Tom Durning submitted this from the Brookings Institution: What’s wrong with American housing?
Housing will not help lead the U.S. economy out of this recession, as it has done many times in past recessions. A major reason is that America’s housing industry suffers from nine deficiencies that limit its ability to meet our housing needs.
Says Tom: “It seems antiquated zoning practices and the long-entrenched exclusionary attitudes are still prevalent even when they hinder partial economic recovery.”
And Tex Enemark responded with a tale of his own experience:
A very interesting piece. My experience is limited to Phoenix, Arizona, (I have a daughter who lives there), where I see amazing things happening which I do not understand;
One neighbour with no kids, both folks working, with THREE houses:
A–the one they live in–once worth about $400,000, now about $220,000;
B–a home 5 miles away in a “retirement village” where they at one time planned to retire and which they formerly rented out to snowbirds but recently renovated to sell, which they no longer rent out, because it is for sale for about $180,000 in a market that MIGHT buy it for about $140,000.
C–a third house, about 20 miles away, standing fully furnished and empty. They built it for over $300,000 just as the market crash came, to be closer to “his” parents when “he” retires.
How can they afford this? Damned if I know. No kids, I guess. But why not just walk away? I have no idea.
Another neighbour, has an identical house bought for about $225,000 about eight years ago. As house prices went up, they kept increasing their mortgages to buy “family toys”. When the bottom fell out, they owed about $370,000 on a house with a market value of about $200,000, so two years go they notified the bank they were defaulting on their mortgage. SINCE THEN THEY HAVE MADE NO MORTGAGE PAYMENTS, NOR PAID ANY RENT TO THE BANK.
How does this happen? They have saved about $24,000 in mortgage or rent payments, plus about $5,000 in property taxes. They moved out last week, to a similar house a mile away where they pay $1400/month in rent. Of course, having defaulted, they will be unable to qualify for a new mortgage so they can again purchase for, I think, seven years, by which time the house prices will be back to where they were.
The SMART folks who have the financial capacity are buying second houses and renting them out, then defaulting on their mortgages and paying no rent/mortgage payments until the bank forecloses and then sells their house. So they COLLECT rent for two years while the live rent free, and the ‘black eye’ of having defaulted is of no consequence to them.
There are a lot of other scams going on, but its a really unbelievable mess. But why the banks do not charge rent as soon as mortgage payments stop remains a mystery.
One disincentive is public opinion. People are already very upset with banks for the financial mess. If they start charging rent on foreclosed houses, the situation would escalate.
I don’t think banks feel threatened by public opinion one bit. They’ve committed epic foreclosure fraud (“robosigning”) without suffering any consequences at all. They also own both political parties and can exclude anyone from major office that doesn’t meet their approval. The only people they have to fear are a handful of judges that are standing up to them.