August 10, 2011
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A few news stories like this one made the rounds last week:
There are nearly 1.7 million homes in the U.S. in some state of foreclosure. Banks already own some of these homes and will soon have repossessed many more. Many housing economists worry that near constant stream of home sales from banks could keep housing prices down for years to come. But what if some of those homes never hit the market.
Increasingly, it appears banks are turning to demolition teams instead of realtors to rid them of their least valuable repossessed homes. Last month, Bank of America announced plans to demolish 100 foreclosed homes in the Cleveland area. The land is then going to be donated back to the local government authorities. BofA says the recent donations in Cleveland are part of a larger plan to rid itself of its least saleable properties, many of which, according to a company spokesperson, are worth less than $10,000. BofA has already donated 100 homes in Detroit and 150 in Chicago, and may add as many as nine more cities by the end of the year.
Everyone seems mildly surprised by this. I wasn’t. Unlike “many housing economists,” ie: people on the author’s speeddial with exactly the same warped worldview and predilection for adjusting information to suit that worldview instead of the other way round, I told you this would happen a long time ago:
Banks, especially big, national banks, are not realtors. They’re not
property managers. They have nothing in place to handle owning and
selling the property they have on their hands. They will never use a
retail approach to unloading them. They will sell them in huge blocks to
investors, unload them on the government –who will unload them on
favored investors — or demolish them. These investors will be risking a
great deal by buying real estate, and they’re going to demand an
enormous return on that investment. They are going to make the most
rapacious developers that built the houses in the first place look like
Pollyanna.
It’s getting lonesome only having myself to quote from the newspapers to prove a point.
They doubled down on teh funnay by mentioning it’s “in the Cleveland area.” Hmm. I seem to recall something trenchant about real estate and governance in that very area a year ago or so. Oh yes, it was me again:
Remember 2009? Every news outlet was filled with advice on cheap
houses you could buy. They were the same news outlets that told you it
would be a sound investment to install granite countertops and a
stainless steel wine cooler in your kitchen six months before. Let’s pick the first one we find on memory lane: CNNMoney’s Radical Cheap: $1000 Homes. What sort of advice did the mainstream media have for us househunters?
Cleveland
is another city with many incredibly inexpensive homes. On Ardenall
Avenue, in East Cleveland, McMullen Realty has a listing for a
four-bedroom, one-and-a-half bath house for $1,900. It’s been vandalized
inside, but the outside is in good shape…
…”East Cleveland has a beautiful housing stock,” she said. “These houses just need someone to come in and love them a little.”
I’d never been to East Cleveland, so I took the street they mention
in the article and put it into The Google, as our former president
charmingly referred to it. And The Zillow. And The City-Data.
Ah yes. If Fallujah is too far to commute to your non-existent job,
why not East Cleveland! I did indeed immediately locate a house that
sold for $1200 last April. Of course, the city still charges you close
to two grand a year in property taxes to live there, which even with
today’s rock bottom interest rates works out to a $32,000 second
mortgage. But think of the amenities the city offers for the money. East
Cleveland ranks very highly on City-Data.
High pollution, lotsa rape, plenty o’ robbery, burglary, and car theft;
you name it, they’ve got it. I don’t believe I’ve ever seen crime data
that’s given in thousands per
hundred thousand population before. And if you are thinking of getting
your tax money’s worth back in an education for your kids, City Data
ranks schools in Ohio on a 0 (worst) to 100 (best) scale. Shaw High School in East Cleveland is rated a “1.”
The first article goes on at some length, accidentally informing me that the banks will write off “the fair market value” of the houses on their taxes, be absolved of the need to pay taxes on or take care of the properties they own, and in many cases get the government to subsidize them to demolish the buildings.
I just fell off the turnip truck, of course, but I doubt that “fair market value” in this case with be the actual market value, which is, of course, not zero. Hold on there, you veritable Warren Buffett you; it’s not more than zero, it’s less than zero. The bank would have to pay you to take it. A lot. Detroit tried paying people to take a house. They’ve given up and brought in the dozers, too. There is only one building in any of these benighted cities that needs demolition, and that’s city hall. But they’re angling to have that be the only building left.
Speaking of veritable Warren Buffetts, the actual veritable Warren Buffett is quoted in this article on the same topic, suggesting that destroying empty houses would be a swell idea, and it would magically lift the price of the houses that are left — like Cash for Clunkers crossed with Dresden 1945. He actually referenced Cash for Clunkers as if it worked. I suppose it would be bad form to point out Warren’s 19% stake in one of the banks breaking the windows and everything else in these clunky houses with a bulldozer. But then again, the Broken Window Fallacy is only a fallacy if it’s your window that’s broken. Warren just makes sure he owns no windows, and only sells glass, and he gets good press by observing that taxes should be raised on all wealthy persons that aren’t him, expounding from the offices of a shirt company that doesn’t make any shirts since he bought it.
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