Tuesday, June 16, 2009

"No one really knows what anything is worth anymore"

[from my latest at the Mises Economics Blog]

"No one really knows what anything is worth anymore. Some sellers appear to be kidding themselves..."

So says David Whitford in this nicely detailed piece about real estate in Phoenix. Overall prices in Phoenix, by the way, are off 53 percent from the peak, and have seen the biggest decline in the nation.

There are some interesting contrasts in the piece. Notable is how at least some of the over-70 crowd wasn't caught up in the speculation and the bust. Those who are too old to be Baby Boomers weren't taken in by the profligacy of that generation. Says one 73-year-old: "If you're going to retire early, you can't have a lot of wives you're paying, you sure as hell can't have kids in college, and you can't have a lot of debt. You gotta get your debt down, get your bills paid, pay for your car. And then when hard times come, you don't participate."

I once had a Baby Boomer try to explain to me his theory of how it was smart to maximize mortgage debt for some reason or other. He probably won't be retiring any time soon.

But what struck me here was the section on how prices are all over the map in Phoenix. "Some sellers appear to be kidding themselves..." says Whitford, and this is hardly peculiar to Phoenix.

It's pretty clear that a great many sellers are still in denial about the current economic situation. And this includes banks who own foreclosed properties. Often, the banks are asking for the most ridiculous prices.

One real estate agent remarked to me recently that she has never experienced a time when people were so clueless about the true value of their homes. Banks will price foreclosed homes at 500K only to have them sell for 350K many, many months later. And this is in the relatively healthy market in Denver. Individual sellers aren't much better.

But can we be surprised when we have economists like those at Wells Fargo who recently declared that there will be economic growth in the second half of 2009, and that the recession will be history by 2010? Many have already convinced themselves that the next boom is already in place.

cross posted at the Mises Economics Blog