If you want to know what a housing bubble is, you only need look at Maricopa, AZ:
In 2005, her husband, Zachary Campbell, accepted a transfer from San Diego to Phoenix to manage a recreational-vehicle store. For the first time, the Campbells figured, they could afford their own home, though that meant moving to Maricopa, about 20 miles from Mr. Campbell’s store. They scraped together a $50,000 down payment to buy a new four-bedroom home in Maricopa, for $250,000. It came with black granite countertops, cherry kitchen cabinets and a pool in back.
Today, Ms. Campbell figures, the home is worth perhaps half what they paid in 2005.
Even that might be optimistic. Along a nearby highway, young men hired by a local real estate brokerage wave red signs touting “Homes From $69.9 K.”
Zillow.com, a real-estate information provider, estimates that 75% of all homeowners in Maricopa, including those with no mortgage debt, owe more on their mortgages than the current value of their homes. For the nation as a whole, the estimate is 18%….
One of the hardest-hit areas is Maricopa Meadows, a cookie-cutter housing development at the southern end of Maricopa. “We got in on the ground floor,” Christian Price says ruefully.
Mr. Price, a financial adviser with an office in Phoenix, and his wife, Cindy, a photographer, liked the small-town feel. They paid about $180,000 for a four-bedroom home in early 2005. By late 2006, Mr. Price figures, the value had rocketed to about $270,000 amid a “frenzy” of speculation. Now, with foreclosure sales dragging down values, he thinks the home would sell for only around $50,000….
Rudy Dominguez, who administrates computer networks, will have to think that over. On a recent Saturday morning, he was hanging out in a white T-shirt and beige shorts at a garage sale being held by a neighbor who is moving away. Mr. Dominguez believes his Maricopa house now is worth about half the $213,000 he paid in 2006. He can afford the mortgage, but thinks the lender should reduce his payments. “If they’re not going to help me,” he says, “they can have it.”
This is why Geithner’s plan (although it seems to be evolving. Maybe) is so crazy: there’s no magic pixie dust that’s going to solve this. Someone–probably multiple someones–is going to have to take the hit. The question is who takes the most damage: the owner, the lender, the loan bundler, and so on (and let’s not forget the U.S. Treasury–that would be you). The music has stopped and there are not enough chairs (or perhaps any chairs)
And consider this about Maricopa:
The town of Maricopa, which isn’t part of the nearby county of the same name, is about 30 miles south of downtown Phoenix and is separated from the city by an Indian reservation that remains mostly desert.
Thirty miles in the middle of fucking nowhere. And a bank was willing to lend $200-250 thousand for this? Utterly insane.
What’s worse is that this will represent trillions of lost earnings that could be used for something productive–hell, using that money to dig holes and fill them up again might be more productive than overpaying for a house.