult.