College students rent cheap but luxurious McMansions

Here is another use for McMansions (and much better than one California option from last week): rent them to college students.

While students at other colleges cram into shoebox-size dorm rooms, Ms. Alarab, a management major, and Ms. Foster, who is studying applied math, come home from midterms to chill out under the stars in a curvaceous swimming pool and an adjoining Jacuzzi behind the rapidly depreciating McMansion that they have rented for a song.

Here in Merced, a city in the heart of the San Joaquin Valley and one of the country’s hardest hit by home foreclosures, the downturn in the real estate market has presented an unusual housing opportunity for thousands of college students. Facing a shortage of dorm space, they are moving into hundreds of luxurious homes in overbuilt planned communities.

Forget the off-to-college checklist of yesteryear (bedside lamp, laundry bag, under-the-bed storage trays). This is “Animal House” 2011.

Double-height Great Room? Check.

Five bedrooms? Check.

Chandeliers? Check.

Then there are the three-car garages, wall-to-wall carpeting, whirlpool baths, granite kitchen countertops, walk-in closets and inviting gas fireplaces.

This article provides an overview of an interesting situation but asking a few more questions would reveal a lot more:

1. If students live in such nice homes during college, what does this do to their expectations when they return home or after they graduate? If you are used to living in a nice McMansion, how do you move up after that?

2. In what condition do these students leave these McMansions?

3. The story paints these students as helping desperate homeowners. At the same time, homeowners in nice suburban subdivisions may not always look favorably at college students who can tend to be loud and unruly. Are all the town and gown relationships here all good as the story suggests?

4. Might some of these students stick around in these neighborhoods after college? If so, how would this change the neighborhoods?

To sum up, is this a long-term solution or a temporary solution to issues in one of the foreclosure capitals of the United States?

Let’s hope the “new normal” in housing doesn’t look like Merced County, CA

A USA Today article about the “new normal” in US housing uses Merced County, California as its main example. The situation there is not good:

The median home price, $116,000, is down 68% from its peak in 2006. Three of five homeowners with a mortgage here owe more on their loans than their houses are worth, compared with about one in five nationally.

While the situation is particularly dire in Merced County, it is also not great in a number of other places:

Nationwide, home prices are down 30% from their 2006 peak. Moody’s Analytics economist Celia Chen says national home prices will regain that ground by 2021.

Some areas will take far longer. In 22 U.S. metropolitan regions, most in California and Florida, home prices won’t return to their 2006 peaks before 2030, Chen estimates. That includes such cities as Miami, Detroit, Phoenix, Las Vegas and Riverside, Calif.

And a USA Today chart shows the counties with the most mortgages underwater: Clark County, Nevada (where Las Vegas is located) is at the top with 71.1% of mortgages underwater. Overall, there are 17 counties over 50% and the top 30 on the chart are all over 46%.

This is a long-term issue for these places, particularly if housing values for the whole country aren’t expected to reach the 2006 peak until at least 2021.