Paying For The Toledo Tear-Down

Toledo, Ohio is on track to demolish a record number of abandoned houses this year.  By the time 2011 is done, Toledo city officials expect to have torn down more than 400 blighted residential structures.

What I find interesting is not that Toledo is having a problem with abandoned houses — Toledo, like many Midwestern cities, has been hard hit by our ongoing economic woes and home foreclosures — but that the demolition effort is being funded in significant part by the federal government.  The U.S. Department of Housing and Urban Development is contributing more than $1 million toward the total cost.  Although the story linked above doesn’t identify the specific source of the federal funds, a look at the HUD website suggests that the funds are part of the Neighborhood Stabilization Program that began in 2008.  In 2010, Congress and President Obama allocated an additional $1 billion for that program, which makes grants to states and local governments to support, among other things, demolition activities.

I’m sympathetic to the problems that struggling cities like Toledo are confronting, but I think it is ludicrous that the federal government — using borrowed money, of course — is making grants to cities to deal with neighborhood issues like abandoned housing.  We simply don’t have the money, at the federal level, to become involved in every local issue that needs attention.  If Toledo concludes that abandoned houses are eyesores or crime magnets that need to be destroyed, Toledo should figure out how to prioritize and pay for that activity itself.

Considering The Rental Option In A Crappy Housing Market

I hate to be the bearer of bad tidings, but the housing market still sucks.  Yesterday a widely followed index stated that housing prices in 20 major U.S. cities declined for the fourth month in a row.  Prices also declined from last year’s prices, which were inflated by a government tax credit program that has since expired.  Even more depressing, in nine of the 20 cities the housing price index hit a new bottom.

The bursting of the housing bubble was one of the things that pushed the American economy into recession, and housing looks like it might keep the economy mired in recession a bit longer.  The lack of a quick rebound in the housing market is frightening for American homeowners.  Most of us have a lot of our net worth tied up in our houses, and if the market continues to decline it is going to have a long-term impact on our lifestyles and, eventually, our retirements.  Even in our New Albany neighborhood we’ve seen a nearby house with a foreclosure sign in the front window, and the housing market clearly is soft.  Many of the homes that have been on the market for months haven’t even gotten showings, much less offers or sales.

I’ve mentioned to Richard and Russell that they might want to focus on renting rather than home ownership, at least in the short term.  Especially in today’s economy, you need flexibility to follow job opportunities.  Renting permits that, home ownership really doesn’t.  Renters have landlords who (theoretically, at least) take care of problems, keep up the grounds, and screen your neighbors.  To be sure, renters don’t build up equity in property — but in this economy, even homeowners aren’t doing that.  Renters also avoid tying up a good chunk of money in an asset that may not appreciate in value.

For young people, renting rather than moving directly into home ownership makes a lot of sense.  It may not be “the American dream,” but it is a prudent response to what may well be an unfortunate long-term economic reality.

When A House Is More Than Just A Home

Yesterday’s data on the sales of existing homes in July — such sales were down 27 percent from June, to the lowest level in 15 years — are another troubling sign that the economy is not recovering.  Realtors say that sellers are being stubborn about prices, and buyers are reluctant to buy now because they think prices will go lower.  If the realtors are correct (and when has a realtor ever been wrong about a house?) then you would expect house prices to go lower as sellers finally recognize reality.  At that point, buyers might start buying.

It is not hard to understand the seller’s viewpoint.  Behind every unsold home and every stubborn seller lies a story.  For many Americans, at some point their house stopped being just a home and became an investment and a crucial part of their retirement planning.  They saw house prices relentlessly increase and figured that they could stretch on their own homes and mortgages.  After all, what’s the risk?  If you can always count on houses to appreciate, then you can always get your money back, right? And if you were ultra-conservative in your home purchase and financing, you would just miss out on the big payday when your house was sold.

With the bursting of the housing bubble, those people now have to face the hard reality that their houses are not going to contribute the tens of thousands of dollars to their retirement nest eggs that was anticipated.  No wonder it is taking sellers a while to accept that tough message, with all of its implications for how much longer they must continue to work and what their reduced retirement expectations must be!

Forbidding Foreclosure Numbers

We are in a period where the economic news seems very confused and inconsistent.  The stock market has rebounded significantly from its low point earlier this year, but unemployment continues its inexorable climb.  Some investment banks have earned huge profits, but businesses are forecasting a grim, cautious holiday spending season.  And then today we get the latest news on foreclosures — and it is stunningly bad.  The third quarter of 2009 turns out to be the worst quarter for foreclosures of all time.  It is worse than the very bad second quarter of this year, and 23 percent worse than the third quarter of 2008.

937, 840 homes — almost 1 million homes — received a foreclosure notice during the quarter, which is about one out of every 136 homes nationwide.  Get this:  in Nevada, the state that was worst hit, one out of every 23 households received a foreclosure filing.  It is hard to imagine what the hardest-hit Nevada neighborhoods look like.  During the quarter more than 237,000 homes were repossessed.  We are all used to dealing in big numbers, but these numbers are truly staggering.  In just one three-month period of just one year, the owners of almost one million homes reached the point where their lenders gave up and resorted to the ultimate option of foreclosure.

Given these numbers, we shouldn’t be too thrilled by the glimmers of positive economic news.  Unfortunately, the net worth of many Americans is significantly tied up in their homes.  Even if those homes aren’t in foreclosure, the housing market will likely be depressed for a long time.  There are a lot of empty houses there to be purchased before prospective homebuyers start bidding up the current prices for existing homes.  We aren’t going to see a true recovery, and a significant increase in consumer confidence, until the housing market rebounds, and these latest figures indicate that that development may be far into the future.