The Phoenix Housing Debacle

In the 1960’s we experienced a severe economic recession. At that time it was perceived that our post war population boom was over and the majority of all those moving to our state had done so. Based on the decreased demand the real estate marked slowed and growth staggered for several years. Shortly after we were again one of the top growth cities in the nation.

The 1970’s brought a different kind of challenge to our growth. The Valley of the Sun was depicted as the crime capital of the United States, and the conclusion was again drawn that our boom days were over. Soon after we entered another period of dramatic growth.

In the 1980’s our state went through a time of political and economic turmoil. Aside from being portrayed in a negative light by national publications including Fortune Magazine, many of our Savings and Loan institutions were declared insolvent. Toward the end of this decade financial institutions that were pillars of our growth had fallen. Like today, these financial institutions took advantage of loose banking regulations and permitted aggressive real estate ventures, many of which went sour. These financial institutions held large amounts of residential, commercial and industrial mortgages. Like today, many of these properties were worth less than the mortgage lien obligations. Unlike today, the government worked swiftly to dispose of them.

In 1989 the government formed the Resolution Trust Corporation (RTC). The mission was to dispose of these assets though well organized auctions. More than $400 billion dollars of assets from the nearly 800 institutions were disposed of over the next few years. This well orchestrated approach to deal with these non-performing assets in a timely manner largely contributed to a rebound in real estate values and economic growth.

Today we have an abundance of listings as well as a shadow inventory not yet released to the market by the major banks. Unlike previous cycles, for the most part today’s crisis was the result of a robust real estate boom and investor speculation. Coupled with extremely lose and highly leveraged underwriting guidelines, created by Wall Street and the secondary market, the bubble ultimately burst. In a market whose labor force is highly tied to the Real estate sector, the economy as a whole has suffered.

Unlike the RTC who disposed of real estate assets in a timely fashion, Fannie Mae Freddie Mac and the banks that manage their loan portfolios have failed to assist homeowners with alternatives to avoid loan defaults. As a result, many frustrated homeowners have made the strategic decision to simply walk away from their home. It is the failure of the banking and secondary market community to implement effective timely solutions for underwater homeowners that has curtailed a more timely real estate recovery.

In the long term, there is no doubt that our market will rebound and again prosper. Recent reports show we are showing some stride in this direction.

Regrettably, all too many homeowners have lost their homes as a result of the current downturn. It is a shame that the financial institutions along with the government did not pro-actively put forth an effective workout plan that could have saved homes for many as well as curtailed the depth of its economic impact on the local economy.