This isn’t over yet

Anyone who thinks this recession is going to be over by year’s end just isn’t paying attention.  If you think housing is about to rebound, you’re delusional.  The latest casualties of the housing bubble is just now starting to rear their ugly heads.  Check out these stories from Reuters:

U.S. property bust threatens condo “death spiral”

MIAMI (Reuters) – Rust pokes through the peeling paint on the railings, pest control has been curtailed and the palm trees are no longer being fertilized at the 1940s-era Miami Modern condominium building in Miami Beach.

The condo association has been forced to cut expenses because the owners of 11 of the 28 apartments in the modest two-story building are delinquent, victims of a mammoth U.S. real estate collapse that has hit Florida especially hard.

With so many cash-strapped owners failing to pay their monthly fees for upkeep, the condo board last year had to raise $40,000 with a special levy to fill a giant hole in the $80,000 annual budget, but only managed to collect $19,000 from the owners who are still able to pay their bills.

Florida’s condominium and homeowners’ associations are facing what experts call a trickle-down disaster from the property crisis. Dozens and perhaps hundreds of condo buildings have budget shortfalls as thousands of owners, under water on their mortgages or in foreclosure, stop paying monthly fees.

“I call it a death spiral,” Miami Beach city commissioner Jerry Libbin said. “It’s a catastrophe in the making.” …

and the New York Times:

Banks Starting to Walk Away on Foreclosures

SOUTH BEND, Ind. — Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate. …

So, on the one hand, owners suddenly finding themselves unable to pay the bills, abandon their condominiums in favor of feeding their families.  On the other hand, banks refuse to take possession of houses they officially own because it’s not financially viable to do so.  In both cases, the city affected is left with a run-down, unoccupied building that’s a magnet for crime, rats and other vermin.

I’d like to say “good riddance” to the condominiums, but there really isn’t a silver lining in this.  Florida’s coastline is covered with these hideous, environment-destroying monstrosities, and I really doubt any of them are going to be torn down any time soon.  Imagine our nation’s most beautiful coastlines dotted with thousands of derelict high-rise buildings, crumbling to ruin and empty but for the garbage and detritus of human existence, monuments to human greed and selfishness.

Now consider the other side of it, millions of foreclosed houses abandoned by owners and banks, falling to ruin and vandalism.  Monuments to a failed philosophy of an “ownership society” and the lie that “real estate always goes up”.

This is the future we’ve created.  Welcome to it.

How to save the housing market

Okay, in the past two years foreclosures have been at record levels, and people are losing their homes in droves.  In January of 2008, foreclosures were up 57% over the previous year, and the crisis shows no sign of slowing down.  Our usual responses to crisis have had no effect, but then, throwing money at a problem rarely solves it.  You need a plan first.

So, with more and more families facing foreclosure and homelessness this year, and housing prices continuing their downward spiral, what can be done to stem the housing crash and “save” the housing market?

I believe I have the answer.  Are you ready?  Four little words.  Just four.  Here they are:

Not a damn thing.

That’s right.  There is nothing that can be done to “save” the housing market, because any and all efforts we make today to “stabilize” prices are predicated on the ridiculous notion that current home prices are actually realistic.  They aren’t.  The fact is, in most markets around the country are still at least 50% over-inflated as a result of five or more years of “irrational exuberance.”  Please forgive the use of Alan Greenspan’s terminology.

Take Arizona, for example.  In 2004 I secured a mortgage of $142,900 for a 1400 square foot house, a little over $100 per s.f.  It seemed unreasonable then, since only four months prior, similar houses in the same neighborhood had been listed for around $125,000.  That’s a 15% increase in just four months.  Take it out a year and you get a 45% rise in prices in a year.

That’s almost what happened.  We lived in that house for almost three years before selling it.  In mid-2005 we thought about selling and were told we could get $225,000 for it if we’d done it then.  That works out to a nearly 60% rise in perceived value in a little over a year.  The silly thing is, we hadn’t actually done anything major to it in that time.  Just carpeting and a new sliding patio door.

At the same time, the average income in Tucson rose less than 5%.  You do the math and see if it makes any sense.  To me, that makes it a 55% disparity between income and housing costs.  And the truth is, housing prices in Tucson were already, on average, 10% higher than the average income could afford.

Ridiculous.

So there you go.  There’s not a fucking thing the government or anyone else can do to “stabilize” the housing market, because it’s been unrealistically hyperinflated for at least ten years.  The fall it’s experiencing right now is only the beginning of a long and painful decline, and any attempts to stop it will fail.  Like the stock market, there’s a long way to go before it hits bottom.

Am I being alarmist?  Am I being cynical?  Am I being unrealistic?  I think not.  If you start from the assumption that the affordable home price for a typical family is about 2 to 2.5 times their annual income, then in a place like Tucson, where average income is between $45 and $50,000, then the average home should cost $90 to $125,000.  So basically, Tucson has nearly stabilized.  Last I checked, starter prices there were in the $100 to $160,000 range.  Of course, unemployment is also at record highs, so…

But, if you look at, say, Delaware County in New York, where the average income is $32 to $36,000 and houses are still being listed for $200,000 and up, the decline hasn’t even started yet. Of course, Delaware County has its own set of problems, mainly inflicted upon it by New York City.  But the point remains the same.  The average family simply can’t afford to buy a house there.  Prices are outrageous.

And that’s not even the beginning of it.  Look around your own city, town, village or state.  I’m sure you can find examples of what I’m talking about.  Do the research yourself.  It’s not that hard to find.

You just have to be willing to look, and accept the truth.

Five reasons to vote Republican next year

I know, there really aren’t any.  But just in case you’re considering it, here are a few things to think about before you vote.

You should vote Republican if:

You want to see more of these.  Coming from Iran, this time.

You like it when people are made homeless by disaster followed by incompetence.

You want to see these guys marching down your city street (they’re Blackwater thugs).

You really didn’t want to be a homeowner anyway.

You think waterboarding should be an Olympic competition.