Socorro, located on the Southern Pacific Railroad and State Highway 20 about ten miles southeast of downtown El Paso, began in 1680, when Governor Antonio de Otermín and Father Francisco de Ayeta led Spanish and Piro Indian refugees fleeing the New Mexican Pueblo Indian Revolt to the El Paso area. In 1682 the Spanish established Nuestra Señora de la Limpia Concepción del Socorro Mission. 

The first permanent mission, built in 1691, was swept away by flood in 1744, and a second church was built. It was washed away in 1829, when the Rio Grande cut a new channel south of the old one, thus placing Socorro, Ysleta, and San Elizario on La Isla. The main part of the present Socorro mission was completed in 1843. By that time the town of Socorro had developed around the mission and had a population of 1,100. The town was a part of Mexico from 1821 to 1848, when it became a part of the Texas. 

For the rest of the nineteenth century Socorro remained a small farming community. Locally constructed acequias supplied water for agricultural crops, which included vineyards, fruit trees, and cereal grains. The town, together with other Rio Grande communities, played an active role in county politics until 1881, when the railroads arrived and shifted the political power structure to El Paso.

The construction of Elephant Butte Dam on the Rio Grande in 1916 resulted in an agricultural revolution that transformed a family-based system into one featuring large-scale cotton production on plantation-sized estates. Small farms, manual labor, and vineyard culture gave way to large landholdings where farm machinery was used in the cultivation of cotton and alfalfa. 

By 1920 cotton was beginning to rival copper as the Socorro area’s principal industry. The population of the community was 2,123 in the mid-1930s, but fell to 350 by 1941 and remained static for several decades thereafter. During the 1960s and 1970s the number of residents increased at a rapid rate. Developers built residential subdivisions-colonias in effect-that lacked paved streets, water, and sewer lines. Colonia residents put tremendous pressure on existing wells, as the town’s population grew from 10,000 in the middle 1970s to 18,000 in the late 1980s and 22,995 in 1990. Only recently has the Lower Valley Water District Authority received the necessary assistance to begin construction of new water and sewage systems for the area. 

Socorro has disincorporated and reincorporated several times. In 1985 the town blocked El Paso’s plan to annex the town and voted by a margin of 263 votes to remain a separate corporation. Since then, Socorro has adopted ordinances and codes to halt uncontrolled growth and has instituted a historic landmark commission to encourage historic preservation. 



Spanish Lay Claim Over a Vast Land

Inhabited for centuries by various Indian groups, El Paso saw its first Europeans when Spaniards passed through in the mid-1500s. During 1540 to 1542, an expedition under Francisco Vázquez de Coronado explored the area now known as the American Southwest. These earliest Spanish explorers saw on their approach from the Rio Grande two mountain ranges rising from the desert, with a deep chasm between. They named the site “El Paso del Norte, ” or “the Pass of the North.” The Rodríguez-Sánchez expedition in 1581 was the first party of Spaniards to explore the Pass of the North, bringing about the beginning of El Paso’s modern history. Further expeditions followed, culminating in an April 30, 1598 ceremony near the site of present-day San Elizario in which expedition leader Juan de Oñate took formal possession of the territory drained by the Rio del Norte (now the Rio Grande). Called “La Toma,” (the claiming) this act brought Spanish civilization to the Pass of the North, laying the foundation for more than two centuries of Spanish rule.

Population of the area grew when the Pueblo Indian Revolt of 1680 sent Spanish colonists and Tigua Indians of New Mexico southward in search of safety. By 1682, five settlements were thriving on the south bank of the Rio Grande. By the middle of the eighteenth century, approximately 5,000 people populated the El Paso area; among them were Spaniards, mestizos, and Indians. The region became known for its vineyards, with residents producing wine and brandy. In 1789, the presidio of San Elizario was founded to defend the El Paso settlements against encroaching Apaches.Spanish Rule Ends, Tensions Begin

With Mexico’s independence from Spain in 1821, the entire El Paso area became part of Mexico. Agriculture and commerce flourished, but the unpredictable levels of the Rio Grande made for difficulties with crops, fields, and structures frequently damaged by the rising water levels. In the 1830s, the river flooded much of the lower Rio Grande valley, creating a new channel and displacing several towns.

May 1846 saw more difficulties as hostilities erupted between the United States and Mexico. During the Mexican War, Col. Alexander Doniphan and a force of American volunteers defeated Mexican fighters at the battle of Brazito, entering El Paso del Norte. The Treaty of Guadalupe Hidalgo on February 2, 1848, ended the dispute and again changed the boundary between the two nations, bringing El Paso territory under the blanket of the United States.

El Paso’s settlements grew in 1849 as easterners rushed west in search of gold. Lines between Mexico and the United States were revised yet again; this time the three Mexican towns of Ysleta, Socorro, and San Elizario ended up on the United States side of the line. The military post of Fort Bliss was established in 1858; one year later pioneer Anson Mills completed his plat of the town of El Paso. The name “El Paso” brought about confusion with the Mexican town across the Rio Grande, El Paso del Norte, so the Mexican town’s name was changed to Ciudad Juárez in 1888.

During the Civil War, El Paso’s alliance was to the South, though the Union presided and local Southern sympathizers eventually received pardons. In 1877, Texans and Mexicans became embroiled in a bitter civil war, the Salt War of San Elizario, which lasted six months.A Modern City Emerges

A rail system was established through the area in 1881–82, which transformed the village into a lively frontier community with a growing population. El Paso’s early years are tinted by a colorful reputation from its many saloons, brothels, and high crime. By 1890 citizens were demanding reform, and by 1905 El Paso ordinances banned gambling and prostitution. At the turn of the century El Paso’s frontier image was fading and its fresh start as a modern city began. The population grew from 15,906 in 1900 to 77,560 in just 25 years. Refugees of the Mexican Revolution contributed to the city’s growth, as did burgeoning commercial, industrial, agricultural, and transportation business, along with El Paso’s strategic location as a gateway to Mexico. Prohibition boosted the city’s tourism as neighboring residents flocked to El Paso to cross the border for drinking and gambling in Juárez.

In 1930 census reports showed 102,421 residents in El Paso, though the city’s growth began to slow soon after with the census reporting only 96,810 residents in 1940. After the war, development brought new residents and the 1950 census once again showed growth, with 130,003 people living in El Paso. Fort Bliss grew as well in the 1940s and 1950s. The 1960 census saw a doubling of residents; steady growth continued and by 1970 the population was 339,615. El Paso’s population grew again when the city absorbed the Mexican town of Isleta, stretching the reaches of the metropolitan area even further. By the mid-1980s, Fort Bliss’ military personnel and family members made up nearly a quarter of the city’s population. Petroleum, textiles, tourism, metals, cement, and food processing became major industries by the 1980s.

Since 1990 El Paso’s economy has suffered from competition with low labor rates from abroad and the closure of its main copper smelter. As well, El Paso has the unpleasant distinction of being one of the main entry points for drug smuggling into the United States, an attribute that has plagued the area for decades. The North American Free Trade Agreement (NAFTA) passage helped local service and transportation firms to expand their businesses, but hurt the city’s industrial industry. Since El Paso is sensitive to changes in Mexico’s economy, the devaluation of the Mexican peso in the 1990s and the border traffic controls instituted after the September 11, 2001 terrorist attacks both affected El Paso’s economy. Still, the area is recovering from these incidences, and the El Paso of today consists of a rich mix of culture with a strong military presence and the excitement of a border town. The El Paso-Juárez international metropolitan area is the largest bi-national community on an international border in the world.

The Real Estate Bubble

The Real Estate Bubble

A soap bubble is a ball made of a thin film of soap dissolved in water. Soap bubbles are ephemeral, lasting a short time before bursting. There are also bubbles in the economy, classes of assets whose prices inflate like air in an expanding balloon and then collapse.

The expansion of asset-price bubbles is unsustainable, as the prices rise above what is warranted by normal returns and demands. The asset prices crash. A recent bubble was the technology boom of the late 1990s, when Internet and other stocks rose to levels that could not be justified from the likely profits of the firms.

The most important bubble in the economy is that of real estate. There has been a real estate cycle with a duration of 18 years since the early 1800s. Real estate booms have often become a bubble. It happened during the 1920s in the US, especially in Florida. It happened in Japan during the 1980s. And it is happening again now in the US.

The last bottom of the real estate cycle in the US was in 1990, when there was a recession. Real estate prices have been rising since then, and were not at all deterred by the downturn of 2001. Real estate speculation has carried real estate prices in some parts of the US, such as California, to heights that cannot be sustained when interest rates rise as the Federal Reserve reverses its low-interest policy. Another crash is coming.

Henry George, the American economist and social reformer of the latter 1800s, originated one of the first theories of business cycles. The basic cause, he said, was land speculation. During an economic boom, at first, a growing demand for real estate is met by reducing vacancies. But then new real estate is constructed, and rent and land values rise. Speculators notice this and buy land expecting to sell at higher prices later. This speculative demand, added to the demand for use, carries land prices so high that investments in enterprise become unprofitable. Land becomes priced for expected future uses, rather than present-day uses.

The fall in new investments then reduces demands for labor and goods, which then reduces other demands, and the whole economy falls into a recession and then a depression. Faced with rising vacancies, real estate prices collapse, bankruptcies rise, loans default, banks fail, and then the cycle begins anew. This theory of the business cycle was original with George and not part of the previous classical school thought. Georgist theory, which I coined as ‘geoclassical’ for emphasizing land, was a major advance in classical thought.

Even though a third of investment is related to real estate, the real estate cycle is ignored in neoclassical business-cycle theory. Mainstream economic doctrine tells us that unexpected shocks create the fluctuations in the economy. But the regularity of the major business cycle cannot be explained by random shocks. Neoclassical economic fails to explain the trade cycle.

The Austrian school of economic thought has its own theory of the business cycle, which does pay attention to real estate. In the Austrian theory, an injection of money into the banking system artificially reduces interest rates, as indeed has been happening in the US in recent years with the Fed increasing the money supply by 25 percent since 2001. With rates so low, borrowing for long-term slow-maturing investments – such as real estate construction and purchase – becomes profitable.

The money expansion is unsustainable; monetary inflation causes price inflation. As prices and interest rates rise, many of these projects become unprofitable. Austrian economists call them ‘malinvestments,’ investments that looked promising when interest rates and other prices were lower, but are not profitable when the price distortion caused by the money expansion reverses. The reduction and abandonment of investment projects leads to a depression.

The Austrian and the Georgist explanations are complementary. The Austrian half emphasizes the role of money and interest rates, and the geoclassical half emphasizes the importance of land and the role of land speculation. A geo-Austrian synthesis creates a powerful business-cycle theory that is consistent with history and goes a long way in explaining major business cycles.

The article ‘This Inflated House’ by Mark Thornton in the August 2004 Free Market journal, published by the Ludwig von Mises Institute, illustrates the Austrian-school attention to real estate. Thornton notes the widespread practice of extracting equity from real estate as owners have refinanced at lower interest rates. As recognized by the Austrian school, monetary inflation often does not at first lead to rising prices in consumer goods. The injection of money often first goes into investments, commodities, and land purchases.

As Thornton explains, ‘the cause of higher home prices is that the Federal Reserve has kept interest rates, and thus mortgage rates, at historically low rates so that people find it easier to finance homes.’ Real estate is bought mostly with borrowed money, and lower interest rates keep the financing cost, the monthly payments, low, even as real estate prices rise. Banking practices contribute to the bubble as they make interest-only loans with no money down. Lending standards typically relax as the bubble approaches its peak.

But the collateral of land value is an illusion. Land has no cost of production, and its price can fall to zero. But why should the banker worry? The bank deposits are insured by the federal government! If the bank fails, the government will bail out the depositors. This encourages more risky loans, which provide temporary profits and perhaps more stock options and bonuses for the banking executives.

Also, home loans can be sold in the secondary market facilitated by agencies which were established by the federal government. As Thornton tells it, ‘The Federal Reserve and the Mac-May family (Freddie, Fannie, Sallie, etc.) have conspired to create a housing bubble in the US.’ It’s not a secret conspiracy but simply all these agencies breathing together to blow up the housing balloon that eventually has to burst.

Thornton says that it ‘is difficult to predict how long bubbles will last,’ but the geoclassical half of the geo-Austrian theory does provide an indication. Historically, the real-estate cycle has had a duration of 18 years, aside from the interruption of World War II. That puts the next real estate bottom around 2008. If past patterns continue, and so far they are right on schedule, we can expect the next recession to take place towards the end of this decade. With all the distortions caused by monetary policy and real-estate speculation and lax bank lending, the recession could be a major crash and the worst depression since the 1930s, an ‘economic nightmare,’ as Thornton calls it. And that nightmare does not even take into account the threat of terrorist attacks or the effects of continuing war and a possible oil crisis.

What is clear is that the tragedy and madness of the business cycle is not a natural outcome of a nonexistent free market, but caused by foolish government policy. Two remedies are essential: free banking and the public collection of land rent. Free-market banking would eliminate the monopolization of money and manipulation of interest rates by central banks such as the Federal Reserve, and leave money expansion to a competitive market of private banks. The elimination of taxes on income, sales, and produced wealth, replaced by tapping land rent for public revenue, would take the profit out of market-hampering land speculation fueled by tax-funded public works along with monetary inflation. Both reforms are necessary in order to completely eliminate the business cycle and the agony of business failures and idled workers.

But both reforms are ignored and disparaged by mainstream economics, so they are not enacted or even talked about. At least those who understand geo-Austrian theory will be warned in advance and can arrange their affairs to minimize the losses that others will suffer from.

Mortgage Rates and Options Rise in El Paso

Recent mortgage rates have hit the highest point in years which will most likely slow home sales in El Paso.  Home prices are continuing to climb which means that home buyers need low rates to afford to buy new homes.  Many lenders now offer creative mortgages in an effort to lure more home buyers back into the El Paso market.

Creative mortgages such as interest-only programs, piggyback loans, payment option loans, and adjustable rate mortgages are tempting offers but for many first time home buyers they can be misleading.  Some loan options lead consumers to take out a loan amount that is too large based on their income.  On paper it may look affordable but once you extend much of your monthly income on a mortgage, you may struggle to meet other financial obligations.  Interest-only mortgages may appear to look good because they make the monthly payment less, but those home buyers are not building equity on their home

People need to be careful when they choose alternative loan options.  If they are not paying for it in the interest rate, they will be paying for it somehow in the cost.  The best way to protect yourself is to talk to a mortgage broker you trust and have them explain every aspect of the options you have in order to make the best informed decision.

2006 Real Estate Outlook

2006 Real Estate Outlook

After the dot-com stock market tumbled, many investors in El Paso decided to put their money into something more solid; real estate.  Fueled by low interest rates and a weak dollar attracting foreign investment, many 
believe there is now a real estate bubble ready to burst.

Some markets are overvalued, especially ones on the coasts.  Prices could drop but continued job growth and population growth should sustain 
nationwide demand.  Certain areas with strong job markets are expected to continue to grow such as the Miami, Las Vegas, and Phoenix areas.

Commercial real estate is dependent on job growth and is also expected to continue to grow as employers need more space, especially in markets with limited room to build such as Manhattan and Washington D.C.  The demand in these places will make lease rates much higher.

Growth in 2006 will be slower than it has been due to certain factors including higher interest rates, price of construction materials, hurricanes knocking out certain building supplies, and high oil prices.  Certain markets will continue to grow to all time high’s including Southern California, Washington D.C., Midtown New York, Dallas, Salt Lake City, 
Denver, Atlanta, and Phoenix.