By Mencken’s Ghost
Sept. 1, 2010
Please join me for an informative walking tour of the damage done to my hometown of Scottsdale, Ariz., from Hurricane Fannie Mae, a hurricane that has caused more damage to housing across the land than hurricanes Katrina and Irene combined. Trust me: You’ll enjoy the tour.
The hurricane is named after Fannie Mae because the government-sponsored enterprise had precipitated much of the damage to the nation’s housing by establishing the practice of securitizing mortgages; that is, bundling them into bonds for sale in worldwide bond markets. The practice severed the personal relationship between mortgagees and mortgagers that had existed previously and had kept borrowers and lenders from becoming greedy imbeciles.
Adding to the force of Hurricane Fannie Mae were the easy money policies of the Federal Reserve, the lowering of mortgage standards by the federal government, the greed of buyers who bought homes they couldn’t afford, the greed of lenders who wrote what were essentially unsecured mortgages, and the mania brought about by the hokum spread by the government, academia, media, and the real estate and financial industries that housing never decreased in price and was a great investment for everyone.
Now for the tour:
A couple of blocks from my small townhouse is a ritzy, leafy neighborhood of one-acre lots and million-dollar-plus homes, some of which are zoned as horse properties. One of the lots is vacant and devoid of any evidence that a large, brick ranch house had once stood there.
The perfectly good house had been torn down in the middle of the housing bubble. Soon after, construction began on a replacement house, a 13,000 sq. ft. McMansion. One day during the housing bust, after framing and plywood sheeting had been completed on the house, construction abruptly stopped. Construction workers suddenly departed, taking their equipment and locking the gate behind them on the temporary cyclone fence that surrounded the property. No doubt, the builder went broke.
The half-finished house sat for two years, slowly deteriorating in the elements and becoming an eyesore in the upper-income neighborhood. A couple of months ago it was sold and razed in preparation for a smaller home to be built in its place. The lot is once again vacant and devoid of any evidence that homes had stood there.
I don’t know the exact amount of money that has evaporated on this one lot, but it has to be a staggering figure, probably in the range of what it would cost to send three kids to Ivy League universities for four years. Capital that could have gone to education or been invested in new businesses is--poof!--gone with the wind, to borrow the title of Margaret Mitchell’s masterpiece. Multiply the evaporated money by a million and you’ll come close to the total cost of Hurricane Fannie Mae.
Next door to the vacant lot is a sprawling ranch home, circa 1975, that is for sale and in the process of being foreclosed--or at least it shows all the signs of being foreclosed. The lawn has turned to dirt, the shrubbery is untrimmed, a broken lantern has fallen on its side, sprinkler heads are broken, a step ladder leans against a tree, and children’s toys litter the yard. But those aren’t the most telling signs of foreclosure. The most telling signs are the expensive SUVs in the driveway. They probably cost $150,000 in total when purchased new, and, as vehicles do, they’ve quickly depreciated in value and are worth about half as much now.
The expensive vehicles indicate that high-fliers bought the house and quickly found themselves over their heads in debt when the housing bubble burst and the economy collapsed. In their case, their heads are probably in their butts, so it wouldn’t have taken a lot of debt to pull them underwater.
More than likely, the buttheads are living rent-free at the house, because once borrowers stop making mortgage payments, it takes months or years to evict them.
A couple of blocks from this house and across a major thoroughfare is the wealthiest town in Arizona, Paradise Valley. About a third of the homes on a nearby street in the town had been torn down during the housing bubble to make way for McMansions. Due to the bubble bursting, construction never began on several of the lots, and construction stopped abruptly on two unfinished homes. Only now, years later, has work continued on the unfinished homes. This is a sign that the market is at, or near, the bottom. Prices have fallen nearly 50% and are now where they were in 2003, which is the year that prices had begun climbing 50%.
You didn’t have to be a genius to know that if home prices had increased for no sound economic reason, they would eventually fall after the bubble burst to what they had been. Yet most experts in economics and real estate didn’t know this and still held out the false hope that prices wouldn’t drop that far.
In the meantime, three nearby restaurants have closed, along with scores of high-end retail shops. Vacant space also abounds at nearby Class A office buildings, including one building where, ironically, a remaining tenant is JP Morgan, one of the culprits behind the housing crisis.
Each time I walk down the Paradise Valley street, I wonder if recent home buyers have given any thought to what the air-conditioning bills are going to be for their gargantuan homes if electric rates skyrocket as expected in the coming years. Will these homes become white elephants? And do the residents stop to ponder why so much American capital goes into housing instead of manufacturing plants and other investments necessary for a vibrant economy?
Well, our walk ends here. Did you enjoy it and learn anything about the American culture and economy?
Mencken’s Ghost is the nom de plume of an Arizona writer who can be reached at firstname.lastname@example.org.