student loan depressing housing market

[flyer]

I do agree with ER with regard to student loans having their place, when used judiciously by individuals who have a clear life path in mind, but, as BG has mentioned, many do not, and it really seems to be a waste of time and money for everyone involved. So, as in all things, there are two sides to every story.

My kids are in their 20’s, and chose to leave San Diego by virtue of their careers–two are in Los Angeles, and have careers on the corporate side of the entertainment (TV and films) business, and my daughter is an MD in the Bay Area.

My kids pretty much followed through on what they set out to do, but, as I mentioned in my previous post, I can’t even count the number of their friends who, after attending college (some extremely expensive), complained about not being able to find jobs/careers like their parents had in San Diego.

Consequently, they were unable to build lives here, and, either had to stay with their parents indefinitely, or move elsewhere. In a city like this, young people quickly find out establishing a successful life on their own is far more difficult than they ever imagined.

[SK in CV]

[quote=bearishgurl]
I suppose there are people who DO pay them off in a timely manner but I don’t know any. Everyone I ever knew who has them have taken one or more deferrals and is paying only the minimum monthly payments on them.

[/quote]

Obviously, you don’t know everyone, only the deadbeats. The Cal State system universities mostly have default rates between 5 and 10%, with only one as high as 10%, and a couple, like SDSU, below 5%. The UC’s are better. Only one has a default rate of 5%, the rest are lower.

[earlyretirement]

[quote=SK in CV][quote=bearishgurl]
I suppose there are people who DO pay them off in a timely manner but I don’t know any. Everyone I ever knew who has them have taken one or more deferrals and is paying only the minimum monthly payments on them.

[/quote]

Obviously, you don’t know everyone, only the deadbeats. The Cal State system universities mostly have default rates between 5 and 10%, with only one as high as 10%, and a couple, like SDSU, below 5%. The UC’s are better. Only one has a default rate of 5%, the rest are lower.[/quote]

Yeah. I was going to say… Wow have things really gotten THAT bad on the student loan front if you don’t know anyone that isn’t defaulting on their student loans? To be honest, I’m certainly NO expert on student loan default rates but I figure it can’t be as bad as portrayed but I do think it could be a ticking time bomb for many people. But again, since it’s dischargeable I think the vast #’s out there are going to keep paying them on time. Many foregoing buying houses or other things as they are forced to pay on them.

Granted, I’m not hanging out with too many 20 something year olds these days but I do have hundreds of clients and friends and many of them did not pay for their kids college tuition and it was financed through student loans. Also, MANY of my friends have younger sisters or brothers that have gotten student loans. And I haven’t heard of a single one that has defaulted or late. All my friends do complain their sisters/brothers are burdened by them and complain but they are still paying on time. After all, what else can they do???

But to be honest, if they were I guess they probably wouldn’t be telling me but their parents seem to say they are paying them on time. I’m sure some probably got deferrals but as SK in CV mentioned… I don’t think the statistics point to THAT many people that have defaulted or late on their payments.

I don’t know if there are statistics out there on what % of them are deferring payments but I’d be really curious if anyone has that kind of information.

Flyer, I TOTALLY agree with you about the job market here. We talk about it all the time and I’m still amazed when people try to argue with me that San Diego is NOT the best place to climb the corporate ladder with the sunshine tax and lack of breadth in industries compared to other major cities.

I post on some other forums where people try arguing that San Diego is a fine job market. I always point out that besides certain industries like certain engineers, some biotech and a few handful of other professions….this isn’t anything to write home about.

In fact, I’ve never lived in a major city where I met so many people or friends of friends that either still live with their parents in their late 20’s or even 30’s or have roommates. I see it all the time in various settings. The girl that cuts my hair is in her mid 30’s and was living at home up until this year. And now she is on her own but renting a room in a 2 bedroom apartment with a complete stranger….

Living in San Diego is great but NOT at all costs….

[bearishgurl]

[quote=SK in CV][quote=bearishgurl]
I suppose there are people who DO pay them off in a timely manner but I don’t know any. Everyone I ever knew who has them have taken one or more deferrals and is paying only the minimum monthly payments on them.

[/quote]

Obviously, you don’t know everyone, only the deadbeats. The Cal State system universities mostly have default rates between 5 and 10%, with only one as high as 10%, and a couple, like SDSU, below 5%. The UC’s are better. Only one has a default rate of 5%, the rest are lower.[/quote]

SK, in these state systems, I only know ex-students who have taken deferments and consolidated their student loans. In these cases, they just borrowed too much due to borrowing for “living expenses,” in addition to fees and books. The fees on UC and CSU did not begin escalating out of control until the ’06/07 school year. Substantial CSU fee hikes have occurred nearly every semester since then and also in the UC system, although not as pronounced.

The people I have known who defaulted on their student loans did so on loans to attend “for-profit-diploma-mills,” mostly for grad school. In all cases, these grad schools (some brick-and-mortar) were private. In some cases, the SL debtor waited far too long to decide what they wanted to be/do when they grew up. I stand by my assertion that it is pure folly for one to begin taking on educational debt to get trained, credentialed or certified for ANY occupation when already over the age of 45. Even if these candidates graduate and pass all required state exams, they will very likely never make enough in their lifetimes to pay off their student loans, and secondarily, compensate themselves for their effort and lost income in their “prime” working years while a student in the program. This is due to rampant age-discrimination in hiring in the US. Since age-discrimination in hiring remains difficult to prove in a court of law, US companies and even governments will continue to get away with it for the foreseeable future.

As you are probably aware, the reality is that employers today couldn’t give a r@t’s @ss about how much “experience” a job candidate has, even if it is all in the the “correct” field for the job opening they have. They want young employees (and all the drama and maintenance that ensues with having them on board).

Older employees, even if they’re in great health, have great attendance and show up on time to work every day, keep their heads down and mind their own biz are seen by employers (of less than 50 employees) as dinosaurs, which, if in the mix, cause their overall company health premiums to spike.

[kev374]

[quote=desmond]
“Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record”[/quote]

This is just asinine! most affordable housing market on record?? You’ve got to be kidding me!

One cannot find anything decent under half a million these days which is probably 6X-8X the median income compared with a historic 3X-4X and they’re calling it the most affordable? In addition job security is much much lower these days than it was in the past.

Now, people will tout historic low interest rates but the average homeowner stays in their home 7-10 years and then what? 7-10 years down the road interest rates are most certainly going to be much much higher. So you’re going to by a 100% overvalued home at low interest rates, your monthly payment may be the same but what happens when you need to sell in 7-10 yrs to move up? Or perhaps people think they will live in the same home for 30 years? This whole low interest rate argument is the most foolish thing I have ever heard yet people still blindly chant it.

[bearishgurl]

kev, I take it from your post that you still haven’t found a place to make an offer on yet? Are you still `in the market’ or have you `given up??’

[flyer]

Good points, BG.

I realize this thread is about student loan issues, about which I’ve already commented, but your point about employers hiring younger vs. older workers is also interesting.

Most of my pilot friends were able to retire, semi-retire, take on new ventures in their 50’s, or all of the above–as I have. Since airline positions have union protection, most any pilot who chooses to, can continue working until they are 65 without concern of age discrimination–and many do–because of their incredibly high earnings.

For friends in other fields (especially those without union protection), who have found themselves unemployed, and/or without retirement funding in their late 40’s or 50’s+ it has been a completely different story, and many have found themselves permanently unemployed–after losing “the” job.

I think that trend will continue, unabated, going forward, since many of the most in-demand careers today require fresh new talent, with fresh new skills–at least from the employer’s point of view.

This trend does not bode well for younger workers, and I think many will find themselves in a very precarious situation when they reach a certain age–just as those who have come before them have.

My advice would be to make sure you are financially prepared for retirement by the time you hit 50–whether you continue working or not–because who knows what might happen after that–and it’s always better to be safe than sorry!

[desmond]

[quote=kev374][quote=desmond]
“Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record”[/quote]

This is just asinine! most affordable housing market on record?? You’ve got to be kidding me!

One cannot find anything decent under half a million these days which is probably 6X-8X the median income compared with a historic 3X-4X and they’re calling it the most affordable? In addition job security is much much lower these days than it was in the past.

Now, people will tout historic low interest rates but the average homeowner stays in their home 7-10 years and then what? 7-10 years down the road interest rates are most certainly going to be much much higher. So you’re going to by a 100% overvalued home at low interest rates, your monthly payment may be the same but what happens when you need to sell in 7-10 yrs to move up? Or perhaps people think they will live in the same home for 30 years? This whole low interest rate argument is the most foolish thing I have ever heard yet people still blindly chant it.[/quote]

I know Desmond that is not what he wrote.

[CA renter]

[quote=kev374][quote=desmond]
“Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record”[/quote]

This is just asinine! most affordable housing market on record?? You’ve got to be kidding me!

One cannot find anything decent under half a million these days which is probably 6X-8X the median income compared with a historic 3X-4X and they’re calling it the most affordable? In addition job security is much much lower these days than it was in the past.

Now, people will tout historic low interest rates but the average homeowner stays in their home 7-10 years and then what? 7-10 years down the road interest rates are most certainly going to be much much higher. So you’re going to by a 100% overvalued home at low interest rates, your monthly payment may be the same but what happens when you need to sell in 7-10 yrs to move up? Or perhaps people think they will live in the same home for 30 years? This whole low interest rate argument is the most foolish thing I have ever heard yet people still blindly chant it.[/quote]

Though I’m not sure about what interest rates will look like 7+ years from now, the rest is totally spot-on.

Well said, Kev. Low interest rates/high prices does not equal affordability, IMHO, especially when the job market is so tenuous. I’d much rather buy when interest rates are at historical highs, which would bode well for pricing going forward as rates dropped, all else being equal.

[ctr70]

A the time being sure doesn’t seem like it’s depressing SoCal home prices. They are rocketing upward. OC is up 26% year-over-year. SD is up 18.6% and LA up 24%.

http://www.dqnews.com/Articles/2013/News/California/Southern-CA/RRSCA130417.aspx

[bearishgurl]

[quote=ctr70]A the time being sure doesn’t seem like it’s depressing SoCal home prices. They are rocketing upward. OC is up 26% year-over-year. SD is up 18.6% and LA up 24%.

http://www.dqnews.com/Articles/2013/News/California/Southern-CA/RRSCA130417.aspx
[/quote]

…The typical monthly mortgage payment Southland buyers committed themselves to paying last month was $1,252, up from $1,154 the month before and up from $1,063 a year earlier. Adjusted for inflation, last month’s typical payment was 47.8 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 57.3 percent below the current cycle’s peak in July 2007…

Good article full of data, ctr. I was struck by the passages which I bolded. I’ve always believed this to be so but didn’t have any data. Apparently, Dataquick does.

If truth be told, the historically low mortgage rates of recent years have enabled homebuyers in “family-raising mode” to buy “move up” and even “luxury” properties (if not the property itself, then the area) for their first or second homes (Gen Y and younger Gen X). Between mid-2003 and early 2007, buyers of all ages and stripes were buying move-up and luxury homes for their first and second home and even putting zero down, due to “exotic financing” being the norm. Many of the young buyers who waited until after 2007 to purchase their first homes saw their peers buying these types of homes and/or in these types of areas during the millenium boom, wanted same for themselves and will not settle for less. The very low MIRs we have been experiencing since the late 2008/early 2009 crash in home values further enabled these buyers to buy in a move-up or “luxury” area.

Due to the these longstanding ultra-low MIRs, we now have an entire “family-raising buyer group” spanning about 20 years and two generations (now aged 25-45) who believes it is their G@d-given right to own their first home in a move-up or luxury area in coastal CA.

A lot of these same folk lament that the boomer generation “had it easy” and “bought RE at ultra-low prices.” However, the “data” shows just the opposite. SD County “professionals” (with 7+ yrs of higher education) with less than ten years work experience in their field back in the eighties bought what they could qualify for under the prevailing RE climate at the time (namely, much higher MIRs, much less freeway capacity and little newer construction to choose from). In addition, most of the homes we boomers bought needed work, which was done after move-in as time and money permitted (usually DIY).

Now that it is 2013 and RE prices are attempting to revert to their mean everywhere, home shoppers who haven’t yet bought a principal residence STILL have visions of purchasing a “move-up home” and/or in a “luxury” area for their first or second home purchase. Unfortunately, by not “settling” (as family-raising generations before them did), many of these wishful homebuyers will likely never be able to consummate a deal. The mere fact that this group doesn’t yet have their own home today says out loud that they didn’t want and don’t want one bad enough and are too fixated on properties and areas that they can no longer qualify to buy into. And when they DID qualify to buy into them (not so long ago), they didn’t like what was on offer in them so didn’t make offers or enough offers/counter offers.

IOW, in the eighties, the well-located WWII-era 1400 sf charmer was an acceptable first home for the 4-person family of an attorney who had eight years work experience but the same property or even one 20 years newer is NOT acceptable today for a Gen Y “professional” with 4-5 years of college … not even to move their dogs into.

First-time buyers today are shunning entire swaths of well-located and well-built homes in coastal CA counties, many of which are still in their “price range” (but not for much longer) because they still have a “move up” and “luxury” area-preference ingrained in their heads. This mindset will only cause them to lose out entirely and forever remain tenants as long as they reside in said counties.

Note: I believe the phenomenon of ultra-picky young buyers isn’t present in every coastal area of CA. In the counties which were built out long, long ago (ex coastal LA Co, San Mateo Co, SF Co, Marin Co and more rural CA coastal counties which have low or no growth initiatives in place), FTB’s have always bought what was available in their price ranges. It IS present, however, in coastal CA counties such as SD Co and the OC, where urban sprawl has been allowed to go unchecked over a span of more than 20 yrs, due to gross overbuilding resulting in severe freeway congestion.

In hindsight, I no longer believe the “ultra-pickiness” in young buyers has much to do with their “value differences” because every family needs a home. I now think it has everything to do with the easy mtg money flowing freely between 2004 and 2007 and the (artificially-set) rock-bottom mortgage interest rates prevailing since the crash. This group has NEVER SEEN “normal” 7-9% MIR’s in their entire adult lives! Therefore, buying their first home in a “move up” or “luxury” area seems “normal” to them.

It’s not “normal” and never was.

[CA renter]

BG,

Interest rates affect how much a buyer can pay for a given house, they do not affect whether the house they purchase is a move-up/down house once prices have adjusted for the interest rate movement.

The only time interest rates will affect what a person can buy (as opposed to how much they can spend on a given house) is if those rates are available only to an exclusive group.

It’s just like with the homebuyer tax credit — it affected the PRICES that people were able to pay for a given house; it did NOT mean that they were able to buy “more” house. Why? Because everybody else had access to that same tax credit, which pushed up everybody’s purchasing power. This pushes PRICES up all across the board (though price changes lag as they roll up and down through the tiers), it does not enable people to buy a nicer home.

Given that mortgage rates are at/near all-time lows, what happens when they double and go back to more “normal” levels?

Incentives that are broadly available benefit sellers, not buyers.

[bearishgurl]

[quote=CA renter]BG,

Interest rates affect how much a buyer can pay for a given house, they do not affect whether the house they purchase is a move-up/down house once prices have adjusted for the interest rate movement.

The only time interest rates will affect what a person can buy (as opposed to how much they can spend on a given house) is if those rates are available only to an exclusive group.

It’s just like with the homebuyer tax credit — it affected the PRICES that people were able to pay for a given house; it did NOT mean that they were able to buy “more” house. Why? Because everybody else had access to that same tax credit, which pushed up everybody’s purchasing power. This pushes PRICES up all across the board (though price changes lag as they roll up and down through the tiers), it does not enable people to buy a nicer home.

Given that mortgage rates are at/near all-time lows, what happens when they double and go back to more “normal” levels?

Incentives that are broadly available benefit sellers, not buyers.[/quote]

CAR, I agree that those “ill-thought-out” tax credits benefited no one but sellers.

However, in CA coastal counties, I don’t believe that price points within the residential tiers of RE are set on the prevailing mortgage interest rate (MIR). They are set purely upon what a buyer is willing to pay for the property.

This has always been so because there is a captive audience and large cohort of “nearly all cash” and “all cash” buyers in all of these (resale) micro-markets.

The exception to this rule is the new construction tract where the developer assists buyers in financing alongside their on-site “preferred lender.” These subdivisions typically attract the highly-leveraged buyer and typically have little or no surrounding sold comps to justify the prices they are asking (and hold fast to).

IOW, in CA’s most coveted areas, offers coming from highly-leveraged potential buyers have historically been at a distinct disadvantage.

With the ultra-low MIRs of recent years, FTB’s (as well as 2nd time buyers) have been able to buy much more house than they would have been able to had fixed MIR’s been in the “normal” 7-9% range. These buyers have been “spoiled” by what they (or their peers) have been able to buy, so much so that a “regular” house in a “regular” middle-class area in coastal CA counties is no longer “acceptable” to them.

As we all know, it is much more (psychologically) difficult to “trade down” in house/neighborhood than it is to trade up. This younger subset of buyers who has never seen “normal” fixed MIRs in their adult lifetimes can’t “envision” themselves living in one of those “regular” houses or in a “regular” ‘hood. They feel they are “above” doing this where similarly-situated and above previous generations “expected” to “pay their dues” as a prerequisite to “climbing the housing ladder.”

The current cohort of buyers in “family-raising mode” has to have it all NOW or they won’t buy at all. If they DO break down and buy in an established area (usually only because that is all that is available in a particular locale), they often won’t even move in until the home is remodeled to their satisfaction.

[CA renter]

Sorry, BG, but I have to disagree with your assertion that rich people are fools just waiting to be parted from their money. They will expect a certain type of house, but they won’t have a pre-determined price they are willing to pay for it without taking into consideration the houses above and below that level, and what those houses are selling for. They are not fools, and they have no intention of throwing their money away on anything, including housing. Why on earth would they offer $5 million on a place that is worth only $3 million? They simply wouldn’t do it. These are the people who tend to analyze everything, and you can be certain that they understand the relationship between asset prices and interest rates (some exceptions might be brand-new money with poor management and/or lottery winners who, statistically, stand to lose all/most of their money at some point).

And I disagree with you about what buyers are willing to settle for. Those 3/2, 1,500 tract homes in old neighborhoods are different today than they were 30+ years ago. They are often older, and more likely to have crime issues than they were back then. People don’t have higher expectations these days; the neighborhoods have changed. If crime rates are higher and houses are older, people will not want to pay as much as similarly-situated buyers did 30 years ago.

[bearishgurl]

[quote=CA renter]Sorry, BG, but I have to disagree with your assertion that rich people are fools just waiting to be parted from their money. They will expect a certain type of house, but they won’t have a pre-determined price they are willing to pay for it without taking into consideration the houses above and below that level, and what those houses are selling for. They are not fools, and they have no intention of throwing their money away on anything, including housing. Why on earth would they offer $5 million on a place that is worth only $3 million? They simply wouldn’t do it. These are the people who tend to analyze everything, and you can be certain that they understand the relationship between asset prices and interest rates (some exceptions might be brand-new money with poor management and/or lottery winners who, statistically, stand to lose all/most of their money at some point).

And I disagree with you about what buyers are willing to settle for. Those 3/2, 1,500 tract homes in old neighborhoods are different today than they were 30+ years ago. They are often older, and more likely to have crime issues than they were back then. People don’t have higher expectations these days; the neighborhoods have changed. If crime rates are higher and houses are older, people will not want to pay as much as similarly-situated buyers did 30 years ago.[/quote]

I wasn’t referring to the $1M and over market, CAR. Depending on area, residential RE values in the upper tiers are very subjective, due to only a fraction of them being “on tract.” The majority are custom-builds. I’m not even referring to “rich” buyers. I was referring to “typical” FTBs and STBs, downsizers, second-home buyers and vacation-home buyers. Believe it or not, these are all “regular people,” the first two types likely being “worker bees.”

If anything, 50+ yr old areas in SD County are MUCH BETTER now than they were 30+ yrs ago for the following reasons:

-invention of the double-paned vinyl window and mass replacement of windows on these homes;

-mass-remodeling done to the extent that there are little to zero “fixers” left to buy in a given area;

-mass replacement of shake shingle roofs due to fire insurance requirements;

-mass replacement of (unsanitary) carpet and linoleum with hardwood, travertine, engineered flooring, ceramic tile, etc;

-mass replacement of appliances with energy-efficient models;

-mass replacement of “Formica” countertops with granite and stone;

-mass replacement of “plywood” cabinets with euro-type cabinets (which roll in/out smoothly);

-mass replacement of asphalt t-lock shingles with slate and tile;

-unparalleled urban views and waterviews available which are not found in suburbia or exurbia;

and, most importantly, civic improvements in local parks, tree maintenance and sidewalks as well as newly established “upscale” local businesses within walking distance and higher-earners moving in as houses turn over, one by one.

In addition, 19+ years ago there weren’t any *distracting* API scores to confuse homebuyers because they didn’t exist. MANY “inner-city” schools now have a plethora of available services that were unheard of in the ’70’s and ’80’s, such as:

-pact with local CC for “free” HS credits;

-GATE programs;

-performing arts and science programs;

-many more AP class offerings;

-IB programs now available;

-state of the art vocational training while in HS;

….just for starters.

No one can tell me that today’s highly-paid legal and medical professionals (yes, even those with minor children at home) are not attracted to prized ‘hoods in 92115, 92104, 92103, 92102, 92106, 92107, 92110 for all of the above reasons …. as they were in previous generations.

Location will always trump size and age in coastal CA counties and this will never change. This is why a buyer will get less sf for the money in these areas than in suburbia/exurbia. You get what you pay for in this life. After about ~1850 sf for a family of four, the rest is excessive, unless that family entertains a lot. In that case, ~2200+ sf would be better … with a 7500+ sf lot.

The miles of tract subdivisions in suburbia and exurbia with 3000+ sf mcmansions with soaring ceilings situated 6-8 ft from one another being the norm are unnecessary for 90% of families (of 4 people and under). The excess space is unused and needs to be furnished, heated, cooled, cleaned and dusted. They would be better off (by realizing less commuting cost and higher appreciation) in a closer-in <=2000 sf house with a large backyard for the kids to play in.

[Author]

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