Economics

Einzige has posted the latest graph for notices of trustee’s sales in Phoenix, and concludes: It would seem, now, that the question is no longer “Is there a housing bubble?”, but “How big is the pop going to be?" Check it out here. Historical Comments Einzige (2007-01-06): A bit of an update, in lieu of putting up a whole new graph (which I will do in February): December saw a slight dip in the numbers, with the total getting to “only” 1407 notices recorded–79 less than November. ...

Famed economist and champion of freedom Milton Friedman has died. Some nice obituaries: The New York Times. The Financial Times. Catallarchy: “RIP: Milton Friedman (1912-2006)" and “Milton Friedman Video” (the latter posted by his grandson, Patri Friedman) Long or Short Capital: “Long Milton Friedman." David Friedman’s Blog. (Milton Friedman’s son) The Agitator: “Milton Friedman, RIP” Technology Liberation Front: “RIP Milton Friedman” The Only Republican in San Francisco: “Friedman passes away” UPDATE (November 27, 2006): Catallarchy has produced a series of postings on various aspects of Milton Friedman’s life and work from different perspectives as a tribute.

For the first time in the last decade, year-over-year median home prices in the metropolitan Phoenix area have dropped, from $263,000 to $256,900, down from the peak of $267,000 in June 2006. Former housing bull Jay Q. Butler of the Arizona Real Estate Center at ASU says: Even though mortgage interest rates have been declining for the last few months, limited home appreciation and household income continues to raise concern about the ability of some homeowners to maintain their homes. … This may be especially evident for those that have used some of the more creative financing instruments, such as option payment plans and initially low interest rate adjustable mortgages.Florida is seeing growing foreclosures, especially among those with Adjustable Rate Mortgages (ARMs) with negative amortization options. There are $200 billion in ARMs resetting their rates in 2006 and another $1 trillion plus will be resetting in 2007, expected to lead to more foreclosures. This will apply further downward pressure on prices, and we should expect to see some of the same here (an increase has already been seen in Maricopa County notices of trustee sales), though I think Arizona has had a lower percentage of ARMs, interest-only, and negative amortization option loans than other parts of the country.

Here’s a nice chart from Yale economist Robert Shiller showing U.S. housing prices back to 1890. What will the regression to the mean look like over the next few years? On Wednesday Moody’s issued a widely-covered report on housing prices with predicted price declines by region. Here are their predictions for Arizona cities: Peak-to-Trough Peak Trough % House Price Decline Year/Quarter Year/Quarter Tucson, AZ -13.4 06:1 08:2 Phoenix, AZ -9.3 06:1 08:2 Prescott, AZ -2.0 06:1 08:2 I think that their predicted 9.3% decline between first quarter of 2006 and second quarter of 2008 for Phoenix is wildly optimistic–it wouldn’t surprise me if we saw that level of decline by the end of this year or first quarter of next year. It depends on whether Phoenix continues to have rapid population growth, which in turn depends on job growth (especially outside of real estate-related jobs, which will be declining).

A bit of an update from my post in May where I asked “Is there really a housing bubble?” Although I wasn’t completely convinced then, I think it’s getting a lot more difficult to question the evidence now. The graph below chronicles Maricopa County’s Trustee Sale Notices over the past 11 years. The blue line is the monthly count. As you can see, this number is pretty variable from month to month, so I’ve included the orange line, which is a 1-year moving average. Presumably it’s a better indicator of trends. ...

The small town of Martinsville, Virginia (population 14,925) now has many residents named as defendants in a massive civil suit from Countrywide Home Loans regarding a $40 million mortgage scam. The New York Times reports: In a tightknit neighborhood, where people’s social lives often revolve around their churches, Beulah Penn and her daughter, Sharon, were well-connected and trusted. Beulah Penn was a lay minister in a local church; her daughter, Sharon Penn, dressed hair. Using these connections, according to a recent lawsuit, the two women and another relative in Indianapolis perpetrated one of the largest mortgage frauds in American history, victimizing dozens of local residents and, according to sources with knowledge of the accusations, at least $40 million in fraudulent loans — perhaps even twice that amount. ...

Arizona Governor Janet Napolitano has a petition on her website to send to President Bush to ask him to ask Congress to take legislative action to mandate lower gasoline prices. This makes no sense. The best way to reduce dependence on gasoline and oil is for the prices to go up, not down. We’re taxing imports of Brazilian ethanol from sugar in order to promote corn-based products raised in the U.S., at the behest of companies like corporate welfare pig Archer Daniels Midland–how about stopping that? The Economist has frequently argued (most recently in its issue this month on climate change) that the U.S. should follow Europe’s lead by increasing taxes on gasoline as well as providing incentives to shift to alternative energy. Ellen Simon, a Democratic Party candidate from Sedona running against corrupt politician Rick Renzi in Arizona’s District 1, has “protecting the environment” on her list of issues, but she’s also pushing Napolitano’s “lower gas prices” petition. Why, Ellen? (BTW, thanks for the link to my Renzi/Hayworth post.) ...

Phoenix’s inventory of homes for sale continues to rise (continuing from where we left off on June 16). My first report, in October 2005, showed an inventory of 10,748 homes on July 20, 2005, rising to 19,254 on October 2. (Data comes from ziprealty.com, via posts to Ben Jones’ Housing Bubble Blog.) 6/17/2006 49402 6/18/2006 49546 6/19/2006 49504 6/20/2006 49432 6/21/2006 49453 6/22/2006 49867 6/23/2006 50296 6/24/2006 50599 6/25/2006 50526 6/26/2006 50413 6/27/2006 50295 6/28/2006 50395 6/29/2006 50878 6/30/2006 50347 7/1/2006 50492 7/2/2006 50404 7/3/2006 50264 7/4/2006 50511 7/5/2006 50284 7/6/2006 50227 7/7/2006 50667 7/8/2006 50944 7/9/2006 50638 7/10/2006 50167 7/11/2006 51396 7/12/2006 51124 7/13/2006 50995 7/14/2006 51302 7/15/2006 51478 7/16/2006 51642 7/17/2006 51698 7/18/2006 51704 7/19/2006 51682 7/20/2006 51557 7/21/2006 51758 7/22/2006 52110 7/23/2006 52363 7/24/2006 52137 7/25/2006 52019 7/26/2006 52540 7/27/2006 52228 7/28/2006 52595 7/29/2006 52413 7/30/2006 52482 7/31/2006 52535 8/1/2006 52230 8/2/2006 52396 8/3/2006 52337 8/4/2006 52600 8/5/2006 52802 8/6/2006 52845 8/7/2006 52953 8/8/2006 52560 8/9/2006 52513 8/10/2006 52681 8/11/2006 52417 8/12/2006 52895 8/13/2006 53126 8/14/2006 52757 8/15/2006 52793 8/16/2006 52693 8/17/2006 53102 8/18/2006 52855 8/19/2006 53014 8/20/2006 53350 10,748 on July 20, 2005 to 53,350 on August 20, 2006–that’s a 496% increase in inventory in 13 months. Einzige–how about an update on trustee sales? ...

Phoenix cracked the top ten for the first time in Forbes magazine’s best metropolitan areas for business (at #6); Arizona is down at #15 in the list of best states for business. Tucson ranks #77. Phoenix scored high for colleges, cost of doing business, culture and leisure, job growth, and net migration; it scored poorly for cost of living, and crime rate, and was somewhere in the middle on educational attainment, cost of doing business, and income growth. Tucson scores better than Phoenix on educational attainment and income growth, but is worse on every other measure. Arizona was ranked highly for labor costs (#7), economic climate (#1), and growth prospects (#13), poorly for regulatory environment (#36) and quality of life (#43), and in the middle for business costs (#24). Arizona has four billionaires–John Sperling and his son Peter of the Apollo Group (and University of Phoenix and Kronos Group), Campbell Soup heir Bennett Dorrance, and Arturo Moreno of Outdoor Systems. An interesting point in the summary is that the United States now has the highest corporate taxes of any OECD nation. UPDATE (March 9, 2007): Forbes has updated its billionaire list for 2007, and there are no changes for Arizona–the same four Arizonans are billionaires, with none dropping off the list and no new ones showing up. Bennett Dorrance is at #432, Arturo Moreno, John Sperling, and Peter Sperling are all tied at #799. Last year the list was much smaller–Bennett Dorrance was at #153, John and Peter Sperling were tied at #297, and Arturo Moreno was at #354. ...

The Arizona Republic prints a story on some housing speculators now being burned: Two houses on the same north Valley street, similar in size and age, are for sale. One lists for $749,000 and the other for $775,000. A third house came on the market on the same street a few doors from the other two. The new listing was similar to the others in size and age but priced at $659,000. Reaction: outrage. “The neighbors were really mad,” said Thomas Stornelli, principal of Global Network of Homes in Scottsdale. “They knocked on the door and asked, ‘What are you thinking?’ For a lot of people, their home equity is their bank. It’s like taking money out of someone’s bank, their retirement account. People (future buyers) are going to use that house as a comp, even if it doesn’t have the same upgrades. It’s going to leave a mark." The owners of the least- expensive home were equally upset. They were in the midst of a corporate relocation and wanted to sell quickly. Suddenly, angry neighbors were confronting them. One night, someone tore down their for-sale sign. Stornelli is the listing agent for one of the higher-priced homes. His approach is to try for the higher prices, which he believes are justified in Scottsdale. “Whenever you mix emotion and finance, there’s going to be stress,” he said. “As a Realtor, we deal with that every day." The market has proven everyone wrong. None of the houses had sold as of the third week of this month.Another account in the same story: A woman walked into Barry’s Realty Executives office about nine weeks ago, sat down and began crying. She said she bought two houses last year, fixed them up and quickly sold them, making a $50,000 profit on each. She was a novice investor, but it all looked easy. She took her profits, threw in some extra money and bought five more houses. She spent money fixing them up, but when she put the houses on the market, she realized she had bought at the peak, Barry said. “Her eyes just started to well up, and she just started bawling,” Barry said. “She said she couldn’t sell them for what she bought them for. She said her monthly payments were about $20,000." Barry suggested turning them into rentals. She told him she couldn’t get enough rent to make it worthwhile. “She was expecting to flip them,” he said. “The market flipped her. She was devastated. People have forgotten that houses are not a liquid asset. They never were meant to be."There are a few others in the report. I expect we’ll see more stories like this over the next couple of years as ARMs reset on people who are unable to sell or refinance. Also check out the comments on this story at The Housing Bubble Blog. ...