BIG FORECLOSED HOUSE AUCTION IN PHOENIX

Some people think the building boom was wonderful.  I think it was hideous.  I am going to talk about Arizona today to give my own very biased opinion about all this.  If I could remove 80% of the houses in Arizona, I would. Most of them are extremely bad for the environment, for humans and have NO future once water and energy becomes precious.  As it will.  Not one of these stupid things being auctioned next week in the Phoenix foreclosure auctions, have solar panels on the roof.  Or shade from desert trees, for that matter.   

“The Burning Platform” by James Quinn. FSO Editorial 02/18/2009

As Congressional moron after Congressional moron goes on the usual Sunday talk show circuit and says we must stop home prices from falling, I wonder whether these people took basic math in high school. Are they capable of looking at a chart and understanding a long-term average? The median value of a U.S. home in 2000 was $119,600.

It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have increased by 17% to $140,000. Instead, they skyrocketed by 86% due to Alan Greenspan’s irrational lowering of interest rates to 1%, the criminal pushing of loans by lowlife mortgage brokers, the greed and hubris of investment bankers and the foolishness and stupidity of home buyers.

It is now 2009 and the median value should be $150,000 based on historical precedent. The median value at the end of 2008 was $180,100. Therefore, home prices are still 20% overvalued. Long-term averages are created by periods of overvaluation followed by periods of undervaluation. Prices need to fall 20% and could fall 30%. You will know we are at the bottom when the top shows on cable are Foreclose That House and Homeless Housewives of Orange County.

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Instead of allowing the housing market to correct to its fair value, President Obama and Barney Frank will attempt to “mitigate” foreclosures. Mr. Frank has big plans for your tax dollars, “We may need more than $50 billion for foreclosure [mitigation]”. What this means is that you will be making your monthly mortgage payment and in addition you will be making a $100 payment per month for a deadbeat who bought more house than they could afford, is still watching a 52 inch HDTV, still eating in their perfect kitchens with granite countertops and stainless steel appliances. Barney thinks he can reverse the law of supply and demand by throwing your money at the problem. He will succeed in wasting billions of tax dollars and home prices will still fall 20% to 30%. Unsustainably high home prices can not be sustained. I would normally say that even a 3rd grader could understand this concept. But, instead I’ll say that even a U.S. Congressman should understand this.

Invariably, all governments want to preserve ‘wealth’ created by bubbles.  The very first financial bubbles in Europe had the same outcome: when they popped, governments moved in to restore the values of whatever it was that popped.  Whether it was tulips or South Sea bonds, Mississippi shares, whatever it was, since the government was making money off of these bubbles, they wanted them to continue.

 

This sad condition is part of our psychological make-up.  Just as we want to believe in Santa Claus, as children, but must struggle to grow up and realize, there is no such being, so must we understand that bubbles are false valuations of various things and we must accept the truth, that they are really worthless.  The easiest thing on earth to raise to the heavens are things that are written on a piece of paper.  This is why paper money, for example, can ‘bubble’ and then crash.  This is why there has to be severe restrictions on the issuing of paper stuff, it goes instantly to infinity on the number scale but at a point in time, when everyone realizes the money is being printed irresponsibly, the value collapses and the more zeros that are added, the faster the collapse.

 

Hidden things that can grow rapidly because they aren’t even paper but are computer numbers, go to infinity very fast.  The entire Derivatives Beast thing is a fine example of this: in the dark, totally unregulated, based on ‘deals’ that often weren’t even put on paper, called ‘over the counter’ deals, were created out of nothingness.  Behind everyone’s backs, this thing grew from zero to being worth more than all things on this planet.  So to speak.  

 

Of course, it was totally worthless.  After it grew to immense size, the international regulators decided to track it but not change it.  Then, when it got obviously out of hand, the Bank of International Settlements decided to simply put a value on all the things that this creature represented.  This, along with the collapse of the Japanese ZIRP carry trade, caused a major train wreck since all the biggest investment banks were really infestment banks, they discovered that all those deals were really meaningless.

 

This is because the sudden end of the Japanese carry trade meant the sudden end of the game all the Goldman Sachs executives were playing.  They were using their stock values as collateral for cheap loans so they could use money that wasn’t profits, to profit from gambling in stocks and bonds and playing in the Derivatives Beast’s Cave of Death.  Now, they are all going bankrupt and the value of GS stocks has fallen by over 50%.  The players in Bear Stearns and Lehman Brothers all went bankrupt.

 

The obvious lesson is, never, never gamble with borrowed money.  And never, never mix up profits with leverage.  If leverage is used to make profits, book keepers must be very vigilant to caution that the debt overhang is dangerous and it reduces the actual ‘profits’ until it is removed.  When bankers used illicit profits based on themselves going into debt while generating ‘money’, then we get the sort of epic collapse we are seeing today.

 

The bankers, playing games with money, lent excessive funds because they were lying about how much principal they had on hand to cover any runs on their banks.  Banks need to keep people feeling good about leaving money in accounts.  They use government insurance for this purpose.  But savings collapsed due to the US suppressing interest rates despite inflation.  Putting money in savings accounts was a good way to lose value, fast.  Even CDs began to lag behind inflation.  Money wasn’t growing, it was shrinking. 

 

The flood of Japanese carry trade loans into our own banking system capitalized lending but it had a very small base: one trillion dollars.  It created over $50 trillion in world banks.  It fueled a planetary asset inflation in nearly all nations.  It caused immense bubbles in the US.  One of these bubbles was the housing bubble.  

 

New home construction drops to record low – Real estate- msnbc.com

Construction of new homes and applications for future projects both plunged to record lows in January as all parts of the country showed big declines in building activity.

Analysts are hoping that a boost from government programs, including new efforts to stem foreclosures, will help stop the slide.

The Commerce Department reported Wednesday that construction of new homes and apartments dropped 16.8 percent last month to a seasonally adjusted annual rate of 466,000 units. That’s well below the 530,000 units economists expected, and was the slowest pace on records dating back a half-century. 

 

 

 

 

 

 

 

 

 

Thanks to the invention of air conditioning, there was a massive move of humanity from the North to the South.  The planet used to have this dynamic: in the north, things slowed down in winter, in the south, things slowed down in the summer.  I remember how this was, in my youth, when few people had air conditioners in the south.  When we drove around, say, Death Valley, we would hang wet towels on the windows of the car and the wind blowing past the towel would cool us off.  

 

When the north got cheap central heating, the winter slow-down ceased and work ran all year round without let-up.  The GDP of northern nations and states shot up from 1850-1950.  Then, the same thing happened to the south from 1950-2010.  The housing boom in the south and west is the final play in this game.  

 

Illegal aliens from Central America, raised with no air conditioning, flooded into the US to build houses in the south.  In Arizona, for example, people avoided working on roofs in summer because roofs are much hotter than the air and very nasty places to work.  We would build mostly in the winter months.  But with the flood of immigrants, building year round was possible since they were accustomed to working in hot or humid climates.  

 

In Europe and OPEC desert kingdoms, they did the same thing: labor from India and SE Asia was used to work in hot weather and workers from Eastern Europe were used to work in the northern nations, outdoors, in winter.  Meanwhile, the citizens of these countries lived and worked in climate-controlled environments.

 

House building in most of the G20 nations has collapsed due to lack of funds for loans.  But much of the house building was inappropriate.  Namely, these houses were not built for the teeming masses of SE Asia or Central America, for example.  They were built for the climate-controlled classes.  Retirement homes for unionized workers or white collar labor.  Who were being rapidly decimated and replaced by cheaper labor in India, SE Asia and Central America!  

 

The retirement funds which were supposed to support all of the housing being built in the air conditioned hot regions cannot be inhabited by retirees if their retirement funds go up in smoke due to the Derivatives Beast and the infestment bankers eating up all the value of investments in paper instruments representing wealth! Whew.  Got that?  The class who ordered these luxury dwellings is being impoverished and there is no hope of them gaining great paper wealth in the near future.  We may be going into survival mode.

 

ALFRED: ALFRED Graph

unemployment

The true base of all wealth is labor coupled with resources.  When we look at just the unemployment rate, we get a false picture of what this really means.  It is actually a problem of gross numbers.  Since WWII, the number of people who can’t find work has increased.  The size of the workforce increased, too.  But the period of stable numbers of people unemployed which lasted from 1982-2006 has ended.  The number is now growing again.  

 

After just 2 generations in climate-controlled houses, we have a population that is much weaker than before and cannot tolerate natural climatic conditions anymore.  For example, I worked out of doors in Arizona a lot when young.  When I went indoors in air conditioned places, I got very cold and had to cover up.  I deliberately didn’t use an air conditioner in my own home [I had my own tiny house from when I was only 16 years old].  This way, I could bike around at high noon when the temperatures were over 100 degrees Fahrenheit.

 

Much of our population can’t work outdoor jobs anymore.  Much of the ‘jobs’ bill is producing outdoor jobs, not indoor factory jobs or even office jobs [outside of the obvious bureaucracy].  Road building is hard labor in nasty weather conditions, trust me on this.  I did a lot of backhoe work in the past.  What we want are well-paying jobs in climate-controlled conditions in pleasant places where there are no winters.  And this is what we will not be able to sustain if energy costs resume their relentless waves upwards as the flood/drain cycle of oil consumption rocks the world’s economic boats.

 

Bloomberg.com: Worldwide

U.S. Economy: Factory Output, Housing Starts Plunge 

Manufacturing and housing in the U.S. collapsed in January, government reports showed, as the Obama administration unveiled new proposals to stem what may become the worst recession in the postwar era.

The Federal Reserve’s industrial production index dropped 1.8 percent to 101.3, the lowest level in more than five years, the central bank reported today in Washington. Housing starts plunged 17 percent to an annual rate of 466,000, the fewest since records began in 1959, Commerce Department data showed.

We have an economy that is ass-backwards.  We want housing to sustain manufacturing.  Not the other way around.  This is due to the US clinging to ‘free trade.’ True, our trade deficit is falling rapidly.  But not because we are exporting more, we are exporting less. And the drop of exports is worse than the drop in imports. We are simply consuming much less than before.  

 

The fundamental malfunctions of our system have not corrected at all. Indeed, within the G20 nations, our dire trade rivals who work hard to undermine our industrial base, have been screaming at us to not protect our industries or our finances.  Like craven sheep, our representatives agree to this!  Astonishing, isn’t it?  The fable about how ‘protectionism’ created the Great Depression instead of how it was the only way we could survive the Great Depression, continues to be the basis of understanding history.  More about that later, I dug up an old paper by Bernanke about all this and will discuss it later.

 

Last night, I went to Zetabid who is holding a huge auction of over 200 properties next week, in Phoenix.  The pathetic buildings put up for sale in the south are sad to look at.  I know that living conditions there can be very hellish if you can’t have controlled climate housing.  My little shack in Tucson, for example, was sheltered by desert trees.  It was fully shaded and I could sit outside on my veranda which is where I cooked in summer.  Birds sang in the trees and my ocotillo fence kept out intruders and bloomed little red flowers for hummingbirds who nested nearby.  

Camouflaged Northern Cardinal (Cardinalis cardinalis) – The Firefly Forest

A lovely website run by a resident of Tucson.

Male Northern Cardinal (Cardinalis cardinalis) on a red-flowered Ocotillo (Fouquieria splendens)

Tucson Clean & Beautiful – Trees for Tucson: Tree Descriptions

This tree is about the size of my own mesquite tree.  My home was destroyed by the city of Tucson and turned into a parking lot which was then hit by a military jet and everyone who were getting in or out of cars there were killed in the fireball.

 

All of the houses for sale in this auction don’t have any of this.  Not so much as a palo verde tree, a mesquite bush or anything is near any of these fairly-new houses!  The builders would pop in pathetic palm trees that are totally not-native.  Mostly, the yards are gravel.  I look at these pictures and shudder.  Anyway, at random, I selected a property and did a little research about it:

 

Foreclosure sale and home auction: Phoenix Arizona Foreclosure Au | Zetabid.com

Almost 200 properties will be auctioned off in one day in Arizona!  And look at the low list prices and the even lower bid prices!  Wow.  

 

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Starting Bid $48,165
List Price $160,550
Price Per Sq. Ft. $75.00
HOA Monthly Fees $155.00
» Mortgage Calculator

picture-216picture-318
Look at this place!  It is on a major artery.  The desolation is hideous!!!!  The scrapers removed all signs of the original desert.  For as far as the eye can see!  There is no shade, not even the meager shade of small cacti!  It is as dead as Death Valley.  Note the tiny patch of grass next to the buildings!  and a few token trees were planted but they have no room for their root systems.  How can they gather rain water when it mostly washes away on the paved roads and parking lots?

 

This reminds me of something: my little house was built in 1890.  In the late 1960’s, water began to suddenly flood into my house during thunderstorms due to the University of Arizona paving all of their parking lots from 1960 onwards.  By 1970, enough of these were paved, the water simply flowed into the streets which quickly flooded and ran into our homes!  

 

Anyway, this desolate, dead landscape has sidewalks but anyone walking on these will be suffering badly, I assure you, if the sun is shining in summer.  My neighborhood in Tucson was lined with olive trees, a desert tree from the eastern Mediterranean region.  Some of these trees were very, very old, planted by the Spanish.  Needless to say, Tucson widened my little side street to turn it into a feeder road for a new freeway and they took out every single olive tree so the street was no longer pedestrian-friendly.  This is the story of Arizona.  From top to bottom, the movement has mostly been destructive if one has memories going back to before 100 years ago [my family lived off and on there since the US took over the place].

 

Fulton Homes seeks protection from creditors, files Chapter 11

A home-building company founded by one of the Valley’s most generous philanthropists sought legal protection from creditors Tuesday by filing for Chapter 11 bankruptcy reorganization.

Tempe-based Fulton Homes Corp. is one of the largest home builders based in Arizona, with 21 subdivisions selling homes in the Valley….

The engineering college at Arizona State University bears Fulton’s name, and its Mary Lou Fulton College of Education was named after his wife in May. The couple’s Fulton Foundation has contributed more than $160 million to ASU.

Doug Fulton, Ira’s son, is the company president.

Neither the Fultons nor company bankruptcy attorney Mark Roth returned calls seeking comment. Court documents show that Fulton Homes owes $100 million to $500 million to more than 100 individual creditors, including lead creditor Bank of America….

 “It’s bloody out there,” he said of the Valley’s housing market.

The Arizona Department of Real Estate’s most recent list of home builders in financial trouble includes 41 projects by a variety of builders that have filed for bankruptcy protection since the housing market hit a stucco wall in 2007.

Those bankruptcies include Trend Homes, Americabuilt Communities and Engle Homes.

Bankruptcy erodes customer confidence, especially since many bankrupt builders stop honoring past customers’ home warranties. Belfiore said Fulton customers’ warranties could be voided by the court even if the builder wants to continue honoring them.

Notice how they consider stupid strip malls as ‘development’!  This is the Car Culture, big time.  I once had a friend who was once nearly arrested because he was walking, not in a car!  I was stopped more than once, by the cops, suspicious because I was walking.  Once, they accused me of holding up a store.  ‘If I did that, why would I be walking down the street in the hot sun?’ I asked them.  They agreed that being the only pedestrian out near downtown Tucson was a stupid thing for any robber.  I stood out like a sore thumb.  Even the cops could spot me from miles away, being the only human in the landscape.

 

Growth pattern crippled metro Phoenix housing market

Everybody seemed to benefit as metropolitan Phoenix swelled from 1 million people in 1955 to 6.5 million today.

One reason the current housing collapse has been so brutal in Phoenix is how suddenly that pattern broke down. In only a couple of years, the breakdown trapped people in unfinished communities much like a fast-moving landslide buries people in their tracks.

Digging into the rubble of Phoenix’s latest real-estate collapse, the damage is clearest in the edge developments, areas where home values have fallen the most and foreclosures are highest. Homeowners on half-empty blocks feel stranded and frustrated. Down unfinished roads, empty corners, vacant strip malls and stalled school projects suggest the ghost of a community buyers counted on….

Metro Phoenix home building has slowed to a crawl. Last year, 13,000 new home permits were issued, down 60 percent from 2007. Valley foreclosures hit a record 40,000 last year and continue to climb this year. Home prices are down 40 percent from 2006’s peak because half of all homes selling now are foreclosures that lenders are reselling at bargain prices.

A 40% drop and still dropping has got to be the biggest bubble pop in Arizona’s history and believe me, Arizona, like Florida, is extremely prone to bubbles in real estate.  Like in Florida, most of the housing is inappropriate for the climate and storm conditions.  Smart people know that housing can be very cheap after a bubble popping.  If I wanted to make lots of money there, I would play that game except most of the housing nauseates me and I am outraged, this is what we are building there.  Houses in Arizona must be more natural to the region, the climate and the building materials.  I lived in old adobe houses there and they were quite wonderfully cool in summer and warm in winter.

 

New layoff wave hits Arizona Republic – Phoenix Business Journal:

A new round of layoffs began Wednesday at the Arizona Republic as the newspaper’s parent company Gannett Inc. looks to trim 10 percent from its daily newspapers across the U.S….
Daily newspapers are struggling to adjust to the online world and have been hit by lower ad sales, especially related to real estate and cars….

“So what will the Republic look like in the future? Well, it’s not going away. It may migrate to the Web. That would eliminate all the production costs but probably still wouldn’t be profitable with the existing labor pool,” Patterson said.

So, that old right wing warmongering rag is dying?  Good riddance.  Arizona, like many southern states, depended on the government using the place as a war base.  I remember when Tucson was circled by nuclear missiles, all stationed on the ‘backside’ of the mountains that ring the eastern and northern sides of Tucson while Davis Monthan Air Base was on the southside of Tucson.  The thinking was, if WWIII happened, all of Tucson will be incinerated by nuclear bombs but hell!  We could still incinerate Russia!  

 

I found this rather disgusting which is why I left.  Most people there are utterly innocent of the idea that the bowl of the valley of Tucson is ideal for nuclear destruction, much more than a flat place like Kansas.  The Arizona Republic thought this was all very nifty.  It brought jobs to the state.  Whoopee.  I used to have so many nightmares of nuclear war when I was a child.  I even got to see a military jet slam into a grocery store while sitting on the veranda of the ranch. 

 

And the Apocalyptic character of the place is very much still there.  Arizona, which was literally named, The Dry Place, has little natural water left.  When I was a child, the rivers still ran year round.  Now, they are dry.  I looked in horror at the Santa Rita which is now a wash and not a river, last time I visited.  Worse, all the golf courses are still green so leisure lovers from the north can enjoy a game that shouldn’t be played in a desert.  No, that game belongs in Scotland.  Heh.

 

Well, Arizona is going ‘dry’ again and if I were to tabulate the losses of this auction where the banks will be losing around 60%+ from the original loans—this one auction represents millions of dollars!  And multiply this by the entire country and we can see that the bubble was extremely destructive and no bills in Congress can restore the ‘value’ of these HIDEOUS houses!  That should have never been built in the first place.

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