State by State

Apparently there is an entire country between Boston and San Francisco.

underwater

by Natalia

This is not yet another post about scuba diving. Phoenix, Arizona is underwater. There was no flood here. The whole thing is strictly metaphorical: nearly 70% of all homeowners with mortgages owe more than their houses are currently worth. Prices dropped to half of what they were at the peak. That's why people feel they are drowning.

This is of course just an illusion. It's impossible to drown in a mirage on the desert and - even more importantly - the situation is not as dire as the numbers alone tell us. The fact that many people assume they have no choice but continue paying off their debt, doesn't magically make their wildly optimistic home evaluation more real.

The mistake originates from perceiving house value as real money. At the peak of the boom so little downpayment was required that most buyers didn't save for it. In many cases even if one paid a substantial downpayment, it wasn't hard earned cash, but proceedings from the sale of the previous house.

With few exceptions of people who bought their dream house, intend to keep it for life and can still afford to do so, everybody else who's underwater should simply walk away. Arizona is non-recourse state, which means that all the bank can reposes after foreclosure is a property securing the loan. The hardest part is accepting the loss of the downpayment. But if the downpayment had been the result of a previous home sale, it would have been wiped out anyway, if one decided to not to trade up.

Walking away is really a better, saner and more rational choice. Some think it's immoral to break a contract like that. But the terms of not paying of your mortgage are clearly outlined in the papers that you signed. If the bank agreed that your house was worth what they lent you, let them have the house. If they didn't think that, they were not honest when lending you the money and they just don't deserve any better. Besides institutions don't have any moral qualms about reneging on contracts, including mortgages, all the time. And the best thing about walking away is that it does not require any walking. At least not right away. You just stop paying monthly rate and wait for the bank to act, which can take a year or longer. In the meantime you live in the house rent-free saving money. It's the only way to extract at least part of the equity that evaporated when the real estate bubble popped. On top of that federal tax on canceled debt has been temporarily suspended until 2012. There is even a chance that during multiple transfers of your mortgage bank lost some important documents and they cannot even prove that they own the title to your property, in which case they are in no position to foreclose on it (although that doesn't stop them to try especially in Arizona where majority of foreclosures are non judicial). Again: not your problem.

To all the underwater homeowners in Phoenix: fire off a calculator, hire an attorney and prepare to move into a rental. You won't be able to buy a new house for some time but you shouldn't do that anyway until market settles at a lower, more reasonable level. And the sooner you walk, the sooner that happens. It really is the best thing you can do to free yourself and to restart the sputtering economy.

experiment

There must be something in the expanse of empty unusable land that invites experimentation. Faced with a desert I have an overwhelming desire to flee to an area with dependable source of water, but others see canvas to be filled with their idea of improved living. We visited three such experiments over couple of days. Chronologically the oldest one is Frank Lloyd Wright's Taliesin West. Differently than all other Wright's buildings this one does not really have unforgettable or revolutionary architecture. The most innovative thing about it is the use of local materials, simply rocks found on the desert embedded in concrete. Low structures on the brow of the hill were meant as workspaces. Originally they did not have glass windows. You don't really need them on the desert; openings shaded with canvas are entirely sufficient. Built as winter campus of the traveling university, so called Wright's fellowship, the complex is not that conceptually different from ancient Indian pueblos. What you are really after in the desert is to create shade, you get extra points for positioning your passageways to capture fleeting breeze cooled over shallow water pools. Of course now Taliesin has both windows and air conditioning but you still see the design behind an attempt to build a shelter at minimal cost. That's the most revolutionary and sadly most ignored lesson to be learned from this experiment: using instead of fighting the desert.

saguaro

When you see the land covered by cacti: giant saguaros, stocky fish-hook barrels, sprawling prickly pears, thorny ocotillos, you see... pasture. At least when you are a 19th century rancher. It seems that for desperate owners of hungry cows anything greenish spells fodder. Never mind thorns that would make animal-rights activists cringe. And forget about damage to the environment; if saguaros begin to die as result of your grazing practices all you need is a convenient theory: they wither because of unseasonably cold winters and there is nothing one can do. The idea that cows trample young plants preventing cactus forest renewal cannot possibly be true.