Why Banks Are Using Bulldozers on Foreclosed Homes | The …

curiouscapitalist.blogs.time.com8/1/11

UPDATED (5:29 PM) Banks have a new remedy for America's ailing housing market: bulldozers. 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 …

Council to bulldoze 175 homes in Gateshead – Chronicle News …

www.chroniclelive.co.uk12/6/11

YET more families are being forced from their homes as Gateshead Council flattens a third housing estate.

The growing number of abandoned properties across the country has caused property values and tax revenues to drop substantially, which in turn has led to fewer buyers and a growing number of vacant properties.

As of March 31, about 4 million homes had been empty for at least three months, a higher figure than in 2008, and about 3% of all U.S. homes.

Many cities and States, are themselves struggling with potential bankruptcy, and they’re finding it difficult to pay the firemen and policeman who are expected to deal with the increasing number of abandoned homes.

All is not doom and gloom however, and an innovative solution is now rapidly spreading across the country which entails local governments bulldozing abandoned properties, and using the newly reclaimed land for parks and playgrounds.

It’s a seemingly win-win situation, because it not only pleases local residents, but also creates jobs, and the icing on the cake is that the federal government is funding the action.

Last summer, Congress allocated $3.9 billion in emergency funds for cities to acquire and rehabilitate foreclosed properties, and a further $2 billion was assigned after Cleveland and other cities lobbied Congress.

In fact, Cleveland, which has over 10,000 abandoned homes, says it will use more than half of its $25.5 million stabilization fund to demolish more than 1,700 houses.

In addition to Cleveland, Cincinnati, Detroit, Minneapolis and Youngstown all say they have plans to use at least one-third of their neighborhood-stabilization funds for demolition.

Housing supply presently stands at about nine months, which is almost double the historic level of around five months, and approximately one in four home-buyers is in arrears on their mortgages, both of which sadly suggest the appearance of more and more abandoned homes, but happily, more jobs and more parks and playgrounds.

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Most economists had predicted that retail sales would rise by 0.2% after a 1% decrease a month earlier.

Bill Cheney, who is the chief economist at John Hancock Financial Services Inc. said in an interview that, “The second quarter is going to be tough. Consumers are losing their jobs, concerned about losing their jobs and losing wealth”.

Mike Niemira who is the chief economist at ICSC was a little bit less downbeat and said, “We’re still working our way through the slowdown. I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement”.

Clothing sales fell by 0.5% and sales at general-merchandise stores fell by 0.1%.

Auto sales unexpectedly gained by 0.2% after dropping by 2% in March, with automobiles selling at a 9.3 million annual pace in April, compared with a 9.9 million rate in March.

Chrysler, whose U.S. whose sales were down by 48% from the same month last year, started offering rebates of up to $6,000 on May 6 and the offers will continue until the end of the month.

The Labor Department reported last week that payrolls fell by 539,000 workers last month making it the smallest drop since October, but it took the unemployment rate to 8.9%, which is the highest level since 1983 and economists expect it to average 9.6% in 2010.

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Median home-sale prices in March were around $7,000 higher than in February.
But they are still far lower than they were a year ago.

Some banks have started returning bailout money amid reports of better than expected profits in the first quarter of 2009, and the stock market has rebounded since early March.
But, the value of the Dow Jones Industrial Average is still at around 60% of what is was a year ago.

The administration claims that 2,000 new transportation projects have already been approved under the stimulus package.
But the construction sector lost 626,000 jobs between December 2008 and March 2009.

And whilst we’d truly love to believe that the economic crisis has bottomed out, the IMF (International Monetary Fund) estimates that the global economy will contract by 1.3% in 2009 and the U.S. economy by 2.8% which would be the most since 1946.

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The report lists a total of 4.2 million vacant homes for rent, and 4.9 million seasonal properties that were only used for a part of the year, and says that the number of people that own their own residences declined for the third straight quarter to 67.3%.

Foreclosures were included in a part of the Census Bureau, that also included vacation homes intended for year-round use, as well as homes that were unoccupied because they are under renovation, and there were 7.9 million such properties vacant in the first quarter, which is up from 7.5 million a year earlier.

What might seem odd however, is that the ‘percentage’ rate of all U.S. homes empty and for sale, known as the ‘vacancy rate’, actually fell to 2.7 percent in the first quarter, and the reason that it is thought to have fallen, is either because the number of homes on the market declined because they were sold, or because their owners gave up trying to market them, and according to National Association of Realtors, the inventory of homes on the market averaged 3.7 million in each of 2009′s first three months.

The world financial crisis, plus falling home prices seem to have pretty much destroyed homebuyer confidence, and the percentage of people who said they plan to buy a home in the next six months, dropped to a 26-year low in March, and the decline in real estate prices is expected to continue into 2010.

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Freddie Mac reported that the rate for a 30-year fixed home loan fell to 4.80 percent from 4.82 percent a week earlier, whilst the 15-year fixed rate remained unchanged at 4.48 percent.

The central bank is attempting to drive down interest rates by cutting the supply of outstanding mortgage bonds, thereby boosting their price and lowering their yields, thus allowing banks to reduce their rates on new mortgages, whilst continuing to sell mortgage securities at a profit.

The not so good news is that sales of previously owned U.S. homes fell in March, after climbing by the biggest amount in more than five years just one month earlier.

Purchases decreased by 3% to an annual rate of 4.57 million, which was lower than the 4.71 million which was forecast, and prices were down 12% from a year ago, with distressed properties accounting for about 50% of all sales.

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The February prices were still 6.5% lower than a year earlier and were pretty much in line with estimates, and also a recent statement by Federal Reserve Vice Chairman Donald Kohn, “As demand firms, and once inventories of houses, and a broad range of goods are brought into line with sales, economic activity should begin to stabilize,”

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased by 5.3% last week and a National Association of Realtors report notes that home sales rose by 5.1% in February.

The California and Florida metropolitan areas led the U.S. in foreclosures in the first quarter of this year, and Bruce Norris, who is a principal with the Norris Group said, “Whatever damage has been done in California is only going to get worse because there is a glut of homes owned by lenders that aren’t yet on the market. These homes are like a shadow inventory that is likely to drag down prices further when they come onto the market”.

Norris’s comments are supported by comments on the National Association of Realtors website which states, “U.S. home prices probably will fall 5.1% this year to $188,500, less than the 9.3% plunge in 2008, according to the real estate group. Home resales probably will rise 1% to 4.96 million after a 13% drop last year”.

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“The first half of 2009 will be extraordinarily challenging. Some people are giving up eating out; some people are giving up movies; some people are giving up other things like shopping. Those are fundamental changes that will continue”. – Wal-Mart Stores Inc. Chief Executive Officer H. Lee Scott.

Circuit City Stores Inc., which was once the biggest U.S. electronics retailer has said that it will shut down all of its 567 U.S. stores after failing to find a buyer that could keep the chain in operation.

The recession or depression if you prefer to call it that, which began in housing has now spread to households and consumer spending which is the largest part of the economy is believed to have dropped at a 3.5 % pace last quarter after slumping at a 3.8 % rate during the previous three months.

If that’s true then it would be the first time that purchases declined more than 3 % in consecutive quarters since records began in 1947!

The U.S. lost 2.6 million jobs last year which is the most since 1945 and the unemployment rate climbed to 7.2 % in December which makes it the highest in almost 16 years and it’s causing consumers to lose confidence.

Property values in twenty U.S. cities fell in November at the fastest pace on record and new-home sales most likely dropped by 3 % last month which would make it the lowest level since 1982.

The global slowdown in demand is hurting U.S. manufacturers and the report is also expected to show that orders for durable goods fell in September for a third consecutive month.

Finally, if all of the above isn’t sufficiently horrifying then grab what Brian Bethune who is the director of financial economics at IHS Global Insight in Lexington, Massachusetts had to say …

“The recession entered a more negative and pernicious phase in the fourth quarter and it’s potentially the worst recession that we’ve seen in terms of the severity and the depth”.

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