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http://roguecolumnist.typepad.com/rogue_columnist/2010/02/the-godot-housing-recovery.html
The Godot housing recovery
"Everybody" in the Arizona's limited cloud of good intentions believes the state needs to diversify its economy, particularly in suffering Phoenix. Unfortunately this doesn't include the two entities that could actually address this issue: the state government, which is controlled by the Kookocracy and can only cut services and taxes, and the Real Estate Industrial Complex. The latter is just waiting for the old reliable growth machine to wheeze to life once again. For both, rapid population growth alone has cloaked an array of dysfunctions and it's gone on for so many decades that few can imagine a future of discontinuity. In other words, nobody with real power has a Plan B.
As the Kookocracy has gone national, so, too, did much of Phoenix's delusional thinking during the years leading up to the crash. With so much of the economy hollowed out, more and more prosperity depended on house building and improvement, house selling and flipping, and mortgages — from generating and refinancing them to packaging them in elaborate swindles on Wall Street. No wonder that many days the national news sounds like the local land boosters giving a forecast at the Arizona Biltmore. Housing has hit bottom! A recovery is under way! Sales are up — ooops, today they're down, but tomorrow's another day.
None of these individual snapshots answer the fundamental question: Can the old housing market be restarted?
As much as progressives would like it otherwise, I doubt most Americans have learned much from the great recession. Indeed, many have taken away freakish but potent bags of lies (e.g., it was caused by Democrat spending!) thanks to right-wing media. Thus a majority would happily return to the status quo ante. Drive 150 miles a day? No problem.
Buy even farther out to get an even bigger house? Great! Move every couple of years and double the price of the house? Easy money.
Take a liar loan and max out a home equity line, even with the bitter experience of recent years? You bet! Quality downtowns, public spaces, unique local shops, walkable neighborhoods, great transit and preservation of rural areas? Hell no — we want to drive to the mall or Wal-Mart: let freedom reign! Sustain the unsustainable? What's that mean?
After all, clever marketing and social conditioning made house ownership "the American dream." Not the ability to rise amid opportunity and fairness; not government of the people, etc.; not even a desire that every generation do better than its predecessor — no, the American dream became a house. So uncritically do the media buy the line that we have reports of "home sales" and "new homes."
Because, you see, a "home" sounds so much more, well, homey. Our journalists speak the cant of the real estate industry — e.g., calling subdivisions "master planned communities" and gated properties "gated communities — so one can't expect them to look at the industry with the skepticism that should be their responsibility.
It's not just popular yearning. A huge part of the economy is based on the old sprawl model, and not just in Phoenix (although few metros are as dependent on it and none so populous has such a one-note economy). This is why we can expect every effort to be made in an effort to resuscitate it.
Formidable challenges await. Let's do the shorthand: 1) A huge debt overhang must be unwound, whether on individuals or large builders; 2) America faces its sickest labor market since the Great Depression, with no sign that it will improve anytime soon; 3) Record numbers are facing foreclosure or are underwater on loans; 4) Millions of houses are empty, with more inventory added every day in a nation where "walking away" is the new black; 5) The fragile financial markets haven't recovered from the residential collapse; now they face a mammoth problem with commercial real estate; 6) More loans will reset in the next two years, perpetuating the toxic feedback loop.
The first-time house-buyer tax credit? Nice temporary distortion, but nothing fundamentally improved. Indeed, it's telling that Wall Street, bailed out by American taxpayers, is acting as riskily as ever — but it's other schemes and swindles, not real estate. Fannie Mae and Freddie Mac, tied to house loans, are dying. The banks were allowed to change accounting rules to value all the real estate they're stuck with at what they say it's worth, rather than what it's actually worth on the market.
The stuff is still toxic, hovering out there like an asteroid waiting to strike the economy. Other troubled "assets" have been unloaded on the Federal Reserve, i.e. on the future living standards of the American people.
Poverty, meanwhile, is moving out into the suburbs and the exurbs as the one significant asset many Americans had continues to deteriorate in many locales. Worse, for millions, it won't regain its rapid appreciation, which they had counted on in lieu of rising wages, job security, pensions and the economic mobility of America from the 1940s to the 1990s.
Taken together, these continuing, although underreported problems, in the real estate sector could knock the fragile economy into a double-dip recession. If they don't, we're not out of the woods. The government spending "freeze," China's asset bubble and sovereign credit issues in the EU all threaten what is at best a slow, painful recovery.
If they tip the economy back into contraction, the trouble only increases for real estate. If oil prices rise it's bad news (cut off recovery at the knees). If they fall it's bad news (a sign of new recession/deflation). This is the mess we're in.
More sobering is how little this long recession has achieved in doing the two good things that usually come from such events: Cleaning out bad bets and correcting imbalances. Most still remain, now propped up by public dollars that would have been better spent rebuilding a real economy and preparing us for the major disruptions to come.
Put all this together and I don't see how the old sprawl comes back, certainly not in a metro such as Phoenix. Seattle prices have leveled off to about where they were in 2003; not so in overbuilt places. In neither case can we expect a return to the huge building, flipping and price appreciation, mostly done on unsustainable debt. Small signs of healing may be trumpeted as recovery. Please, God, give me one more housing boom... In some places, the bulldozers may come back, much more modestly.
But for many years to come, this is our reality. And by the time all the excesses are worked out...here comes peak oil — and for Phoenix, peak water.
That doesn't mean people won't keep waiting, and waiting.
The Godot housing recovery
"Everybody" in the Arizona's limited cloud of good intentions believes the state needs to diversify its economy, particularly in suffering Phoenix. Unfortunately this doesn't include the two entities that could actually address this issue: the state government, which is controlled by the Kookocracy and can only cut services and taxes, and the Real Estate Industrial Complex. The latter is just waiting for the old reliable growth machine to wheeze to life once again. For both, rapid population growth alone has cloaked an array of dysfunctions and it's gone on for so many decades that few can imagine a future of discontinuity. In other words, nobody with real power has a Plan B.
As the Kookocracy has gone national, so, too, did much of Phoenix's delusional thinking during the years leading up to the crash. With so much of the economy hollowed out, more and more prosperity depended on house building and improvement, house selling and flipping, and mortgages — from generating and refinancing them to packaging them in elaborate swindles on Wall Street. No wonder that many days the national news sounds like the local land boosters giving a forecast at the Arizona Biltmore. Housing has hit bottom! A recovery is under way! Sales are up — ooops, today they're down, but tomorrow's another day.
None of these individual snapshots answer the fundamental question: Can the old housing market be restarted?
As much as progressives would like it otherwise, I doubt most Americans have learned much from the great recession. Indeed, many have taken away freakish but potent bags of lies (e.g., it was caused by Democrat spending!) thanks to right-wing media. Thus a majority would happily return to the status quo ante. Drive 150 miles a day? No problem.
Buy even farther out to get an even bigger house? Great! Move every couple of years and double the price of the house? Easy money.
Take a liar loan and max out a home equity line, even with the bitter experience of recent years? You bet! Quality downtowns, public spaces, unique local shops, walkable neighborhoods, great transit and preservation of rural areas? Hell no — we want to drive to the mall or Wal-Mart: let freedom reign! Sustain the unsustainable? What's that mean?
After all, clever marketing and social conditioning made house ownership "the American dream." Not the ability to rise amid opportunity and fairness; not government of the people, etc.; not even a desire that every generation do better than its predecessor — no, the American dream became a house. So uncritically do the media buy the line that we have reports of "home sales" and "new homes."
Because, you see, a "home" sounds so much more, well, homey. Our journalists speak the cant of the real estate industry — e.g., calling subdivisions "master planned communities" and gated properties "gated communities — so one can't expect them to look at the industry with the skepticism that should be their responsibility.
It's not just popular yearning. A huge part of the economy is based on the old sprawl model, and not just in Phoenix (although few metros are as dependent on it and none so populous has such a one-note economy). This is why we can expect every effort to be made in an effort to resuscitate it.
Formidable challenges await. Let's do the shorthand: 1) A huge debt overhang must be unwound, whether on individuals or large builders; 2) America faces its sickest labor market since the Great Depression, with no sign that it will improve anytime soon; 3) Record numbers are facing foreclosure or are underwater on loans; 4) Millions of houses are empty, with more inventory added every day in a nation where "walking away" is the new black; 5) The fragile financial markets haven't recovered from the residential collapse; now they face a mammoth problem with commercial real estate; 6) More loans will reset in the next two years, perpetuating the toxic feedback loop.
The first-time house-buyer tax credit? Nice temporary distortion, but nothing fundamentally improved. Indeed, it's telling that Wall Street, bailed out by American taxpayers, is acting as riskily as ever — but it's other schemes and swindles, not real estate. Fannie Mae and Freddie Mac, tied to house loans, are dying. The banks were allowed to change accounting rules to value all the real estate they're stuck with at what they say it's worth, rather than what it's actually worth on the market.
The stuff is still toxic, hovering out there like an asteroid waiting to strike the economy. Other troubled "assets" have been unloaded on the Federal Reserve, i.e. on the future living standards of the American people.
Poverty, meanwhile, is moving out into the suburbs and the exurbs as the one significant asset many Americans had continues to deteriorate in many locales. Worse, for millions, it won't regain its rapid appreciation, which they had counted on in lieu of rising wages, job security, pensions and the economic mobility of America from the 1940s to the 1990s.
Taken together, these continuing, although underreported problems, in the real estate sector could knock the fragile economy into a double-dip recession. If they don't, we're not out of the woods. The government spending "freeze," China's asset bubble and sovereign credit issues in the EU all threaten what is at best a slow, painful recovery.
If they tip the economy back into contraction, the trouble only increases for real estate. If oil prices rise it's bad news (cut off recovery at the knees). If they fall it's bad news (a sign of new recession/deflation). This is the mess we're in.
More sobering is how little this long recession has achieved in doing the two good things that usually come from such events: Cleaning out bad bets and correcting imbalances. Most still remain, now propped up by public dollars that would have been better spent rebuilding a real economy and preparing us for the major disruptions to come.
Put all this together and I don't see how the old sprawl comes back, certainly not in a metro such as Phoenix. Seattle prices have leveled off to about where they were in 2003; not so in overbuilt places. In neither case can we expect a return to the huge building, flipping and price appreciation, mostly done on unsustainable debt. Small signs of healing may be trumpeted as recovery. Please, God, give me one more housing boom... In some places, the bulldozers may come back, much more modestly.
But for many years to come, this is our reality. And by the time all the excesses are worked out...here comes peak oil — and for Phoenix, peak water.
That doesn't mean people won't keep waiting, and waiting.
