In light of the recent collapses in the banking industry, namely Silicon Valley Bank, Signature Bank, and the liquidation of Silvergate Bank, there is discussion of whether a credit union might be a more safe to park one’s money.

If you take a look at https://news.cuna.org  you can see that indeed, credit unions do sometimes fail, but it seems if may be with less frequency.  They are not-fo-profit organizations, so any investments they make are done for the benefit of the member, not for the benefit of the organization.  They are also more specialized in how one can become a member, so any collapse or liquidation is likely to be way less catastrophic.  

They are not FDIC insured, but instead insured by National Credit Union Share Insurance Fund (NCUSI), and deposits are similarly insured up to $250,000 per depositor. 

CUNA provided key points on the credit union difference and insurance coverage:

• As not-for-profit financial cooperatives, credit unions’ first priority is members’ financial success and security. 
• Federally insured credit unions offer a safe place for credit union members to save money, deposits are protected by the National Credit Union Share Insurance Fund and insured up to at least $250,000 per individual depositor – the same as any other federally insured financial institution.
• Credit union members have never lost a penny of insured savings at a federally insured credit union.
• MyCreditUnion.gov contains more information about the National Credit Union Share Insurance Fund coverage for consumers.

From personal experience, credit unions are often able to make more favorable, common sense mortgage loans for their members.

If you are nervous about the present banking climate, you might check out one of your local credit unions.

Straight up - if you own real estate, take advantage of a Family (Living) Trust to make the process simple, avoiding probate, when your loved one passes.  Even if you your family home is your sole asset, your heirs will be able to sell your home without court intervention if you have a living trust.

As a Certified Trust and Probate Specialist, one step I have noticed being missed with a living trust is having a bank account for the trust.  This account will have its own Employer ID number issued by the IRS, giving it more of an “entity” status, that will survive the passing of mom or dad.  Many people miss this step and don’t think it’s necessary - after all, they don’t have a lot of cash and may only be getting a social security check or small retirement income.

When your loved one’s bank receives word that they have passed, their personal bank accounts will be closed or frozen and no one will be able to access any funds.  Whoever is the successor trustee named in the trust will then have to open an account for the trust, and there could be hurdles to doing this, depending on the bank being used.  If there is no account for the trust, there is no way to receive the proceeds once the home is in escrow.  So don’t miss this important step.

For more info, get a free copy of my book, How To Navigate Your Inherited Home Sale

Remote Work Drove Over 60% of House-Price Surge, Fed Study Finds

This shift to working from home drove more than half of the increase in house and rent prices during the pandemic and will likely drive up costs and inflation going forward as the shift becomes permanent, according to research from the Federal Reserve Bank of San Francisco.

“The transition to remote work because of the COVID-19 pandemic has been a key driver of the recent surge in housing prices”, economists Augustus Kmetz and John Mondragon, of the San Francisco Fed, and Johannas Wieland of the University of California, San Diego, wrote in a note published Monday.

House prices rose 24% in the two years ended November 2021, the authors wrote. More than 60% of that increase is attributable to the rise in work from home during the pandemic – a trend that has persisted, with 30% of work still being done from home as of last month.

“This suggests that the fundamentals of housing demand have changed, such that the persistence of remote work is likely to affect the future path of real estate prices and inflation,” the economists wrote. 

The authors, who adjusted housing data to account for the migration from expensive cities to more affordable areas that occurred during the pandemic, found that each 1 percentage point increase in remote work results in about a 0.9 percentage point increase in house prices. The impact on rent prices has been identical.

By Catarina Saraiva, Bloomberg, Monday September 26, 2022.

Condominiums (Condos) and Townhomes have historically been entry level options for first time buyers with smaller household size.  We see a lot of building going on (a ton here in La Mesa) but almost 100% of construction is either apartments or more pricey single family homes.  Why?

There are basically two constraints here in California: 1) Lending guidelines and 2) California’s construction defect laws.

Lending guidelines for FHA and VA mortgages are in need of an overhaul. They are much more restrictive when it comes to condos/townhomes, requiring approval and recertification (in the case of FHA).  FHA also has restrictions based on how many units are owner occupied, etc.  This prohibits many buyers from even purchasing new condo construction, and puts the builder in a worse position, possibly having to hold the units longer than sustainable.

Construction defect laws in California can last up to 10 years and this is one of the harshest in the country.  I have never met an HOA that didn’t sue the builder in year 9, often getting very large settlements.  This is a big insurance issue for builders, which makes it way more expensive to build condos.  

FHA and VA are not only limiting of financing condos, they are also  making it more difficult for entry level buyers of single family homes.  Homes must have appraisals specifically geared toward FHA/VA guidelines, and the appraiser can call out “repairs” that may not have any real correlation to the livability of the home.  Many homes in the lower price ranges are older and in need of upgrades that buyers would be perfectly happy with making over time while living in the home.  Depending on the appraiser and what may be called out in the appraisal, this is often not possible.

Real reform in these area would make huge progress toward solving our housing crisis in California.

What’s Up with ADU’s?

What’s an ADU? ADU stands for Accessory Dwelling Unit.  The are also called companion units, and he old school title of “granny flats”.  It’s basically an additional unit on the same lot with your home used for rental purposes.

California is in a severe housing shortage crisis.  We have underbuilt homes at the rate of 5,000,000 in the last 20 years by some estimates.  California legislators decided that one of the easiest ways to help the crisis was to make it easier for homeowners to add ADUs.  So in 2016, a bill passed that cities would not be able to prohibit ADU’s.  Many cities didn’t like this, and used other methods to try to prohibit ADU’s, such as a water meter moratorium, so a couple of years later the State revised the rules again to make the process more streamlined.

The City of San Diego, along with many other cities in San Diego County, have embraced this plan and have streamlined the process even further and reduce the fees charged.  San Diego and Encinitas, for example, have already approved plans in various sizes that can be used so homeowners wouldn’t have to reinvent the wheel when hoping to build one.  Fees were also greatly reduced. 

Many homeowners in residential neighborhoods have raised concerns, thinking that EVERYONE would have an ADU built, increasing population density and traffic/parking issues.  There concerns have largely not occurred.  There are some barriers to building an ADU, mostly regarding how to finance the construction.  Many cost estimates are $100,000+ and not a lot of people have that additional cash sitting around.  Even if they do, at an estimated $2,000 a month in anticipated rental income, it would take them close to five years just to recoup the original investment. It just doesn’t seem worth the hassle of most homeowners.  Then there is the little thing about having a stranger living on the same property in close proximity to  them.  Not everyone’s cup of tea.

ADU’s make a lot of sense though for housing senior family members, or your college age kids.  And they make sense for many homeowners in higher end area with high rents.  They can also increase your property value substantially.

If you’d like to learn more, a great resource is https://livemodal.com/blog/what-does-it-cost-to-build-an-adu-in-california/.  San Diego has waived ALL FEES through 2024, so there is a short window in which you can save money.  I would be happy to help you navigate this journey, so don’t hesitate to contact me.

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