Friday, May 23, 2008

A chicken and egg thing.

Prices Plummeting in Far-Flung Suburbs
Posted by: Michael Dudley
22 May 2008 - 6:00am

The areas hardest-hit by the subprime mortgage crisis are not just low-income and minority communities, but also outer-ring suburbs.

"In many metro areas, far-flung suburbs and exurbs face sharper price declines than neighborhoods closer to city centers.

It's no secret, for example, that Florida is among the states where property prices flew high and fell hard. But in Tampa's ZIP Code 33607, near downtown, the median home lost just 1.3 percent of its value last year, according to new research. ZIP Code 33573, in contrast, lies about 18 miles away and saw a 22 percent price decline.

The housing bust is also falling heavily on low-income and minority neighborhoods. That's not just a story of borrowers with a weak ability to pay. The larger story, another new study finds, is that lenders made a headlong rush to extend credit where it was least warranted.

What links these trends is that in both zones – the exurbs and low-income communities – the housing market peaked with lots of new loans and with lenders stretching the limits of sound finance. Now, these geographic patterns are partly defining the nature of America's economic slowdown and could also influence policies designed to heal the housing market."

Source: Christian Science Monitor, May 21, 2008
Full Story: Where housing bust hits hard

Obviously, the newest suburbs and exurbs are farthest from the city center and from the established commercial and industrial districts where most of the decent paying jobs are. Since these suburban developments are relatively new, the mortgages there are far more likely to be flaky adjustable rate type mortgages. That is certainly true.

However, that does not mean that the sub-prime debacle is the reason those properties are plummeting in value at x-times the rate of other areas. As we have seen in other articles in the past month, the homes and development adjacent to mass transit lines are also holding their value much better, regardless of how far out in the suburbs they are - as long as they have walkable distances to mass transit, many of these are actually holding or gaining slightly in value. So the problem is not how far out in the burbs you are - it's how far from mass transit you are that determines whether your home will recover its value eventually or become a future slum.

So the reason many of the suburbanites are losing their homes in not because they got an adjustable rate mortgage per se. It's because the price of gasoline for driving that hellacious distance from their home to everything else has put them at the point of having to choose either getting to work or making their house payment - they can't afford both. So they choose to keep their job, which is a wise choice in this economic downturn. And more and more people are going to have to start making that choice - not 10 years from now, but soon.

The housing market will recover somewhat because in the next couple of years, people are going to be doing a "housing shuffle" to trade their current location for something close to their jobs - walking or biking distance. That means older or closer to the city center subdivisions will begin rising in value once again. However, those homes built out in the middle of nowhere with no mass transit are hopeless - they will continue to plummet in value until they are practically worthless, their owners will have to find something to rent before their credit gets trashed or move in with friends or families who are located nearer to their jobs.

They certainly won't be able to sell those pieces of junk for anywhere near what they contracted their original mortgage for to pay for them. Made pretty much out of duct tape and bubble gum to begin with (in spite of the fancy marble countertops), they will not survive even a couple of years of neglect before becoming dangerous. Miles away from groceries and other essential services due to giant tracts of mono-zoning, a family on a budget will not be able to live there. Someone who's not on a budget, of course, wouldn't want to.

The only way to avoid this fate is for cities to aggressively begin extending electric streetcars, electric trolleys, electric busses and light rail systems out to strategic existing suburbs (those that are located along where the mass transit lines would naturally be extended) and calling a halt to the development of more subdivisions that don't have access to mass transit lines.

I wouldn't hold my breath on that, though. In many counties, the home-building industry is the only real economy they have, other than wally-world and burger death sub-living-wage jobs. The developers who have been profiting off of this misguided and unviable policy will certainly have a collective apoplexy if such a thing were to be proposed, and use what's left of their considerable resources to fight tooth and nail to make sure they can still feed at the trough.

Like the angry whip and buggy makers and whale oil lantern makers of the turn of the last century, today's economy is going to suffer some serious re-allocations and those who had invested heavily in the old paradigm are not going to be happy campers. But we must resist their self-serving arguements. There is only so much land in any county - it shouldn't have been rocket science in the first place to realize that construction as a basis for an ecomony has no chance of succeeding in the medium or long term even without a peak oil crisis. And mass transit should have been included in every single development.

Straightening out that lack of foresight will be expensive and frustrating. So here we are. Hopefully, your local and state governments will get started on it before you lose your house.

No comments: