Sunday reading: Life in sub-prime America

Post 2 Banks left holding unwanted homes here have started calling in wrecking ball crews to demolish some of the newest developments (to avoid paying fines to the city)

Post 3 You see the same bullshit headlines churned out everywhere you turn. Yes sir, we’re supposed to believe the recession is over, recovery is underway and prosperity is just around the corner. We need to go out and fulfill our patriotic duty, which means buying things, preferably houses…

If you, like me, live in a foreclosure-ridden area, it isn’t very hard to notice that the real estate optimism of you hear in the news just does not match reality….There are a total of about 30,000 single-family homes  in Victorville. As of today, 4,590 of them are for listed sale in the general area (3,500 of them are foreclosures). The average listing price is $150,000, but most of them sell for half that. There’s a 3 bedroom/3 bathroom McMansion just around the corner from my own that sold for $75,000 a month ago. The house cost $249,500 when it was built in 2004 and sold to some sucker for $338,500 at the peak of the boom in 2006. Three years later it was worth $125,000 — half of its original price — and now belonged to the bank, which was happy to cut the price by another 50% just to get rid of it…

Pretty grim, right? Actually, it’s much worse. See, the weird thing about Victorville is that while 1 in 4 houses are vacant, and obviously have been for quite some time (just judging by the dilapidated state of the empty houses), very few of these empty houses are on the market for sale. Walking around my neighborhood, you rarely see a For Sale sign…Fact is, banks all across the nation are keeping foreclosed properties off the market. They’re doing it on purpose, to fudge the statistics and make it seem like everything’s alright…

The number of foreclosures is not going to decrease any time soon. Sean O’Toole, Founder and CEO of ForeclosureRadar.com, told me that out of the 9 million mortgages in California, 2 to 3 million are upside down, which means their houses are worth less than what they owe on the bank. On top of that, anywhere from 700,000 to 900,000 households have stopped making payments and somewhere around 250,000 are scheduled to be foreclosed.

This adds up to a staggering number: a total of 3 to 5 million homes, one quarter of the 12 million households in California, are going to flood the market very soon. Nationwide, there is a two-year supply of unsold homes, twice what official statistics estimate…

Banks are limiting supply in order to keep inflating the bubble. Keeping properties off the market makes sense for two reasons: it allows banks to engage in another round of brazen ripoffs by selling at least some of their properties at artificially high prices to a new wave of sucker investors (many of which are first-time home buyers). But more importantly, it allows the banks to avoid recording a loss on their balance sheets, making them look more profitable then they really are…

Earlier this year, the industry had accounting rules changed to make this kind of market manipulation possible (meaning, profitable.) That’s what those new ‘mark-to-model’ accounting rules back in April were all about. Instead of having the market determine prices, the changes allowed banks to value their assets based on a future projected worth to be determined by the banks themselves…

Without the new rules, banks wouldn’t be able to pad their books in order to appear profitable. And without fudging the numbers, banks would never pass Geithner’s ‘stress test’ or ever hope to to appear even slightly solvent.

It’s a twisted sort of logic, but it’s legal. It’s also very frightening. To think that all these empty homes I see around me are what’s keeping the US economy from total meltdown If they had For Sale signs on them, the economy would tank even further. For now, these zombie homes don’t officially exist.

(more on the mark-to-model scam)

Post 4 Everything the real estate industry tells you is a hustle. No industry is more geared toward pumping up the positive and burying anything remotely negative, leaving you — and truth — out in the cold…

Tract-home developers stripped away the rocks and tumbleweeds and Joshua trees, replacing them with mazes of curvy streets and cul-de-sacs with soothing names like Cottontail Drive, Steeplechase Road and Ladybird Lane, lining them with the cheapest McMansions in California. Things exploded out of control this past decade, with the population doubling to 100,000 in just eight years.

But that whole way of life is over now. Unemployment in Victorville is way above the national average, and violent crime has shot up. Homes prices have plunged to 1989 levels and many stand empty. Banks don’t even bother putting them on the market…

[W]hen the subprime market collapsed, President George W. Bush pushed Congress to heavily expand the the FHA loan program, increasing its budget, lowering entry requirements for both lenders and debtors. Eventually, our elected officials even took care of the bothersome 3.5 percent down payment requirement for the loan with all sorts of free cash.

Right now, the FHA is in essence giving out no-money-down loans to anyone who doesn’t already own a house, regardless of credit history. In California, first-time homebuyers purchasing a freshly built home receive instant cash in the form of a tax credit: $8,000 from the feds (soon to be increased to $16,000) and $10,000 from the state. Local governments are also throwing in some goodies…

Homeowners have never been offered a better deal, but many won’t hold on to their purchases for very long. It is common real estate industry knowledge that the less a buyer puts on a down payment, the more likely that buyer is to default. But no one seems to care, not the banks and not our government. In fact, Connecticut Sen. Chris Dodd, a hardworking bank-shilling Democrat, has been pushing to increase access to FHA by making them available anyone, and not just first-time homeowners. He also wants to push the new-home federal tax credit to $15,000….

Not surprisingly, it seems that risk-free loans are the only way banks can be persuaded to start lending again…it’s the only thing driving an otherwise moribund real estate market. Without these FHA loans, the whole thing would collapse, sooner rather than later…

I wanted to find out firsthand how much of an impact these loans were having on the housing market. So last weekend, I shaved, put on a clean shirt and headed out for a day of shopping in Victorville.

Around here, it is much easier to shop for a brand new home than to find someone who will show you one of the many foreclosed ones. You don’t need to make an appointment with a real estate agent, hunt down open houses on a Sunday afternoon or attend auctions. All you have to do is take a drive any day of the week during normal business hours and look out for the huge signs plastered around town. They are not easy to miss.

It took me five minutes to spot a new development on the very edge of Victorville’s sprawl. The sign was dark green and advertised a development called ‘Braeburn at West Creek,’ with luxurious and spacious homes offered for around $200,000…But if you walk just one block over from the booming Braeburn community, a whole row of homes stands empty. It is a grim reminder of the massive shadow inventory of foreclosed homes no one wants to think about. New-home values are being inflated, but existing homes are becoming increasingly worthless…

So here we are. Subprime 2.0. Just like the last subprime bubble, it might help the economy in the short term; real-estate industry profits will soar, developers will keep the construction business running, and banks will look more solvent and inspire confidence in the economy, which will help keep the bubble inflated. But it won’t last.

The second contraction will come, and when it does, it’ll be bigger and badder than ever…

Post 5 It is subprime central, a wasteland that boomed at the height of real estate bubble, overflowing with cheap McMansions built to scam low-income suckers into home ownership. But these days, the dream is dead. The row upon row of empty houses makes this depressingly obvious. You know the poor people who get displaced by gentrification? Well, suburbs like Victorville is where many have been forced to go. Places like this are going to be America’s 21st century ghettos, safely out of view, like Gulags…

Poor people, pissed off white folk, high unemployment, a lotta meth labs and absolutely nothing to do it’s a dangerous mixture that guarantees non-stop crime action.

It’s a hustle and bustle every sun-baked day: No Country For Old Men-style shootouts, tweakers forgetting to take their babies out of their car seats, leaving them to be cooked alive in the hundred-plus heat, harmless bums getting sentenced to life for picking pockets thanks to three-strikes-and-you’re-out laws, drug dealers swallowing baggies of meth to hide their goods from the cops and overdosing, people trying to rob stores with BB guns and getting laughed at by shoppers, middle-aged women on parole getting arrested for fucking underage teens, wasted grandmas crashing into storefronts and flipping over on sidewalks

When I moved into my three-bedroom/two-and-a-half-bath prefab palace on a street lined with freshly-built empty homes, my next-door neighbors (two beefy, Mormon dykes) told me how happy they were to see me. My end of the block was basically abandoned—nothing but a row of vacant homes, dead lawns, spotty streetlight illumination, and a stretch of open desert beyond—and, according to them, weird and spooky shit starts happening in the neighborhood after sunset. Every few days or so, someone would tap on their windows after they’d go to sleep. First, the tapping would come from a small side window, then it would move to the glass door in the back of the house and make its way to the bedroom and the living room. A week before I moved in, they said, someone started pounding on the door at 3 AM. ‘It was so loud and scary, like it was the police or something,’ one of them told me, giving me second thoughts about deciding to move out here. ‘No, we didn’t check who it was. We were too scared. We just stayed in bed and waited for it to go away.’ This happened all the time.

That’s some horror movie shit. You’d think it would inspire you to get some deadbolts, surround your house with motion-activated floodlights, and arm yourself with a couple of K-Mart shotguns, right? I actually keep a loaded 357 magnum under my pillow when I go to sleep. My two Jesus freak neighbors might be scared, yet they are too fat and lazy to close their garage door at night. They’ll continue to bitch about it, but they just can’t be bothered to make an effort. Oh well, it’s just a matter of time before some tweak decides to make a go for it

Post 6 There is something about living in a barren house in a half-empty suburb out in the middle of a sun-baked nowhere that brings out the tweaker in me—and judging by daily news reports, most of my neighbors, too.

It’s a perfect lifestyle for a subprime city. Located on the edge of the Mojave Desert 100 miles east of LA, Victorville got higher and crashed harder, in terms of real estate, than almost any other place in California. In less than ten years, this place grew from an isolated hick outpost into a booming commuter suburb filled with the cheapest McMansions south of Fresno. It doubled its size to 100,000 in just eight short years.

But the boom is gone. A quarter of the houses on my street stand empty and most strip malls around me are vacant, too.

In 2007, the average Victorville home sold for nearly $400,000. Now banks are lucky if they get a quarter of that for the massive number of foreclosed properties. Some of the properties are so worthless that some banks have taken the wrecking ball to them. In some cases, paying for upkeep and property taxes was no longer worth it. And these homes had never even been lived in. Yep, Victorville is a glimpse into the American Dream, built on speculation, suckers and fraud, and now it is in full self-destruction mode…

The real estate boom here was a money-making machine built to enrich bank executives and land developers, but it is also a resettlement of lower-income Americans, a forced migration that takes the poor out of cities and isolates them in the middle of nowhere, safely out of view. Victorville is built on gentrification. Its newer—and mostly non-white—residents weren’t really moving here by choice. They were here because they were priced out of their homes by rising living costs and real estate prices.

If we were more honest, we’d call gentrification what it really is: segregation by exile to Buttfuckville. It is the redistribution of prime inner-city real estate back to the wealthy, while everyone else is forced to suck on sand, to eke out a living at the edges of civilization in a system of suburban GULAGS window-dressed with spacious, cheap homes and the promise of quality suburban living.

But Victorville is a step beyond, quickly on its way to becoming a prison city, a ghetto in the middle of the desert. There are no jobs and only shitty education. Crime is on the rise, and so are ethnic tensions. There is no need for fences. Victorville is set up to make sure it is nearly impossible to leave.

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This ten minute mini-doco on foreclosures in California is well worth watching too (ignore the bloody host at the start she’s gone after 30 seconds)

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