Month: December 2005 (page 1 of 2)

by Odysseus

Big, Beautiful Bloodhound

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From the New York Times (registration required:

Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.

A sharp fall in mortgage rates since the early 1980’s, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.

The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.

Actually, it would be interesting to compare square-footage-per-occupant with the percentage of income needed to pay for a home. Homes are a lot larger than they used to be, with fewer full time residents. Anyone who pays attention to reality and not the news media knows that virtually everything is better and cheaper–expressed in work-effort-expended-to-obtain–than it was twenty years ago, and there is no reason I can think of that housing should be any different.

But-but-but!–the “affordable housing” campaigners will exclaim–home-ownership in the Phoenix-area is below the national average! This is true. The national average is 69%, where the Valley of the Sun trundles along at a lowly–wait for it–68%. If you subtract our incompletely-documented residents, we are well above the national average.

But-but-but! People in Phoenix pay more than the national average for housing, expressed as a percentage of their income! This is also a case where subtracting the hard-working folks who live under the radar yields radically different results.

“Affordable housing” is a scam. There is no one with a decent income, good credit and well-managed debt who cannot purchase a home in the Valley. We prove this thousands of times a month. Creating a vast new government program to give the illusion of ownership to Read more

by Odysseus

Big, Beautiful Bloodhound

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The newspaper accidentally tells the truth about the behind-the-scenes maneuvering to ram the Downtown bond issue down voters’ throats.

While it remains unclear who will emerge as winners or losers when neighborhood leaders and developers begin hashing out future building heights in the Camelback Corridor, one thing is certain: supporters of Phoenix’s upcoming bond election are breathing a sigh of relief.

When Phoenix City Council members decided last week to overturn their decision to allow more high-rises in the corridor to avoid a referendum, they managed to keep the issue off the March 14 ballot, the election in which voters will decide whether the city can sell almost $880 million in bonds for citywide capital improvements.

“Keeping the referendum off the same ballot is one less reason you have for people to vote no,” said Jason Rose, a Valley political consultant. “Elections are highly uncertain events to begin with, and with the Trump dynamic, it created more uncertainty, more doubt. And at the end of the day, people didn’t want to risk downtown getting trumped just like 24th Street and Camelback did.”

In other words, the City wants to limit votes on the referendum to people who stand to prosper from it, with everyone else getting bilked. Everything that was ever done for any of the Downtown cargo cults was done this way. It’s just rare for anyone to admit it.

by Odysseus

Big, Beautiful Bloodhound

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Interest rates are down, Gas prices are down, housing starts nationwide are up, and home prices in the Valley are up, so you know what that means. Yup, the sky is falling yet again.

Affordable homes are vanishing. Vanishing! It must be the Grinch, slinking around with a bottomless bag full of affordable homes. And all the poor Whos down in Whoville–er, Phoenix–are rapidly becoming impoverished by their incredible real estate wealth.

Truly, these are Trying Times…

Here, by way of a metaphor, is a way of understanding real estate reporting as it is practiced in the Valley of the Sun:

The rains in Phoenix are torrential! When a big storm is coming, the clouds will gather all afternoon, piling up hundreds of feet high. You’ll look off to the southeast, and it looks like the entire island of Manhattan is about to crash land onto the Valley. But first comes the dust, a thick carpet of brown grit propelled by sixty-mile-an-hour winds. And the first hint of precipitation may not even be rain: Golf-ball size hail is a common precursor. By now the winds will be entirely untamed, ripping away branches and uprooting whole trees, blasting picture windows right out of their frames, even tearing the roofs off of older homes. When the rain finally comes, it drenches, dumping inches of rainfall in a few short minutes. Flood retention ponds overflow. Sewers back up. The washes and floodways rush like rivers gone mad. If you are foolish enough to get caught in the path of the water, your car may be pushed hundreds of yards downstream–or totally submerged. A storm in Phoenix is like a storm nowhere else.

Every bit of that is true, and none of it is relevant. We have three or four storms like that every year, almost always in the late Summer. They’re over in a couple of hours and life goes on. Rain is interesting in Phoenix, but one of the things that makes it interesting is that it is extremely rare.

So: Is it possible that a homeowner could live through a 60% run-up in the value of his home Read more

by Odysseus

Big, Beautiful Bloodhound

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Hubble Smith of the Las Vegas Review-Journal documents a trend you have to pledge to ignore if you want to write about real estate for a newspaper in Phoenix:

A new market segment of homeowners called “splitters,” people who split time between two homes, are helping to fuel not only the home-building industry, but other industries as well, a survey from Florida-based WCI Communities found.

Splitters evolved from post-World War II migratory trends in the United States. How many places have they lived since birth? How many of their extended family still live in the same town?

These are among the 35 questions that were asked of 12,000 people in the survey, which required respondents to live east of the Mississippi River and be a homeowner. Of the 1,743 respondents, 408 qualified as splitters.

About 70 percent of splitters own a second home and 20 percent, identified as “super splitters,” own three homes.

“Americans no longer expect to experience birth, life and death in the same city or town where they grew up, or even where their families currently live,” WCI spokesman Kyle Reinson said.

He said the survey was commissioned to develop a better understanding of emerging American cultural and economic trends of second-home ownership.

A recent study from the National Association of Realtors projects a twofold increase in second homes by 2009, which would account for nearly 12 million homes by the end of the decade.

by Odysseus

Big, Beautiful Bloodhound

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This just in:

The Phoenix City Council yielded to pressure from residents Wednesday and decided to reverse its decision to allow more high-rises in the upscale Camelback Corridor.

The action effectively kills several projects, most notably the $200 million condominium/hotel development proposed by Donald Trump and development partner Bayrock Group near 26th Street and Camelback Road and sends them all back to the drawing board.

This is the last, best hope for Phoenix to have something like a Downtown–a Central Business District, composed mostly of actual free-market businesses–within the borders of Phoenix.

Of course, the City Council will continue to push for its dream of a fake Downtown–composed almost entirely of tax-payer funded structures–further south. This was the reason for their voting against the planned towers after they had already voted for them: The alternative was to have the issue as a ballot question at the same time Phoenix voters will be asked to saddle themselves with nearly a billion dollars of new debt to build a redundant campus for ASU and a redundant medical school for UA in the all-new fake Downtown. If you’re wondering why the City’s tax-payers should pay for State universities, the City Council doesn’t want you to vote–no matter where you stand on the Biltmore towers.

In any case, the real action will move east, to Downtown Tempe. This is already as close as The Valley of the Sun gets to a Downtown out-of-towners can understand. Tempe has been land-locked for years, so its politicians, marginally less venal, understand that the only way the city can grow is up.

It still won’t be a Central Business District–the Biltmore site was the only hope for that–but it will be alive and vibrant and dynamic, where Downtown Phoenix will always be just one Grand Tax-payer Boondoggle after another–all of them failures, all of them declaimed as great successes, the hails of elaborate praise echoing through the canyons of perpetually empty streets.

by Odysseus

Big, Beautiful Bloodhound

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This is from an article about the planned SR-202 South Mountain Freeway:

“How would you like it if you owned a house or a business and the state came to you and said, ‘You know what, we’re not going to buy this piece of land … and in the meantime, you can’t do anything with your land?’ ” said Cochran of Calabrea Development. “It’s just wrong. It’s totally against property rights and what this country is built on. You can’t control someone’s land without owning it.”

This idea evidently hasn’t made it to City Hall…

by Odysseus

Big, Beautiful Bloodhound

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We’re really not much of a protesting city. I think that’s a good thing. It argues, first, that people have better things to do with their time, and, second, that they think that doing those other things is more valuable to them than fighting over choice cuts of filleted tax-payer Downtown. As bad as the City government of Phoenix might be, it’s not so bad that it can draw a crowd of enraged spoils-seekers. How lucky for us.

So there are three signal outcomes from the battle over the mostly free-market hotel that threatened the structural integrity of an antique warehouse Downtown:

First, the planned protest drew about 150 marchers out of a Valley population of more than three million.

Second, the mostly-entrepreneurs are free to proceed with their project, provided they are willing to throw a couple of bones to the 150 marchers, who vow to be dissatisfied no matter what.

Third, the mostly free-market hotel is going to look like this:

It will be built out of all-white Legos and will be erected in the lower-left-hand corner of the cover of a science-fiction novel.

Seriously, there’s no accounting for taste, and I think we can be pretty sure the building won’t actually look like this in any case.

But: Yikes!

by Odysseus

Big, Beautiful Bloodhound

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Despite my expecations, the news is no-news in the Republic:

Metropolitan Phoenix’s resale housing market slowed to a more sedate pace in November, although the price for a typical house bounced a few thousand dollars higher.

This is pretty underwhelming considering all the hysterical build-up, but at least we don’t have sob stories about innocent vicitms who can’t afford surgery for their cat because they only got a 750% return-on-investment when their home sold.

by Odysseus

Big, Beautiful Bloodhound

Author website

The Business Journal of Phoenix is first with the news of November’s overall appreciation numbers:

[T]he median home price is back on the rise. After a decline in October to $259,900, the price returned to the record level of $263,000 set in September.

The Business Journal is a boring old just-the-facts kind of paper, so we’ll have to wait for the Arizona Republic to discover a cloud wrapped around the silver lining. We already know from the Bloodhound Market-Basket of Homes that the price news that actually matters is relatively good. And for reasons unknown, the seemingly unfounded claim By Dr. Jay Butler of ASU that some huge proportion of currently offered homes are investor-owned does not appear in this report. It will be interesting to see how the Republic handles this, too.

That fact that the news is very good–prices are holding and we’ve set a record pace for the year–calls even greater attention to the amazing number of doom and gloom stories that have appeared lately. The Federal Reserve Bank raised its interest rates again yesterday, so presumably we can look forward to more misinformation about how this relates to mortgage rates. Sellers are having to wait quite a bit longer to reap their windfalls of 50%-100%, so maybe that will be the flavor-of-the-month outrageous tragedy to turn good news into bad.

It’s all one, really. Either you can see the sky with your own eyes or you are doomed to take someone’s word about it. I don’t look for clouds to whine about in the clear Arizona skies, but I don’t encourage anyone to trust my testimony, either. I work from facts and reasonable–meaning pessimistic–inferences based on those facts. I’m happy enough to tell you what I think, but I can’t think for you. In any case, I am not a Pollyanna. I don’t care for the despair-mongering and sky-is-falling predictions that appear in the public prints, but only because these are contrary to the actual, uncontested evidence of experience in the Phoenix-area market.

So here’s some really good news from RealEstateJournal.com: The Chicago Mercantile Exchange is about to start a Real Estate Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

Jonathan Higuera in the Arizona Republic asks: “Are home costs scaring firms off?” The article consists of the dutiful transcription of the unfounded fears of “Barry Broome, president of the Greater Phoenix Economic Council.”

If you are intrepid enough to read the article all the way to the penultimate paragraph, you will discover the answer to Higuera’s question: No.

[N]o GPEC client has actually said they were not coming because of high housing costs[.]

It’s annoying to have to issue all the usual caveats, but not as annoying as all these sky-is-falling ‘news’ stories.

For the record:

• Phoenix homes are very cheap in comparison to the real estate markets from which established businesses might move.
• The repeated incantation that Phoenix homes sell for 20% above the national median is meaningless; we’re not competing with Iowa.
• While potential home buyers might cast a wary eye at our recent appreciation boom, they are going to be much more interested in our future appreciation prospects in order to reap a windfall of unearned increment for themselves–an unlikely prospect in many real estate markets.
• Our future appreciation prospects are excellent: 1. It’s always snowing and freezing in the Great Lakes states, from which we draw thousands of newcomers every year. 2. Housing prices are between two and four times higher in California, from which we draw thousands of newcomers every year. 3. Hundreds of thousands of house-rich baby-boomers are looking for a warm place for their retirement homes. 4. The states along the Gulf of Mexico have proved themselves to be unacceptably hazardous.
• We have a large, educated, money-hungry work force.

The fact is that Phoenix is still the most affordable big city in the Western United States, and it is among the most affordable of the biggest cities in the United States as a whole.

It seems likely to me that the best way to attract the kinds of businesses Mr. Broome might hope to entertain is to offer them the usual Christmas Tree packages of tax-abatements. The best way to attract real entrepreneurs, not corporate welfare cases, is to cut taxes, cut regulation, cut red tape, eliminate zoning and building-permit hassles, etc.

For example, Higuera Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

Holy smokes!

The Phoenix region has landed on a list of “extremely” overvalued housing markets

But, but but! Of course there’s a “but”:

but it’s unlikely that the situation will lead to meaningful drops in home prices, several local housing analysts said.

Whew! That was a close one!

Well, not really. The cited text comes from the Arizona Republic, reporting alarmist predictions that are based on no actual, on-the-ground experience that I can detect. The ‘researchers,’ “Global Insight and National City Corp., a Cleveland-based mortgage lender,” couch everything they dare to say in the most mealy-mouthed possible language, for that simple reason that any long-range prediction about a particular real estate market is inherently suspect. Our Cleveland mortgage lenders only dare to make mealy-mouth predictions for–wait for it–“299 metro areas.”

When did reporters forget how to make the Bronx Cheer? Isn’t that what Hildy Johnson used to do, in The Front Page, when fed a line of bull?

Here’s a better question. Assuming the absolute mealy-mouthed worst for the Phoenix market, how bad will things get?

“[W]hen you look back at markets that have declined 10 percent or more over two years, those markets were overvalued by that much or more[.]”

That’s choice. What it almost says is that the Valley might be at risk of losing 10% of the current market value of homes over the next two years. That is to say, the house that was worth $145,000 in December of 2003, which is now worth $265,000, may only be worth $238,500 in December of 2007. I’ll take bets against that outcome at $100 a head, down to my last dollar. But, even conceding the (unmade) point, the four-year appreciation on the home would be 64%, $93,500 in unearned increment–wealth accrued without having to be produced.

But what the quotation actually says is this: If it turns out that homes have lost 10% of their value over two years, it’s because they had been overvalued by 10% or more. Translated into English, it’s just stupid. It sounds tautological, but it isn’t, actually, because it introduces a false idea of causation.

The value of a thing is what that thing will Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

Dr. Butler,

I saw this on money.cnn.com:

A researcher at Arizona State University told the paper that in the hot market of Phoenix, as many as 30 percent of the properties for sale on the market right now are owned by investors

They were referencing this quote from the Wall Street Journal:

In the Phoenix area, as many as 30% of properties for sale are currently owned by investors, says Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Six months ago, most investors were buying rather than selling, he says. The shift has helped to drive up inventories of homes for sale in the Phoenix area, which climbed to 22,340 in October from 8,600 in April, according to data from the Arizona Regional Multiple Listing Service.

My question for you is this:

How did you arrive at the 30% figure?

As you know, a normal market in Phoenix is about 25,000 active listings. It’s possible that the absorption rate will turn out to be so slow that we may end up with a surfeit of inventory, but I can’t see any reason to raise alarms about inventory right now. The market is balanced, and, at the middle of the bell curve of residential real estate products, recent appreciation is mildly positive.

But what I would like to know is how you determine that "as many as 30% of properties for sale are currently owned by investors"? The only way I could think of ascertaining this as a matter of fact, rather than of gut-feeling, would be to go through the MLS listings one-by-one, comparing the listing data to the tax records. Even then, the error-rate would be huge. As you know, many investors falsely or erroneously report the residence address as the tax-billing address, intentionally or not giving the impression that the homes are owner-occupied. Add to this the considerable number of privately- and exclusively-offered homes, most of which would tend to be owner-occupied, and any correlation of listed to investor-owned homes seems to me to be impossible as a matter of practice.

Am I mistaken? Is there an actual basis in data for making Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

The idea of a Downtown in Phoenix is cursed by the most pernicious force of hell. Not the devil, just the heat. A Downtown is a place where virtually all transportation takes place on foot, and you cannot walk outdoors in Phoenix in the summer. Not far, not for long and not without ruining your clothes with sweat stains.

There are two fairly obvious conclusions to be drawn from this datum. Either: Phoenix cannot have a true Downtown–which explains why it doesn’t–no matter how much money is wasted on cargo cult projects devised to mimic a Downtown. Or: Downtown Phoenix, wherever it emerges, must be entirely indoors. I wrote about this a while ago.

Today comes news of a yet another city-within-the-city that is just ambitious enough to succeed as a project, but nowhere near ambitious enough to work as a city:

Phoenix’s largest mall developer says it will build a cosmopolitan city within a city in the northeast Valley that will feature the state’s most upscale shopping, restaurants, nightclubs and spas, plus a boutique hotel.

Going after the Valley’s most deep-pocketed residents and tourists, Phoenix-based Westcor and its partner, Landmark Land Co., said they will turn 2,200 acres of desert into a giant urban hub with buildings reaching 17 stories high, piercing the northeast Valley’s low-slung skyline.

Here’s the kick in the teeth, though:

Plans are most firm for Westcor’s 72-acre regional, outdoor shopping center, which will include 1 million square feet of high-end retail and restaurants.

I added the emphasis. So how do you suppose people are going to get around this huge parcel of land?

But wait. There’s more:

Creating upscale, outdoor shopping centers where people also live and work has been a hot trend among developers who want to renovate their old centers or build new ones.

The souped-up shopping centers are meant to look like minidowntowns or Main Streets but often feature high-end shops instead of dentists and dry cleaners.

That is in part due to the strength of the luxury retail market, said Patrice Duker, spokeswoman for the International Council of Shopping Centers.

“(Mixed-use) is what’s in the air in regard to development trends,” Duker said. “It’s Read more

by Odysseus

Big, Beautiful Bloodhound

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Jon Talton is the Arizona’s Republic’s house Socialist. He hates just about everything associated with free enterprise, but he makes up for it by waxing rhapsodic over any stray government boondoggle. He is convinced that Phoenix will continue to go down the toilet by growing and prospering until it dares to mimic all the idiotic urban policies people move here to escape. The Republic runs his column on the business page for the same reason they run articles by effete anti-athletic esthetes on the sports pages. Oh, wait–they don’t do that…

In any event, Talton suffers from a rabid moondacity, a desperate need to tell mooney, transparent lies in support of unsupportable stupidities. From the Latin moondax, moondacis, moondacity denotes an incurable condition in which the sufferer’s brain has turned into green cheese. It is epidemic in certain circles of Phoenix, particularly in the city government, where the afflicted affect to believe–and attempt to persuade others to believe–that Downtown will be revitalized by the erection of skyscrapers made exclusively from huge stacks of tax-dollars.

Here is a sampling of Moondacity, Talton style:

Maroney’s is closing at Central Avenue and Camelback Road, taking away a landmark that has stood since the 1940s. There’s a back story, of course: the dry cleaner sits atop contaminated groundwater.

“Closing”–what a failed business does–and “taking away a landmark”–what a tornado does–are not the same thing. This kind of corrupt conflation is constant among the moondacious, so learn to watch out for it. But this is the bigger lie: “the dry cleaner sits atop contaminated groundwater.” In fact, Maroney’s sits atop groundwater that it contaminated by dumping dry-cleaning chemicals into the ground-table for decades. Even so, the “contaminated groundwater” didn’t cause the business to fail. Want to know what did? You can figure it out by inverting the next bout of moondacity:

Viacom, which owns the property and its lucrative billboards, is working with the Arizona Department of Environmental Quality to clean up the site. So this is hardly a business closing that can be blamed on the coming of light rail.

Did you catch it? When Talton says, “this is hardly a Read more

by Odysseus

Big, Beautiful Bloodhound

Author website

“My father wasn’t one to stand in the way of progress,” said Robert Tang, who now lives in Apache Junction. “I just think the Chinese community really wants something preserved of our history.”

Here’s a solution, Mr. Tang: Pay your own way.

The quote is taken from an Arizona Republic article on attempts to dictate to a group of private investors the terms on which they can build a brand-new barely-taxpayer-subsidized hotel in Downtown Phoenix. Mr. Tang and the Chinese community are joined by the Historic Preservationists, who by fiat of law create compulsory museums without compensation to the owners of the affected properties.

For all the hoopla regarding Downtown, it’s important to understand that almost everything that is being planned will be paid for by the taxpayers. There is almost no entrepreneurial investment Downtown, and almost no privately-owned land upon wich to build entrepreneurial investments.

Still worse, for anyone foolish enough to put a nickel into Downtown, there stands Mr. Tang and other so-called ‘stakeholders’–called this because they have zero financial stake in the investment–and all the busy-bodies at City Hall.

Just now a group of Luddities is trying to prevent vertical development in the Biltmore area–where, thankfully, there is no history to be preserved. If they succeed, the Downtown in Phoenix won’t emerge in Phoenix at all. It will happen in Tempe.

Nice going…