Can Demolition Boost the US Housing Market?


dumpthemonarchy
#1
First it was Detroit demolishing whole neighbourhoods, now Cleveland is demolishing houses one at a time.

I saw this on CBC TV tonight, the town planner told the reporter said he would never even be having a conversation about banks paying to demolish houses two years ago. It might take 10 years to correct the woes in the US housing market with the demolition method.

They consider empty house that rot to be like a disease, a contagion that has to be arrested or it spreads. Neighbouring housing values fall as a result of empty houses year after year.


Can Demolition Boost The US Housing Market? | Markets | Minyanville.com (external - login to view)



Can Demolition Boost the US Housing Market?


By David C Nelson (external - login to view) Aug 29, 2011 12:45 pm
Bank of America, JP Morgan, Fannie Mae, and Wells Fargo are all experimenting with home demolition as a way to reduce their foreclosed home inventory -- as Warren Buffett suggested over a year ago.


"Blow up a lot of houses."

No those weren’t the words of a terrorist. They came straight from the lips of perhaps the world’s greatest investor, Warren Buffett. When asked more than a year ago how to fix the housing crisis Warren said, “Blow up a lot of houses.” Perhaps he wasn’t serious and recently has made statements suggesting that we are about to turn the corner in housing.

I don’t think we can see the corner, much less turn it. Despite Warren’s bullishness on housing, Wall Street seems focused on his earlier call.

Bank of America (BAC (external - login to view)), JP Morgan (JPM (external - login to view)), Fannie Mae, and Wells Fargo (WFC (external - login to view)) are all experimenting with home demolition as a way to reduce their foreclosed home inventory. They haven’t been passing out sticks of dynamite yet, but the bulldozers are running and demolitions are proceeding. According to RealtyTrac Inc., a research firm in Irvine California, there are nearly 1.7 million homes in foreclosure in the US.

Rather than put homes on the open market banks have started to bulldoze some into the ground and donate the property. This helps reduce their tax burden, eliminate maintenance costs, and maybe even get a tax-deduction.

Understanding the laws of supply and demand is Economy 101. We are drowning in a sea of houses coming to market and as a result home values around the country continue to plummet. Underwater homeowners who owe far more than their homes are worth are increasingly making the decision to walk away. Rather than send in this month’s mortgage payment many are sending in the keys -- what lenders refer to as Jingle Mail (the sound made when the keys fall out of the envelope).

Even Fed Chairman Bernanke commented on the importance of housing and the failure of current efforts as a drag on the US recovery in his recent speech at Jackson Hole. Home construction is unlikely to increase as long as the current supply demand dynamic remains in place.

Currently solutions like this are focused on homes in disrepair and are too small to really make a difference in their present form. Why not make this program larger? Even with record low interest rates demand is tepid as most buyers remain on the sidelines, concerned that they might be buying into a falling market. Other attempts to stimulate demand just haven’t worked and remain very unpopular. Loan modification has had little success and creates the moral hazard of rewarding those who overextended themselves, leaving homeowners who lived within their means to pick up the tab.

A scorched earth policy has other parallels. Firefighters understand the need to cut down healthy trees when fighting a raging forest fire. While it is unfortunate that a solution like this needs to be considered in a country where many are homeless, nevertheless we must consider it. Conventional solutions just aren’t working and we continue to kick the can down the road.

The charts above point out that in some areas of our country, foreclosure rates are relatively benign. In Vermont the numbers came in at 1 in 28,000 units while Nevada is at an epidemic level of 1 in 115 and California isn't far behind with 1 in 239. This map looks vaguely familiar to a Bio-Warfare Map showing the potential spread of a fatal disease. Every day a house remains empty decreases its likelihood of future sale. Inventory will continue to build with prices likely to fall further.

The alternative to the bulldozer has been loan modification. Even though these programs have been stepped up in the last few years, many applicants complain they don’t get an offer after going through all the necessary steps. Bank of America responded with a Customer Outreach event for those more than 60 days delinquent on their mortgages. Homeowners faced with foreclosure got the opportunity to meet with loan officers and apply for loan modification. Even with efforts like these many still complain they aren’t getting the desired relief.

Meanwhile, the number of empty homes grows larger and pressure on our economy continues to rise. Faced with the option of another empty house on the block or a stick of dynamite, your next door neighbor just might light the fuse.
 
Omicron
#2
Where are the people who used to live in those now-empty homes?
 
dumpthemonarchy
#3
That's it, it's obvious you're one of those crypto-pinko-occupy-wall-street-commies. The segment did mention that homes were being demolished despite a great deal of homeless, they wished to give an impression of some kind of inconsistent contradicition. Or they are being green and living with ten other families in some shack about to be demolished. Duh.

A SWAT team will be beating down your door real soon now to teach you some lessons. That's what happens when you keep worrying about the 99%. Some people never learn.
 
TenPenny
#4
I saw some of that last night. Interesting, some of those houses are for sale for $20,000-30,000, and nobody wants them.

That's pretty cheap for some houses in what seem to be some decent neighborhoods.
 
Bar Sinister
#5
I believe demolishing poor quality housing was suggested as a solution to the housing glut when G.W. bush was president. The thinking was that such an action would keep housing prices up and at the same time stimulate the building of new houses. Both measures would help the US economy. However, so far as I know very few houses have been torn down.
 
dumpthemonarchy
#6
One house was priced at about $60,000, reduced to $30,000, and got zero, nada, nil, zip lookers.

But it's not low quality housing, although if there is no heat or upkeep, they become wrecks fairly quickly. Pretty scary.
 
Omicron
#7
Quote: Originally Posted by Bar SinisterView Post

I believe demolishing poor quality housing was suggested as a solution to the housing glut when G.W. bush was president. The thinking was that such an action would keep housing prices up and at the same time stimulate the building of new houses.

As in... "Hey Marge, these new homes cost too much. Let's move in to one of those mildew-and-termite infested things left over from when the workers lost their jobs.

"Oh darn, Bush just tore down the cheep houses. Guess we'll have to buy a pricier one with a bigger mortgage with more interest."

Quote:

Both measures would help the US economy.

The only measure to help the US economy is going to be to keep people fed while something is found they can do better than anyone else in a global economy. Too bad the competitive advantage of food was taken away by Monstanto.
Quote:

However, so far as I know very few houses have been torn down.

I don't know where to begin. Let's see...

1) Use taxpayer money tearing down buildings to make it cheaper for home-builders to take over a lot, the theory being that it's cheaper to buy a lot without a building than with, essentially saving builders the cost of demolition, which is so cheap already. And of course builders will obviously hammer together houses in places where there are no jobs.

2) Clear the land for farming. How often has been the complaint that we build on the best farmland.

3) Organize localized Burning Man festivals for people to make a party out of burning down an old house. That saves both the government and the builders the cost of demolition, and adds spirit to the people.

etc.

In the mean time, we don't know where the people who used to live there are dwelling now. At a friends place? On the couch of a sister? Contributing to the spread of bed-bugs?

It's ridiculous. Stupid middle-man MBAs If you look at it with the big picture, all they are doing is reopening farmland if it can be allowed to be re-settled.

If you want to globalize an economy, then each region gets to put in its strength, and the strength of north America is food-production with military defense.

It means that in a globalized economy north America provides the food, with a rock-solid protection of that food source.

It means the people are soldiers and farmers, hanging out on a Saturday night in plaid shirts talking to girls in pretty dresses on a clean land unoccupied by Monstanto.

tunes.digitalock.com/kissessweeterthanwine.mp3 (external - login to view)

Or you could just tear down all the houses and not leave them with the tents you send to relief camps in Africa.
Last edited by Omicron; Nov 16th, 2011 at 03:33 AM..
 
dumpthemonarchy
#8
Those vacant lots will be good for urban farming.
 
Omicron
#9
Quote: Originally Posted by dumpthemonarchyView Post

Those vacant lots will be good for urban farming.

Precisely.

tunes.digitalock.com/onemistymoistymorning.mp3 (external - login to view)

It will lead to a new form of what England called the Gentleman Farmer, after the second plague.

The point is, people need to eat. Period. I don't even know where to begin on this I am so going nuts, but if people are hungry, they will learn to be cow-milkers.

In the end one ends up with the continent producing the best clean food on the planet, with the best military defending it, with other planetary messes selling electronics to get that food.

Except for Monsanto.

Seriously, it's an evil corporation, formed from the smiths of hell.

I can think of a dozen ways to hire the good hearts of Monstanto away, on order to leave it open for devastation.

Imagine if we had a good PM.

Here is my last song for the evening. I reorganized this composition from bits and pieces I picked over the internet, as if any Canadian could not: tunes.digitalock.com/raggleta...o_dancemix.mp3 (external - login to view)
Last edited by Omicron; Nov 16th, 2011 at 05:00 AM..
 
TenPenny
#10
Quote: Originally Posted by Bar SinisterView Post

I believe demolishing poor quality housing was suggested as a solution to the housing glut when G.W. bush was president. The thinking was that such an action would keep housing prices up and at the same time stimulate the building of new houses. Both measures would help the US economy. However, so far as I know very few houses have been torn down.

The houses in Cleveland aren't poor quality, but after being abandoned for a year, they fall into disrepair quickly. From what I saw, many of them were perfectly good houses, you could turn the heat on, clean, and move right in. Some were too far gone to save, but some looked great.
 
petros
#11
Moldy. No thanks.
 
TenPenny
#12
Fear of mold is over rated.

Mold can be cleaned fairly easily.
 
petros
#13
Even inside the walls?
 
TenPenny
#14
Yes, it can.
 
petros
#15
What is the process? Seriously. I spent a fortune tearing out and replacing my basement subfloor this summer after flooding.
 
TenPenny
#16
Why would you have a subfloor inside your walls?
 
petros
#17
$30,000 to clean a house of mold? Cheap like borscht!
 
dumpthemonarchy
#18
Quote: Originally Posted by TenPennyView Post

The houses in Cleveland aren't poor quality, but after being abandoned for a year, they fall into disrepair quickly. From what I saw, many of them were perfectly good houses, you could turn the heat on, clean, and move right in. Some were too far gone to save, but some looked great.

Yes good houses pursued by bad money. The Excited States of America thought everyone should have a house, its' the dream. Even people in their twenties were buying a house, often a good idea, but it does limit their mobility at a time when they ought to be able to move quickly and pursue better opportunities.

The USA had redlining for banks, meaning those who lived in certain areas, like ghettos-who were black, could not get loans. Congress changed the law so anyone could buy a house, even if they couldn't afford it. Banks went for it because they made lots of dough. Overbuying real estate was a social program in the US for "low income" people-which means blacks.

I remember talking about this to a very liberal minded American in Vancouver and he said some people couldn't afford houses, but they got them anyway. I wanted to say to him, "It's obvious you hate blacks" but I was too busy. Talking about blacks with Americans is a very very touchy topic.
 
DurkaDurka
#19
Quote: Originally Posted by dumpthemonarchyView Post


I remember talking about this to a very liberal minded American in Vancouver and he said some people couldn't afford houses, but they got them anyway. I wanted to say to him, "It's obvious you hate blacks" but I was too busy. Talking about blacks with Americans is a very very touchy topic.

Wow, you really took his statement and ran with it there.
 
dumpthemonarchy
#20
Quote: Originally Posted by DurkaDurkaView Post

Wow, you really took his statement and ran with it there.


The USA has code words, unwed mother, poor, poverty all relate to blacks. Tis so. So this guy tells me "People who can't even afford a house were getting one." Bingo, that equals blacks. One of several factors that contributed to the crash.

In Canada, rural Canada equals Indians, charities equal churches, Atlantic Canada means whites. EI gives special consideration-meaning fewer weeks of work for rural Canadians and Atlantic Canadians. The people who don't like to work. Unlike urbanites like myself who get minimal benefits after years of paying into it.
 
petros
#21
Are you nuckin' futs?
 
dumpthemonarchy
#22
A response of more than one line might not be nuts.
 
taxslave
#23
Quote: Originally Posted by petrosView Post

What is the process? Seriously. I spent a fortune tearing out and replacing my basement subfloor this summer after flooding.

That is the process. Don't forget to have the drywall compound tested for Asbestos. Dispose of it all properly. Spray any remaining wood with bleach update the wiring & plumbing while you're in there.

I'm a little busy tearing down an apartment building right now but perhaps after xmas some houses would be ok. Provided they are where there is some decent weather.
 
damngrumpy
#24
Actually I had heard of this, in Detroit in fact there is some indication they may even
begin to engage in urban farming in areas where the concrete is being removed.
There are also plans to push down entire neighbourhoods in Arizona and else where.
The property values are only a small part of it. The banks have to maintain and in
fact insure these dwellings. Some are being taken over by squatters and others that
are involved in crime. There is a whole series of problems going to afflict America
as their wasteful ways and collapsing system takes them from a major power to a
have not nation in the world. To think deregulation did this to them. Not only that they
are worse off than many others in the developed world because they don't have a
safety net to take care of people in events like these. Housing, health, retirement,
consumer debt, infrastructure that is falling apart, and silly people like the Tea Party
wanting to take people back to a mythical simpler time, when all was right on
May berry Street. America is on the verge of change, and I mean serious change.
As they resist any measure of social change they will be forced to accept a heavy
dose of it brought on by the young families in America who will soon have had
enough. Housing is a foundation corner stone of a nation and this is crumbling fast.
 
dumpthemonarchy
#25
The govt told banks to give loans to blacks. The banks said, "Okey doke, insure them for us". The USA fed govt did just that through fannie mae. The USA has a socioeconomic political problem we don't really get here.
 

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