Friday, October 28, 2011

Foreclosed houses being destroyed in the USA

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You'd have to wonder why banking CEOs are paid so much when you reflect on their 'narrow' thought process. We have in the US a situation where homes in foreclosure are being destroyed in order to 'clear markets of excess housing stock'. When this happens of course, housing prices will rise, economic demand will stimulate spending. The problem is: 'Housing is an asset' - a potentially productive asset. Why would you destroy it? You have millions of highly skilled Mexicans, Koreans, Chinese, Filipinos who would love to have such housing. If a rebalancing is required in the local economy, why not raise immigration so that these houses can be filled by 'paying customers'.
I don't for a moment think that this housing stock is the best quality stock in the USA. I imagine these properties are 'the pits' for some, but for others they are not so bad. Let's look at their failings:
1. They incur local and state taxes - I'm not an American and I know it depends on your state, and I know taxes are high. Let's say $3000 per year. Am I close?
2. There is every reason to think that rural depopulating towns will struggle to fill these homes with people. This means a lot of vacant stock
3. The house prices in these towns have fallen, jobs have been lost. There is no longer any reason to stay in these towns - right? - because there are no jobs or services.
4. Property values have been driven down to land value I suspect; and the banks are paying taxes on them. In fairness, if not for government support, its probable the banks would never have lent to these people. Bank executives did not care because 'they were paying it forward', i.e. Their execution options would be cashed in before the crisis would occur.

The question is then - should these towns be salvaged? Should poor people be living in these towns? As opposed to being homeless. What about the defaulters? It was not their fault; and they were managing to etch out a life in the property before, so why are they not capable of staying there? The reason is probably that they have lost their job in the recession. The house cannot be sold.

If you are not going to give or sell these homes to immigrants; why not just give them to the poor debtors; i.e. Why not forgive their loans. After all, the crisis was caused by the government-sanctioned regulatory framework, not by these defaulter. The debtors were acting in good faith in many cases. There is just no justification for destroying property. That is what happens in war, and we only do that to cripple enemies. But here, we are trying to wipe out assets to save money, which cripples the ability of the country to recover.
These banks are functioning in an intellectual vacuum. This is mindless 'bureaucracy' and its coming from larger-than-life, way to detached and comfortable banks. Government has created an unhealthy savings culture. We used to get paid interest from banks. In the modern world, with all the fees, we actually have given banks the power to extort wealth. i.e. Banks have the power to expropriate fees; a concession that no other enterprise has. You have to wonder why?

If you are interested in foreclosed houses in Japan or the Philippines - check out our blog. I particularly recommend the Japanese foreclosed property market.
Andrew Sheldon

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