You guys may have noticed that I've stayed out of the debt ceiling debate and that's because I have nothing substantive to add. It appears a compromise has been reached, trimming just under $1 trillion over the next decade without raising taxes and giving the President carte blanche (more or less) to raise the debt ceiling unilaterally three more times as needed.
What I wanted to get your input on today is a growing trend among the major banks to demolish the foreclosed homes on their REO lists. At first blush, this sound barbaric and wasteful. But when you think about it a little more analytically, it might be just what the doctor ordered to get the housing glut under control.
Let's face it: banks make lousy property managers. They have neither the ability nor the inclination to lease out the properties they've foreclosed upon. And there certainly aren't many buyers these days. On top of that, the banks know that there are literally millions of properties they still need to foreclose upon, most of which haven't received a mortgage payment in well over a year.
Bank of America, the largest US mortgage servicer, is leading the bulldozer charge but the other major banks aren't far behind - with Wells Fargo, Citigroup, and JP Morgan Chase weighing their own demolition plans.
To be fair, this isn't happening with the McMansions on the banks' books- yet. The process B of A has gone through is to donate the properties to local developers of blighted (read: ghetto) properties and then pay up to $7,000 towards the properties' demolition. The bank has committed to hundreds of these donations in Cleveland, Detroit, and Chicago, and has plans to expand the program to nine cities by year end.
So what do you think? Is it a simple issue of supply and demand? Or is it wasteful and inhumane? And will it actually make a dent in the enormous supply of foreclosed properties on the market?
It's a step in the right direction.
grapes of wrath all over again.
It looks as if they're at least trying to handle it well. But then again, the housing markets in Cleveland, Detroit and Chicago aren't a huge chunk of the national housing market. The places hit hardest were cities like Miami and Las Vegas--it would probably make more sense to expand the program there first.
Many would be buyers aren't sure if they can get a clear title out of these properties, who knows what went on during the securitaztion stage and what potential legal fuck-ups my arise.
I am conflicted about this. It seems to me that unless the house is just about destroyed inside and out, it can't cost more to fix up into a basic livable condition than the income it will produce renting, in relatively stable cities where the population isn't in a mass exodus like Detroit.
Then I remember looking at houses in an upstate old industrial city a few years ago that were going for just a few thousand dollars. Copper was being ripped out of the walls by thieves in many, and the neighborhood would make the Bronx look lovely. Yeah I probably could have turned a profit, but the risk was too great. Finding respectable tenants would have been a problem, and I found out from experience a few years prior that it only takes one crackhead to destroy an apartment.
So i guess in many cases, this makes sense. It just seems like a terrible waste.
From reading the articles it seems as though this is really only happening in places where the houses basically have no value, ie 10k. I don't think this would happen in say LA where housing prices have dropped dramatically but are still in 100-150k even in "bad" areas.
So to me it doesn't really seem as though they banks are really destroying value or taking away something that is actually usable/livable. I don't really have an opinion other than its pretty interesting.
Reminds me of something I read about Detroit, where the city was literally destroying entire streets/neighborhoods and rezoning them and farm land.
http://www.washingtontimes.com/news/2010/mar/09/detroit-looks-at-downsi…
This reminds me of that economists joke about increasing GDP by digging holes and then filling them back up. Its quite a shame that they would pay to destroy these homes when people in this country are homeless.
The banks own the properties so legally they can destroy all the houses and build the largest pornography and strip club emporium the world has ever seen if they wanted to.
This isn't a bad idea. It's not the dig a hole and fill it up. They are destroying capital...yes. But the market for new homes is stronger than old homes (exempting rentals) and destroying crappy houses to allow people to buy the lots and build their dream houses is probably a better proposition. The houses, in some cases, can even drive DOWN the price of a property. Reduces housing glut, enhances marketability, and may increase value. Not a bad idea. Taking a loss of $100k on a sold lot is better than never selling the property.
^ I still fail to see how a $100K loss is better than say, a $40K loss. Unless they are earmarked for writeoffs. If that's the case, I sincerely wish these were being donated to charity or put on the auction block.
Why not just unload them at absolute bottom dollar. Sure this would lower housing prices further in a lot of markets but it would also prevent them from taking a total value loss on the properties. Although, I guess in places like Detroit no matter how much you lower the price, you really aren't going to see any substantive uptick in buyers.
I also don't really see the whole 'turning this properties into plots for people to build their own homes' argument' as they are still writing off the entirety of the loss rather than taking some, modest, payment for it.
Banks are not stupid. They do what's best for their bottom line. Demolition sometimes makes sense and can be the optimal decision from a capital allocation perspective. They're not trying to manipulate the market, and it's very capitalist. Nothing wrong with what they're doing, UFO. It's not like they're tearing down 3 year old condos in South Beach...
To all those who claim that bulldozing foreclosed properties is inhumane, watch the following video:
In a capitalist system, everyone is simply looking to profit, through any legal way possible. So, why should the banks be criticized for doing so? If you don't agree with capitalism, however, then you have a valid point. Otherwise, not so much.
The house in that video is almost new - I think it pisses some people off that the guy claimed something basically up for grabs, and don't see how demolishing it would solve anything. I'm seeing the public debate more and more in terms of pro-market vs pro-business......
For those of you confused about why the banks would do this....go to Detroit, walk the streets of these neighborhoods and then we'll talk.
Most of you have no right to comment as you probably haven't even been to Detroit. Destroying these homes helps clean up the neighborhoods believe it or not. I have met residents living in the highest crime neighborhoods who support projects like clearing housing, because it cuts down on the "crack house wars" and other activity. 1/3 of the houses in the bad neighborhood were ones that are vacant because the owners were burnt out because of the crack wars that are a huge problem in Detroit.
Believe it or not the banks are doing a service to Detroit and it's citizens. They are cutting down excess supply, old crack houses, helping cleaning up the neighborhoods, and possibly helping the value of homes stabilize.
I do agree with you though that getting rid of some of these homes can be a positive for the community.
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