A random idea for the housing market
 

I was reading yet another article today about how abandoned, foreclosed houses are creating a burden on municipalities. These houses fall into disrepair, and they attract crime. I was trying to think of a solution, and the first thing to come to mind was this:

Could we force the banks to sell the houses within a certain amount of time (one year or so, maybe) following the foreclosure? If they fail to do so, the local government is allowed to auction off the property, collect a fee, and give the rest to the banks.

This would generate revenue for the municipality, clean up the neighborhoods a bit, and help ease the housing glut (albeit by dropping home prices way down).

The banks would take a hit, but I'm not worried about banks that created a lot of this mess in the first place.

Thoughts?

Aren't you aware DC is a common sense free zone?

Not surprising this is a horrible idea.

I would love to buy a couple properties for $0.04 on the dollar and start my career as a slum lord.

How does forced sale of homes at rock bottom prices ease the housing glut?

Spoken like a true, small-government, free-market conservative. :hmmm:

Hmmm. Very intriguing idea.

How does decreasing prices increase demand? Is that really your question?

In normal circumstances, homeowners lower the price when homes won't sell. Because home prices are falling so much across the board, sellers aren't able to drop the prices enough because they have to cover their notes. This is creating an artificial price floor which is above the demand price. As a result, nothing moves.

Eventually, prices will reach equilibrium because the banks will sort through their inventories and unload everything. Because the banks are not capable with dealing with such a huge amount of properties being returned to them, this could take several years.

The houses have already lost their value, and thy are only going to lose more value as they deteriorate due to lack of upkeep. Why not just stop delaying the inevitible and start auctioning them off? At least we can start collecting property taxes, discourage theft, and re-gentrify some of the neighborhoods than have become blighted?

I know. I know. It makes me sick, but the banks stepped outside the realm of the free-market when they took bailouts. They are now our bitches and should be treated as such.

Wow. It feels good to talk like a lefty every now and then.

It would punish those of us that have survived this shit storm but lowering our property values even more.

Its fed regulation that prevents banks from selling or dumping distressed REO's on the market.
As far as housing is concerned it really isn't the banks that caused this mess.

It was the "salability standards" established by Fannie / Freddie that Barney Frank and Chris Dodd said not to question back in 2004 I believe.

They gave consumers the rope to hang themselves with.

Your idea could work, but you don't want local community banks shouldering this because they didn't create it. The current administration is trying to kill the local banker and back his dog in the hunt which is any institution that took TARP. Just like GM.

I don't think it would lower property values. The damage has already been done. This is just acknowledging it. A vacant house that falls into disrepair and eventually sells for squat is going to lower property values more than auctioning a house before it falls into disrepair.

I don't disagree with any of this other than the implication that the local banks would be harmed. They don't hold so many properties that they are unable to manage them. A year should be. Ample time for them to determine what needs to be done.

QUOTE=Saul Good;7803105]I don't think it would lower property values. The damage has already been done. This is just acknowledging it. A vacant house that falls into disrepair and eventually sells for squat is going to lower property values more than auctioning a house before it falls into disrepair.[/QUOTE]

I think that you are right in that before the collateral becomes more dilapidated get rid of it.

But who should absorb the deficiencies? In the end it can only be the tax payer.

Well you're wrong, we hold enough to break our collective backs which is what Obama wants.

That's why they continue to increase loan loss provisions and capitol requirements on us more than their big bank partners.

I think that you are right in that before the collateral becomes more dilapidated get rid of it.

But who should absorb the deficiencies? In the end it can only be the tax payer.[/QUOTE]

IMO, this wouldn't cause deficiencies. They already exist. This would simply be recognizing what has already become a reality. These houses are worth what they are worth. With every day they sit unoccupied, that value decreases. Sitting on them isn't really in anyone's best interests. Maybe this would encourage lenders to be more willing to restructure loans before they foreclose.

There are basically 2 premises from which I am starting:


1. The housing market can not recover until prices reach equilibrium.
2. Empty houses are bad for everyone (except criminals).