The foreclosures are coming, the foreclosures are coming!

There goes the neighborhood

After being held up last year because of the robo-signing scandal, foreclosed homes are due to hit the market in ever-increasing numbers. The bad news? They’ll be worth jack-squat.  Former Treasury Secretary Lawrence Summers once said, “in the history of the world, no one has ever washed a rental car”. He may be a little off (I washed a rental once, when I couldn’t stand the dirt) but it’s a cinch that a homeowner with no money who knows he’s going to lose his house eventually isn’t going to spend much maintaining his home. That’s why on average, homes in foreclosure for under a year lose 35% of their value while those in the process two years drop 60%. And 43% of all houses currently in foreclosure have been there two years or longer.

A quarter of homes in long-term foreclosure may need to be bulldozed, according to the Cleveland Fed’s report. About 500,000 foreclosures in the U.S. are vacant, according to a housing study Fed Chairman Ben Bernanke sent to Congress in January. Many of them are “badly damaged,” he said.

5 Comments

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5 responses to “The foreclosures are coming, the foreclosures are coming!

  1. anon

    honestly, why should a homeowner in default care anymore? one can file bankruptcy, lose that home to foreclosure, and have it all wiped off a credit report in a decade or less. and maybe it’s best to bulldoze some of the crap that got built anyway. sounds like a plan to me.

  2. burningmadolf

    Cheap houses in AZ are flying off the shelves.

  3. Inagua

    While foreclosure is a lengthy process in many states, those states with efficient foreclosure laws are seeing foreclosed houses bought by investors and turned into rentals. See this article from today’s NY Times headlined “Investors Are Looking to Buy Homes by the Thousands”

    http://finance.yahoo.com/news/investors-looking-buy-homes-thousands-134405371.html

  4. Inagua: As both a homeowner and investor/landlord, I’ll take home-ownership any day. The hassles of rentals are enormous, no matter the price point. One of our RI rentals was left a pig-sty by a woman and her daughters who came with all the right credentials. No accounting for lack of manners. Okay, so we took her security deposit, but it still means spending 24 hours cleaning up the place before the next tenant arrives, who expects perfection. Our younger daughter can attest to that right now, having had to evict her tenant in Vail. The process for eviction is longer than foreclosure and even with a judgment, her former tenant can declare bankruptcy and have this debt wiped off the books. Our daughter will never see a dime of the $30,000+ she’s owed so bye-bye legal fees and bank fees from the tenant’s no good checks. Add that tenants daddy swept her out of state, it now requires hiring another lawyer to localize that judgement to Massachusetts. So let all those thousands of investors buy homes. Then have them call me in a year to see how all that worked out.

  5. Inagua

    EOS – While there is no defense against destructive tenents, it is also true that state law plays a big role in the home leasing business. Many states have terrible landlord laws that lead to the kind of awful results your daughter had; but other states, including suprisingly California, have very good foreclosure and eviction laws, and these states have very well developed house rental markets. For example, I rented two houses in Montecito in the early 1990s before I was able to find a place I like enough to buy. I don’t think it is accurate to generalize about the house rental business; it depends on state law. You might have noticed that the specific examples in the article were all in California; none in Colorado or New England.