Reader Lisa found this letter-to-the-editor in today's SF Chronicle:Fallout from bad loans will reset marketSpot on. People thought it would be a good idea to pay stupid prices for houses.
I've spent the last several years watching people take preposterous loans to purchase homes well beyond their means...These people knew what they were doing...They were gambling that the market would continue to rise...If the government wanted to act, it should have acted years ago to provide better lending regulation...To come in now, after the damage has been done, and prop up the market can only forestall and worsen the necessary correction...In the meantime, responsible buyers will continue to be shut out of the market.
And then, in the same issue of the Chronicle, is an article about the increasing frequency of school closures due to the fact that people are fleeing the Bay Area because it has become so crushingly unaffordable here even for people making a six figure income:
Public education is in danger of sinking along with the fortunes of its departing middle class.I hope you are all proud of yourselves.
By now, most San Franciscans are familiar with the dismal litany: the soaring cost of housing, the resulting loss of some 800 kids [at least] from the public school system each year, the constant battles over school closures.
Its fate is tied directly to the city's ability to muster the resources and political will to come up with yet another program with widespread benefits, one that would provide affordable housing for all its families. This is a challenge of enormous proportions, in a city where not just the poor, but families pulling in $100,000 or more are struggling to find adequate housing.
San Francisco's primary family support group, Coleman Advocates for Children and Youth, estimates that some two-thirds of this city population is experiencing some form of housing crisis.
[With regards to building affordable housing in both poor and wealthy neighborhoods] You can't achieve the goal of quality schools throughout the city, and good schools in every neighborhood, without economic integration in every neighborhood. Bringing the middle class into the affordable housing mix, in neighborhoods like the Bayview -- "deconcentrating pockets of poverty" -- as one mayoral aide put it, is one way to help achieve this.
But there's no point cleaning up your act if your audience is leaving. Can this city come up with a housing program that will keep not only its school kids but also its teachers here? To do so, the city will need to go far beyond the mayor's plan to provide a little more than 3,000 housing units in the next four years. No one really knows what the true cost of a comprehensive, float-all-boats housing program would be, but it is sure to run in the billions.
And time is of the essence. The client base for any affordable housing program is shrinking daily, with every U-Haul that heads out of town.
The solution is not to figure out some über-creative way to intermix so-called "affordable" housing amongst unaffordable housing while at the same time desperately trying to keep property values up. That will only cause a big mess. The only viable solution is to admit that housing prices are way out of whack, get out of denial, stop making excuses for ourselves, bite the bullet, and do everything possible to encourage property values across-the-board to reset back to sustainable and healthy levels. By sustainable and healthy levels I of course mean levels that are justifiable given people's incomes and what is in line with the notion that a house is a place to live, to raise a family, to make memories, not an investment like a stock, not a means of funding one's retirement. We need to eliminate the housing speculation mentality and remove the protections (both direct and indirect), both legislated or otherwise encouraged by vested interests, that are intended to keep property values moving in only one direction -- up. Of course I speak of endless regulations on building, Prop 13, tax-based incentives, "toxic" (too easy) lending, our fraudulent appraisal system, privatized control of real estate related data and information, a real estate industry that does not provide an incentive to the buyer's agent to see prices go down, etc., etc., etc.
12 comments:
If we see skyrocketing, nationwide foreclosures, the lenders will have to get serious about tightening standards, even if a particular market (e.g. our own "very special" Marin) doesn't get hammered as bad as the rest. The lenders are mostly national now, not local neighborhood shops. And Wall St. may stop lining up to buy their mortgage junk.
We all know that current prices couldn't hold up 20 minutes if conventional standards came back...10% or 20% down, six months cash in the bank, no credit card debt, strong FICO, steady & documented employment.
But again, I think this will be "rolling". Right now, it's harder to get 100% financing. Banks want 5% down. Next year, they may want 10% down. Next year, a higher FICO may be required. And so it goes.
BTW, I paid $2.99 for a quart of organic milk today. I just love that lending standards will tighten against a backdrop of increasing consumer prices, which will make it that much harder for someone to save for a downpayment, pay off credit cards, etc.
I bought a brand new, very nice SFH in Fairfax in 1996 for 2.8x my gross income. Why does that have to be a once in a lifetime opportunity?? I hope it's not.
Lisa -
{sarcasm}
I bought a brand new, very nice SFH in Fairfax in 1996 for 2.8x my gross income.
But back then Marin wasn't special. Not like it is now. Nosiree. Back then the sky wasn't as blue, the weather wasn't as nice, the open space not as open, etc. Now it is special.
{/sarcasm}
Or it could all be due to just Greenspan's easy money.
This post is spot-on. There are many in my East Bay town who are very concerned about their schools... concerned because they paid an absolute fortune for a house in a neighborhood that is seen as 'family-friendly' and safe, and up until recently had good schools. In the last few years a few schools have been closed or consolidated to much uproar from angry parents who "can't understand" how come the local government can't afford to have decent schools.
I had an interesting weekend. I'll admit that for years now I've been a staunch believer in the market correcting from over exuberance. But honestly, the fact that so many people here are so damned sure that the Bay Area is so desirable, economically rich and progressive, hence completely free from a possible housing fallout had me sometimes wondering on bad days if yes- even though the thought turned my stomach- if perhaps they were possibly right.
But this weekend was interesting... More like seeing the aftermath of some major battle. First, a story that pertains to Marin. I visited a buddy of mine. His cousin came over. Both are Marin natives, born there over 40 years ago. According to them, Marin at one time was a kind of hokey, almost rural town full of long-time residents. Many were either farmers or working class people. The picture was vastly different back then. Neither had any hopes of ever affording to live in their own home town, which I found sad.
Another story came from me and my wife bicycling lazily on Sunday. On our way back we noticed "Open House" signs at a local housing development. These are nothing new. A vast collection of 'award-winning' designer homes built in classic Mcmansion style, literally within 5 feet of one another and each costing a bare-miniumum of $800,000 and upwards of 1.5 mil.The open houses were basically 6 models ranging from a 3 bedroom 'starter' to a huge 5 bedroom behemouth.
These all have tell-tale signs of everything that was the housing bubble. Stainless steel appliances, granite countertops, enormous bathrooms with 2 sinks and walk-in closets bigger than the master bedroom in the house we rent. Everywhere were plaques to gush about the wonderful exotic luxury little features like recessed mirrors, closets, and the tiled showers.
2 years ago, I toured these same houses. Back then the homes were stuffed with lookers. Anxious looking couples. You almost had to get out of the way to make room. 2 years later and me and my wife were the ONLY people in the entire complex.
These houses are cheap. They have the look of luxury, but on close examination, you can see that they're little more than large prefabs with maybe 20k of embellishments in the kitchen and bathrooms. Hardly worth the extra 5-600k additional prices.On the way out, there were 3-4 of these homes for sale. One had been sold just last year, only now to be offered at more than what the model actually cost. I knew- I had the model sheet in hand. Without the fancy furniture and wall hangings, these homes do not show well and resemble what they really are- cheap homes doctored up to look posh.
As far as the rest of the neighborhood, well I'm now familiar with the many homes fore sale only because they've been for sale forever. Nothing, and I mean nothing is selling here.
A weekend of something becoming ever-transparent: The casualty of a housing market that changed the entire dynamic of a region.
Some of you should check out some of the city-relocation sites. Cities like Raleigh and Atlanta are literally overflowing with families from bubble-zones looking to get the hell out of wherever they're from. It's a big ole' party in those cities. A sharp contrast compared to SF and NY, where only an occasional post from an adventurous college grad or idealistic young couple from the Midwest post about possibly moving here.
Interesting times...
I hope only past fond memories keep me from being excoriated.
So what if the school district implodes? Wait. Hear me out. Are they producing future homeowners? No. Come on. Even the top 1% of HS grads are going to rise to being Marinites in their own right. That 1% would no doubt do at least as well without the Marin School Districts' tutelage.
So I ask. Why save the schools? Examine the motive behind good schools. It worked in the early paret of the 1900s when Boston and Philly could attract talent.
Does Marin want to be Philly or Boston?
"So I ask. Why save the schools? Examine the motive behind good schools."
Well, the reason why local residents want to at least have the impression off having good schools is that by doing so it suggests the idealized image of a having a successful community. Once an area's schools slip, then it is assumed that this is only one of part of a regression down the path of urban decay.
What's different about the system in California is that as of now, many systems are failing simultaneously but not because of symptoms indicative of urban decay.These failures are all due to the financial strains being placed on many families.
I don't have kids, but it seems like having goof schools are ultra important to most parents who will go to severe extremes to live somewhere that has them.
Hello all. This is my first time to this blog and I just wanted to say that most of what has been presented here is spot on. I grew up in Santa Monica (and am currently living there now), so I know the feeling of being one of the few who think an area is not "bulletproof".
Up until a few months ago when I moved back to LA, I was living in San Diego. So as far as bubbles go, I have some perspective on 2 different areas.
From reading a bit on this blog, it sounds like Marin is similar to Los Angeles (especially Santa Monica and other west side areas). San Diego displayed similar characteristics a year ago, but is now further ahead in the deflation period as prices in many areas are noticibly down.
My theory is that most of the collapse will begin at the margins. So look at low end condos and the cheaper houses in the less appealing areas. They will fall first.
Keep up the good work with the blog and feel free to stop by the west side bubble blog if you want to get a feel for how nuts things are on the west side of LA. Its not my blog but I post a lot on it...if anything, it will make you less shocked by prices in Marin. A 1/1 condo (think apartment conversion in old building) can easily run you $500K in Santa Monica...
We all know this situation is not sustainable so should be pretty interesting to watch it all unfold.
oh and the school thing...my aunt is a principal at a school in Santa Barbara...people can't afford to live there anymore so they are laying off teachers,etc. Same thing in Culver City (Los Angeles)...its sad
The government should clearly take control of the situation and set the prices of houses. Better yet, they should establish "reasonable" wages so everybody could afford everything they want but otherwise can't have. Anybody (and it's always somebody else) making more than "reasonable" wages should be compelled to write a check to Uncle Sam every month so those not willing to work hard, become educated, or be worth more than somebody else can benefit.
Good job taking an article about SF schools and their issues, and painting them into "bay area" problems. I am sure 800 kids lost a year is all due to housing costs, not raising a family in SF.
Why is it that high RE prices are bad for schools? Could it be the people who are buying the houses don't have kids? The real issue with your communities and schools is some proposition that keeps old people in houses for their entire life (do the math on when it was enacted). I wonder how many boomer couples live in a 3,000 sq ft house in Marin. I guess they don't want to move to NM or AZ, or Atlanta (LOL). I wonder why? Probalby nothing to do with California or Marin...
Yes houses for all and now! Don't work for anything! Everything you want!
I love it. Two comments suggesting that older Marin residents are somehow more deserving of their homes than inferior, uneducated, underpaid, and I guess my choice of their own words- not as hard working.
I think you will find that the vast majority of people on these blogs don't match any of the above. Most are people like myself, who have gotten their educations,gotten the good jobs, and do very well financially.
When you make over 100k a year and realize that despite making more than double the supposed median family income, you STILL can't afford a crappy starter home in 'the hood', then something is horribly wrong.
I KNOW that most of you oldsters in Marin would have no chance in hell affording whatever home you live in now based on your current incomes. Last time I checked, the median household income in Marin sits at about $71,000, which when compared to the median price of a house- around a million bucks- is roughly 1/4th the bare minimum needed to 'get in'.
To suggest that those before the current first time home buyers worked harder is off the mark. Nobody here is saying that they don't want to work hard for a home. Just the ability to have the same chance as those who came before us.
And as for those boomers "foolish" enough to move to Atlanta, Raleigh, or NM... perhaps they're the ones who know a thing or two.
By the way, affordability has everything to do with the school system in the Bay Area. I know. My wife taught in SF for three years.
Bob I think you mis understood my post.
I didn't mean to suggest that older people do not deserve their home. Just that they don't move (sell their house), which contributes to expensive houses. I understand why they don't move trust me. It is also the reason why these "communities" are fading. 30 houses on my block and not one kid under 16 besides mine, maybe 6 people actually work everday.
I think the majority people on this blog are people that don't make enough money or have enough saved to buy a house, and looking for someone to blame, and there is plenty of it to go around, some of it is deserving. The rest are boomers pissed of because someone half their age moved in next door, so they must be uneducated, inferior, and not hard working.
I am confused, I thought school funding was tied to RE taxes. Less kids in a class with higher taxes should be better right?
If you haven't noticed California is trying to "level" the school system playing fiedl with their new BS rating system. Similar to what SF tried to do by changing the location of where kids go to school, so not one area is "better" than the other because that is where all the yuppies moved. I am pretty sure the biggest complaint about SF schools is that you could live next door to a school, but your kid could get bused acrosss town.
"And as for those boomers "foolish" enough to move to Atlanta, Raleigh, or NM... perhaps they're the ones who know a thing or two."
A thing or two about what? Help ruin a community? Take the money and run?
bob said..."the median household income in Marin sits at about $71,000, which when compared to the median price of a house-around a million bucks- is roughly 1/4th the bare minimum needed to 'get in'. "
It always seems funny to me when people complain about how they make some income and they can't afford a "median price home" to "get in". First of all, why would anyone think their first house would be at the median price? Wouldn't a first time home buyer be looking to buy much lower than the median??
Fred,
Apologies for misinterpreting your post. Indeed there are many people here who are pissed off about the current housing situation. But I think you will find that there are actually quite a few people on blogs like this who do make enough to 'afford' a house here, but don't see the sense in it because just from basic economical reasoning it doesn't make sense to do so.
The blame for this is well founded and mentioned many times on this blog: legacy laws like prop 13, which configures into your theory about old folks who never move as a result of their tax shelter, anti-development laws as mentioned by Marinite many times.I don't live in Marin, but the community I do live in has laws that are very similar and local citizens who throw tantrums if an outhouse is built. Lastly, the Bay Area just seems to attract the types of people who want to simply get rich quick: the tech boom, the dot-com, and thereafter the real estate boom in which the same pompous attitude that was applied during the tech boom was painted onto houses in an equally ugly manner.
Schools are suffering because of less tax dollars. Why less tax dollars? The Bay Area's population is getting older and older because nobody under 40 can afford to buy here, and thus thanks to prop 13, the taxes schools would get from what is assumed a natural progression of newcomers paying new levels of taxes is lost. The first time homebuyer got cut out of the market.When this happens, there will be a social ripple effect all the way down the line.
I also agree with you that shuffling kids around is not a solution. Neither is cutting out every single extra curricular activity as they did when my wife taught.
Fortunate one... Starter homes in the hood in West Oakland are 500k and up. Is that really that much better? Once prices pass the 400k mark, then we're not talking anything close to starer home status.
None of this really matters to me anyhow. If people want to convince themselves that living in a supposed political utopia, eating gourmet food, and being able to drive to the mountains in 2 hours is worth paying a cool 700k, then I'll be glad to let them. I have better ideas of what to do with my money other than invest it in Bay Area housing.
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