Jewish Education and the Housing Slump
Not even a year ago, I was speaking to friends who had tried an alternative to Jewish schooling for some of their children, but who found themselves no longer able to continue this arrangement. Now, they are faced with large tuition bills, but they are not much better off financially. However, they do own a home. Their tuition plan: a home equity line of credit (heloc) and continued credit card use. Given that nature of credit, adding to a pie of debt doesn't seem like a sound way to get a handful of kids, only one of who is past Bar Mitzvah, through their high school graduations.
As anyone who reads the newspaper or listens to the financial reports knows, real estate is in a slump. Borrowers are starting to sweat as the first wave of risky mortgages are coming due, especially as many have overextended themselves via home equity lines of credit. And mortgage companies are starting to suffer from underwriting loans for less than qualified candidates.
One has to wonder how this slump is going to effect frum finances in the short term. It is fairly common knowledge that families "pay" for weddings using their home. Quite frankly, you won't find me crying if people have to scale back in that department. If the simcha guidelines didn't work, maybe being turned down by the bank will help people scale back.
But, weddings aren't the only way frum families have used their house as a "bank." I have no data to even venture a guess as to how many tuition dollars are being paid through bank loans, but I can't imagine that my friends are the only people who have erroneously decided to use their house (in which they have little equity to begin with) as a bank.
It is any one's guess just how the slump in the housing market will affect Jewish education. But for now I will just say what I wish I had said to my friends while I stood their mouth agape as they informed me of their "plan:" . . . . . . . . Your house is NOT a bank. Don't do it!
28 comments:
i thought it was standard for schools to encourage you to take out a 2nd mortgage (or other loans) before asking for tuition scholarship. at least this is what my school did.
though my parents grumbled, i have to say that as a renter i don't have too much sympathy for people with big houses that complain about tuition.
ok maybe we'll just keep renting until we've already been approved for scholarships then..... ugh. Not that we can afford to buy anytime in the near future anyway... but at least we've moved to a city where we WILL be able to buy eventually (maybe even before we're 90!)
ok, so what was their alternative-- homeschooling? public school plus private tutoring? and why did they stop it?
I'm all for alternatives to the current situation--- I'm liking a lot of aspects of the school that we'll probably send our kids to, but truly if I can afford it time and energy wise (and my teacher hubby allows me to) I'd really love to homeschool... I'm about 20% planning to homeschool now and 80% planning to strongly look into school. My husband on the other hand is 200% pro school and negative 200% pro me homeschooling. :)
Credit cards are sooooo evil. After 9 years in Los Angeles we'll literally pay for having lived there for the rest of our lives.
PS-- glad to see you're back online!
Twinsmommy:
"ok maybe we'll just keep renting until we've already been approved for scholarships . . ."
from what i understand, it is actually harder for many renters (or at least those saving for a house) to get a scholarship than those who already own. the latter can honestly claim they have no $ in savings to pay for school, whereas the former might be setting on 100k, which is still not enough for a down payment. (this is why i wrote above that as a renter i don't feel bad for owners who claim poverty.)
i know of more than one person who rushed to buy a house as their first child was about to enter yeshivah, because they knew otherwise the schools would eat up all their savings they had put away for the house.
SL:
what's your email again?
The following 2 polls (although unofficial) will help shed some light on the housing and tuition situations:
What do you think of the yeshiva tuition you pay?
http://www.jewcentral.com/survey-results-16---.html
How did you/will you afford your house?
http://www.jewcentral.com/survey-results-15.html
For example, over 40% of respondents thought tuition is just right or can be raised.
I love this posting. We are still trying to figure out how the people in the U.S. are able to do it... did you say refi over and over? That is about the only thing that makes sense - that and rich parents and 300K incomes. Which scenario is the likeliest?
There is another solution. Move to Israel. Here tuition is next to nothing and for the most part you don't have the same keeping up with the schwartz's mentality that permiates american orthodox life.
Trust me---- when we do buy a home someday, it will be no money down if we qualify. If we don't, we'll just rent forever. We'll never be sitting on savings. We're far too much in debt to save anything for a down payment. (SL-- still hoping for a post from you on when it's ok to save and when it's not, depending on the type and amount of debt you have! Should someone in $150,000 of credit card debt and $50,000 of student loan debt save? Should someone in $5000 of student loan debt save? My guess is NO and YES.... and unfortunately we're the former.) The good news is that a no money down mortgage would have us paying about the same per month that we're paying now in rent because our area is CHEAP. The house we're renting now is worth less than $100,000! And it's fine. We'd buy a house very similar to what we're in now. 4 bedrooms, 2 bathrooms and a basement. Yay Cleveland.
In truth, a house can become more of a money pit than a money tree. Many people actually have very little equity in their homes, as they put as little down as possible and sometimes opt for interest only mortages. It's one of those things that could be filed under "It seemed like a good idea at the time," as it means you pay less for a more expensive house. But the house is more the mortage holder's than yours. And when real estate values comes down, as they have started to do, a forced sale would result in less money than what is still owed on the house.
One thing that renters don't need to bother with is this:
Homes we own need a lot of maintenance, and expensive repair needs can come up suddenly. If repairs are not done (and properly), the safety and value of the home are compromised.
One smart thing we did before we moved into our current house was to get a home warranty that covers typical repair needs (including for large appliances) through a quarterly charge and a $75/repair deductible or co-pay. Since 2000, this arrangement has more than paid for itself.
One time our sump pump failed Erev Shabbos, and the warranty company was able to twist some arms and get a replacement in just before Shabbos.
Choosing an honest, responsive, competent home warranty company takes some investigative work up front. A local company can be better and more reachable. A good plan makes budgeting for maintenance more manageable for people who are already financially strapped, like most of us.
There will be no such thing as "no money down" loans for the foreseeable future. The credit score and income qualifications for mortgages have been tightened up considerably - that's the problem people are having with the adjustable rate mortgages. They were told they could just refinance when it was time for the interest to jump - but now they can't. There in no credit being offered to them. Mortgage companies refused their applications - and they are no worse off now credit/income wise than when they were when they first got the ARM. The standards are now much higher and tighter. If they can't cough up the extra money for higher payments, they are out of luck. Most will be foreclosed. This crisis is just getting started, too, as more than half of the ARMs out there have yet to adjust. There are so many houses on the market of people trying to sell in some areas because of their mortgage that they can't even get an asking price that will cover what they owe on the house. And it's only going to get worse as more and more forclosed and near foreclosure homes flood the market in the next 3 years.
Obviously all very true, and amen to TwinsMommy especially in the comments, but...
Q for SL: For many people, taking out the HELOC made a lot of sense, particularly if it was being used to pay off credit card debt... no?
Separate note: It's very problematic that many of the economic problems in the Jewish world are intertwined with one another (tuition higher because some parents can't pay... parents can't pay because tuition is too high, pick up more debt... etc.).
Also, it's amazing timing to post this: I was just explaining to a friend who is close to getting engaged over Shabbos just how terrible shape the frum community is economically, and that the latest housing market issues were going to hurt even more.
very important post
Mo'ah--As a homeowner I only want to pay for my (modest) house once! P.S. My email is orthonomics at gmail dot com.
Twinsmommy-The family tried homeschooling, but it just wasn't working for them. Doesn't mean you can't or won't suceed.
Jewcentral-I know nobody in my neck of the woods paying full tuition saying raise it! Of course, full tuition here is already through the roof.
TwinsMommy-Thanks for reminding about that post in queue. I really think everyone should have some cash laying around. But, you have a special situation. More later. . . .
Ariella-I don't see our house being a money tree anytime in the future. And so long as you plan to actually live in the house rather than bail, usually a home is the money pit.
Bob Miller-Thanks for great advice. Home warranties have saved me a bundle in the past, but aren't save alls either since certain systems aren't always covered.
Ahavat Bat Sarah-I just read that five years ago only 1% of loans were interest only or ARMS and now 33% are. Scary. When we bought our first home, I don't think interest only was even offered to us. Since then, it was practically been pushed on us. The market is certainly going to be interest in the next few years.
Ezzie-A HELOC can make sense (vs. exceedingly high credit card debt), BUT a heloc is SECURED and can put a home on the line should things get really bad. Ideally one should stay far away from unnecessary debt. You are right just how intertwined every problem is with the next. It is hard to write a post without going on a tanget.
Here in Israel, people actually DO own a significant part of their abodes, for the most part. It's standard to put down 50% or more when buying an apt. Don't ask me how people do it. In the States, where you may put down 5% (or, in the past, less), you esentially don't OWN your home. You are paying a high premium (interest and repairs) to THINK you own your home - the bank actually owns it. The miracle in the past few years, up until last year, was that people got even richer and were able (I say dumb enough) to pay MORE for homes, payments which far exceeded their value. As a personal note: we saw that as our siman to get up and leave and move back to Israel, with a little pekele sitting in the bank. In essence, we "saved" over $100K in just over three years because of that mazaldik house, which was "bought" with $20k down and "owned" for 3 years and 5 months. There would have been no other way for us to have EVER saved, until all the kids (5 now) were out of school....
SL:
i just sent you an email from a hotmail account
BTW, for what it's worth: we are renting in Israel. After going through what we went through in the States, it's very nice to have money in the bank for simchas, college, weddings and G-d forbid emergencies. There is absolutely nothing wrong with a rental; it's actually a relief not to have to worry about anything but paying the rent once every two months, and as our money grows (tfoo tfoo) in the bank, it makes good economic sense. It's scary to make a mortgage committment again, though I guess that one day we will do it. Generally speaking, unless you buy real estate to rent out (and even then not always) it's not a good investment. So all ye renters out there: get rid of debt,then think about burdening yourselves with a house.
Tamiri-
I thought buying a house is always a good investment? You can almost always (in the Israeli neighborhoods I know, anyway) sell it for at least what you paid. So you end up having paid the interest on the morgage, with the rest of it breaking even, and the interest is almost always less than what rent would have been. No? I'm very interested in knowing, b/c my husband and I are looking into buying in the upcoming year. Thanks!
Ora, that is the "conventional wisdom" here in Israel. For many years home prices went up and up, but then started to go down again. They've gone back up, but I doubt they will rise at the rate they did before. And if you buy, your savings are all tied up in your apartment instead of earning.
Ora, I do have to explain: my husband and I are no longer a young couple. I don't work outside the home = no second income. We realize that G-d willing we will have major expenses in the years to come. Buying a house and taking a mortgage means we will be paying until we are very old. I am not saying we won't do it - just that it does not make good financial sense. If you read any of the local papers, the economic sections, you will find backup to what I am saying. I bet U.S. economists will tell you the same. A house, unless something spectacular happens, is usually not a winning proposition. If you can put the money away instead of in a house - even if only for a few years - you will have a far better return on your money. We got here 4 years ago, our money in the bank has grown a lot faster than a home here would have, barring crazy exceptions (places where we would not have bought anyway). If you can hold on and keep saving - do it. If you fritter your money away every month without saving - buy a house here. Some people call that forced savings. Renting does have it's disadvantages, but finances is usually not one of them in a reasonable rental.
Ask an economist for advice...
"Home warranties have saved me a bundle in the past, but aren't save alls either since certain systems aren't always covered."
True, but some companies' plans offer modular add-ons (not for free, of course) to the coverage.
The week we were to move from Houston, the movers finally showed up, late. Just then water began pouring in through an upstairs bedroom ceiling. It was air conditioner condensate (the units in Houston are in the attic) whose normal path out was blocked somewhere by crud and/or displacement of a pipe.
In the humid 100 degree or so heat, we had to shut off the upstairs AC zone as the movers tried to pack our stuff. Mildew was visibly forming around a window frame near the leak. It was panicsville. But we had recently started a home warranty, basically as an incentive to the buyers.
Despite the warranty company HQ's being many miles away, they got someone competent in pronto to fix the AC problem. When a repair item fell outside the warranty, the repairman gave us the option to have him do it on our dime, which was fair. Thus, thank G-d, we were able to get the AC back on before the packers passed out or the water caused real damage. We had to pay the sheetrock/painter guy to restore the ceiling and nearby wall, but that wasn't so bad.
Recently, we had to have three dead trees removed from our yard, so they wouldn't threaten our house in a stiff wind. That's the type of item that no warranty probably covers.
Other ways to level out homeowner's costs include signing up for the electric and natural gas company plans that even out the monthly payments. If they guess wrong in computing the monthly amount based on previous usage, they ask for more or give a refund at the end of the year.
...or they adjust the year's final monthly payment accordingly.
I thought this would interest you -
http://www.nytimes.com/2007/08/24/education/24charter.html
Anon-Thanks for a great link. I'll try to make time to blog on this.
There are excellent public schools in my area
In my opinion - The Yeshiva I send my children to has acted in an arrogant fashion towards our family despite us having paid full tuition for over a decade
Yeshiva Tuition is robbing my sleep at night, my shalom bayis, and my ability to provide for my family
I am very close to choosing public school for one of my children - but I fear that the child will not be frum
My wife won't consider Israel
Is anyone else bothered by the fact that yeshivas do not open their books and file taxes as a church whic exempts them from having their return made a matter of public record? I asked a freind of mine who is on the fund rasing staff at a large yeshiva this his reply" Whats a matter you don't trust us"
my reply "when moshe rabbenu counted the money collected foe the mikdash he wore clothing without pockets" end of conversation
Anon 6:20OM: In my field we call it "professional skepticism." I have done a lot of work in internal controls and the example you bring down of Moshe Rabbainu is case in point. . . . clearly visible internal controls are a must. . . they cool the yetzer hara. Thanks for commenting.
The public schools divulge the wages of the principals and all their employees - The Yeshivos should do the same - they won't - unless we insist on it
see I would love to lead the charge for holding the yeshivas finanacially acountable, only thing is I am afraid that I will be hung out to dry and my kid will suffer.... You know the more I think about it tuition is in a sence denai nafashot if you look at it high tuition= birth control= a kid not being born
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