25 Aug 2011
Time Magazine has posted an article that brings to light a new method that some banks are using to deal with the massive number of foreclosures that are on the housing market: bulldozing them.
According to Stephen Gandel, writer of the original article, there are 1.7 million US homes in various states of foreclosure. Most of the houses are owned by banks, or will be owned by banks after the foreclosure processes. With so many foreclosed houses on the market, it’s possible for housing prices to stay down for years.
However, some of these bank-owned homes won’t ever be for sale. Banks are starting to call in demolition teams to get rid of some of the least-valuable repossessed houses. For example, Bank of America had plans to demolish 100 foreclosed houses in Cleveland in July alone. Bank of America then donated the land to the local government and has already donated 150 homes in Chicago and 100 in Detroit. BofA says the demolished homes were worth less than $10,000 each.
And BofA is not alone. A number of banks are ramping up their efforts to not just rid themselves of their unwanted homes but also fully dispose of them. Fannie Mae has a program to sell houses to local municipalities for a few hundred dollars. Wells Fargo has donated 800 homes since 2009. While some of those homes have been demolished, a spokesperson for the bank says many of the homes have been given to not-for-profits with plans to renovate the homes, not tear them down. JPMorgan Chase says it was one of the first banks to donate houses it couldn’t sell or didn’t think were repairable. Since 2008, JPMorgan has donated or sold at a discount 1,900 houses to city or county officials.
The bank is rewarded for donating the property by not having to pay taxes on the property or pay to have it maintained. Because it’s a donation, the banks may even be able to use the donation for a tax write-off. Bank of America says demolishing some houses is the best economical option, as some houses aren’t worth repairing. Everyone involved seems to like this method. The local government gets land, the bank gets a tax write-off, and housing economists feel that removing homes from the market that have low values or wouldn’t sell at all is keeping home prices from going down even further. The most recent housing market data says it would take about 9 1/2 months for the current number of houses on the market to sell. The housing market is considered healthy when there is6 months’ worth of sales available.
The big question is if the banks will demolish enough of the least valuable foreclosed homes to make a difference in the housing market. The Obama Administration says it’s working on a program to help keep homeowner’s facing foreclosure in their homes, which would help by reducing the number of properties the banks would be putting on the market.
Certainly, the idea that we are at the point where banks would be better off knocking down houses than reselling them shows there is still something very wrong with the housing market. But what is clear is that banks and others are at a point where they are ready to try something new to boost the housing market. And that is a good sign for the future.