Month: February 2006 (page 1 of 1)

by Odysseus

Big, Beautiful Bloodhound

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If you drive through my neighborhood of North Central Phoenix, you’ll see plenty of little signs entreating you to support the seven proposed bond issues to be put to a vote in the March 14 election. But if you drive through other neighborhoods of the city, you’ll see few if any signs. Supporters and opponents will have planted huge placards at major intersections, but you’ll see the little yard signs – “Support the Bonds” – only in the most prosperous of neighborhoods.

This little datum actually tells you all you need to know about the bond campaign: In large measure, it is welfare for the rich.

I’m not playing a class-envy card. I despise welfare in all its forms. I can sympathize with the plight of the poor, and I can even volunteer my time and my money to help them. But I think it is vile to use force to steal wealth from honest, innocent producers in order to confer it upon people who have not earned it. But if this is vicious and wrong when done for benefit of the poor, how much worse is it when the recipients are among the wealthiest of the city’s residents?

The actual purpose of the bond issue – and of the Trolley and of the recidivist reconstruction of the Civic Center and of all the other so-called ‘investments’ downtown – is to provide free upscale amenities for the use and enjoyment of rich Phoenicians and their out-of-town visitors. There are miserly little bribes to other constituencies beneath the vast Christmas tree of bond programs, but the overwhelming amount of money will be spent to amuse and enrich people who are already laughing all the way to the bank.

Almost a year ago, I wrote about how these corrupt ‘investments’ are carefully target-marketed to the most corruptible kind of investors. And this is the first and biggest benefit to the rich of the bond issues: The bonds themselves. They will be underwritten by a politically-connected investment firm, and they will be purchased by politically-wired investors. Even though the city’s property tax receipts will surge this year, making Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

Our most favorite real estate oracle, Catherine Reagor of the Arizona Republic weighs in with some observations that may actually be as undefended as they are unthought out. In fairness to Ms. Reagor, I’ll quote her text as I explore it:

Bad news for the many homeowners trying to sell: It’s likely only going to get tougher.

The number of home listings in metro Phoenix is at an all-time high. In January, there were 30,113 houses for sale across the Valley. A year ago, there were 3,402.

The source for this is probably an article by Betty Beard, who is actually a responsible journalist. Witness:

The last time the Southeast Valley had listings in the 10,000 range was in late 2002 and early 2003, according to the Arizona Regional Multiple Listing Service Inc.

You see, like seemingly no one else at the Republic, Betty Beard is aware that there were years prior to the completely anomalous 2005. Here’s more from Ms. Beard:

Robert Rucker, the multiple listing service’s chief executive officer, said he couldn’t determine that 11,512 is a record because the records are not set up easily to compute that.

It may be that Ms. Reagor has a source for her claim that the current inventory is a record, but she doesn’t say who it might be. In any case, since a normal inventory prior to the completely anomalous 2005 was around 25,000 homes, and since we’ve built tens of thousands of new homes since then, it would be very difficult to say what is by now a normal market. The NAR’s standard for normal, a six-month absorption rate, is substantially longer than what we’re seeing locally.

More from Ms. Reagor:

Some sellers still don’t realize the housing market has deflated from last year’s peak. Not only are the bidding wars gone but so, too, are many of the buyers. Most of the speculators who sparked multiple offers on homes early last year are long gone, and there aren’t as many regular buyers because fewer can afford today’s higher home prices. The typical house costs 50 percent more, and the typical income climbed less than 5 percent in Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

And the statement would be, “Hey, everyone, I don’t understand what fungible means!”

by Odysseus

Big, Beautiful Bloodhound

Author website

First, Catherine, congratulations on your new column. Hard work pays off.

Second, I would dearly love it if both of you would bring some perspective to your writing. For example, from Catherine’s new column:

What this year holds is the multibillion-dollar question. A 10 percent drop in home building or sales would cost the Valley’s economy at least $1 billion.

There are two important caveats missing from this conjecture. First, we are more likely to gain 10% in value this year than to lose it. Las Vegas had a 50% upswing in 2004, very much like our year last year. Their appreciation in 2005? An incredible 19.2%, four times their normal appreciation.

I doubt Phoenix will do this well, especially since the year has started down, with a serious dearth of buyers. But Catherine’s worst-case scenario seems even less likely. But even if we entertain it, what are the consequences?

If I bought a home for $300,000 in January of 2005 (which I actually did do), and if that home is worth $450,000 in January of 2006, and if the market now suffers a “ten percent drop,” what happens? My home would then be worth $405,000, $105,000 more than I paid for it. I put 5% down, so my cash-on-cash return after what Catherine seems to regard as a financial cataclysm would be–how much? Jeepers, it’s only 700%. A ten percent drop in values would not be good, but after the surge we’ve had over the last 18 months, it would hardly be tragic, and most people would still be far head of where they were before this boom began.

The “would cost the Valley’s economy” argument is also specious except as a bookkeeping analysis. A homeowner’s equity isn’t actually gained or lost until it is liquidated. If values drop by 10% this year and gain 6% a year for the next three years, none of it matters until the homeowner either sells or refinances. A drop in values might matter to builders’ shareholders, and it would matter to homeowners if their notes were to be called by their lenders, but otherwise it’s all academic. Without doubt, Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

Yet another sky-is-falling article in today’s Arizona Republic, this one by business reporter Glen Creno. Nothing seems to be outrageously wrong in the factual reporting, although, as usual, there are very few facts and a lot of opinions, anecdotes and personal reflections. The real problem, though, is with the facts that are omitted.

An example:

The number of houses for sale in metro Phoenix has nearly tripled in the past year, based on December data from the Arizona Regional Multiple Listing Service.

This is simply irresponsible. The inventory of available homes last year was abnormally low. There are about 30,000 active listings right now. Two years ago, I would have said that 25,000 listings is a normal market. We’ve built 120,000 new houses since then, plus we went through last year’s boom. I don’t know what a normal market is now, and I may not have a clear idea for months. But to say “tripled” without saying anything about “normal” is just sensationalism.

Creno offers some loose conjectural reasons why inventories are up, but he fails to cite the incessant scare-mongering of the Arizona Republic.

However, “Mortgage rates have nudged higher,” he says, another reckless claim the media never tires of making. Every time you read something about rising mortgage rates, click on this link. I wish I had a chart for ten or twenty years instead of just five. Mortgage rates are amazingly low and mortgage lenders make their money by writing loans. They have an incentive to keep new-loan-origination activity high. Other factors influence rates–but not so much, as Alan Greenspan discovered in 13 failed tries to influence them–but it is not unreasonable to expect them to stay low and possibly go even lower. That nothwithstanding, if you saw a chart of mortgage rates over the last 35 years, you’d gape in horror. Even so, people continued to buy and sell houses even when rates were over 20%.

Dr. Jay Butler, who apparently keeps his head where he can best monitor his gut feelings, weighs in with this profound scientific observation: “If prices and rates move up, we’re in deep trouble.” Oh, my.

Here’s the real Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

From the Republic:

Despite not even being among the 10 most populated areas in the country, metropolitan Phoenix led the nation in absolute job gains from December 2004 to December 2005.

The seasonally unadjusted figures from the federal Bureau of Labor Statistics confirm the Valley’s status as a growth market not only for new residents but for new jobs as well.

The region added 83,200 jobs to its economy over the year, topping the Washington, D.C., metropolitan area’s 81,600 jobs.

Somewhat remarkably, the Census Bureau reported last year that metropolitan Phoenix was only the 14th most populous metropolitan area in 2003, while metropolitan D.C. was the 7th-largest region.

That means the Phoenix region created more new jobs than even such metropolitan goliaths as Los Angeles, New York and Chicago.

“We’ve actually done incredibly well since the end of the last recession,” said Tracy Clark, an economist at Arizona State University. “In percentage terms, we tend to be behind only Las Vegas, but they have a much smaller base.”