This just appalls me. It doesn’t surprise me, but it appalls me.
Mostly I’m appalled that no one has yet stood up to do something about it. This blog is my contribution, to raise awareness so that a much needed public outcry can be made.
Housing. If you don’t know that there are a bunch of foreclosed homes sitting ‘vacant’ out there, you’ve been living in blissful ignorance far too long. By the power of this blog, I shatter that bliss and supplant it with grim times.
A bunch of foreclosed homes sitting ‘vacant’ (because there are some that are indeed occupied, albeit by squatters) in your community is not a good thing. The more individual homes that fall into this category, the more neighborhoods fall.
Take, for example, my immediate neighborhood. I’d say its roughly half occupied. The rest of the houses are either currently for rent, for sale, or in a third grouping I’ll get to in a moment.
This spells trouble for my neighborhood. The more ‘abandoned’ it becomes, the more those negative aspects of societal life take over. Reno has graduated from having ‘gangs’ to having gangs. They’re not something for me to laugh about anymore (unlike air quality concerns… talk to me about air quality when you can’t actually see mount rose anymore). No, gangs are a real deal here. They’re also on patrol in my hood.
You see as good, respectable people are forced out of their houses because of an economic downturn that has robbed them of their income, less-than-respectable people fill in the void.
This too, shouldn’t be news to you. I just want to make sure you think about the longer-term consequences of a prolonged housing bust. Once these elements take root in a neighborhood, there is very little you can do to drive them back out.
If you live in Reno, than I’m sure you’re as used to seeing For Rent and For Sale signs all over the place as I am. I can’t speak to other locales, as I hear that Nevada is suffering the most on this front, though I’m sure similar situations exist all across this great land of ours.
What you might not know is that in addition to being for sale, or for rent, there is a third category of ‘empty’ housing out there. Houses that are foreclosed upon, are technically for sale as they are bank owned, but nevertheless remain OFF THE MARKET.
Why? Well because we have such a huge inventory of houses to sale, that if they were on the market, housing prices would be so low that the banks wouldn’t be able to command the prices they are currently selling houses for.
That’s right. In a nutshell, the banks are preventing Nevadans (and I am sure it extends to most segments of the American population) from realizing the American Dream of home ownership. When houses are selling for thousands of dollars instead of tens of thousands, think of how much more likely you are to be a home-owner (if you’re not one of the lucky ones who has been able to hold onto their home).
Instead, the financial institutions that drove us into the economic ground are holding out on us, in some cases accepting public money to stay afloat, all so that they can avoid losing money as a result of their bad lending in the first place.
That is kind of over simplifying it, and while I respect that its a bit more complex and convoluted than that, I also simply don’t care. As a taxpayer, its not my problem how complex and convoluted you’ve made things… I just see that you have houses you’re not putting up for sale so that you can artificially keep house prices inflated higher than the actual economics of supply and demand dictate they should be.
Which is really the jist of our economic mess.
Systematically, every mechanism of capitalism and free-marketing that serves as a check/balance to the system has been interfered with. Its either been broken altogether, or its function has been severely restricted. Capitalism is like a machine, much like your car’s engine. If you break components of your car’s engine, or constrain their operation, your car isn’t likely to get you very far, if anywhere at all.
That’s what has happened with our free-market system. It’s not just that we as consumers have forgotten the power we wield (not to mention the responsibility to wield it). The mechanisms of the invisible hand (that thing that forces basic human greed to work for the betterment of society at large) have been so badly eroded that even if we did suddenly wake up and start doing our full jobs as consumers, we’re still going to see greed work against us instead of for us.
Then again, the notion that we have a free-market at all is an illusion designed to make you feel good about being slaves.
Human beings may not go out and publically buy other human beings in this country anymore, but every one of us is owned by the pieces of paper we put into our wallet. Without money, we die. Our masters are our paychecks. Except that now that money has become scarce, some communities are moving to alternatives. They now issue their own currencies, and outright barter systems are re-emerging as the way to do business.
Thankfully humans are resourceful creatures.
But back to these banks. Just be aware that the banks that got us into this mess are still screwing us over. Now some are just doing it on our dime.
The thing about investing, and real estate is an investment, is that its risky. The greater the risk, the greater the reward. This, of course, means that while you have potential to make money, you also have potential to lose. You won’t lose more than you put in, but if you put in more than you can afford to lose, you’ve invested too much. It is exactly like gambling, because it is gambling. They just give it a different name because they want people to invest their money into their schemes, which would be more difficult if ‘invest’ had the same stigma as ‘gamble.’
So what these banks have done is front a bunch of money for houses, paying way more than the houses were actually worth (because the same institutional-machine has been artificially inflating the cost of houses—not to mention healthcare—beyond what their actual value is for years and years and years). They kind of scammed themselves in that regard… paying more than a house was worth and betting on the ‘home-owner’ to be their fiscal slave for as long as they still had the loan. Except that the ‘home-owners’ felt the effects of the economic band-aid coming off our depression-era wound (that band-aid being the ‘credit’ mentality of buying things with money you don’t have and thus going into debt) and found themselves with a reduced income. Mortgages went unpaid and suddenly the housing market collapsed, triggering a tsunami of economic blood-shed. (Evidentially someone picked the scab after the band-aid fell off).
Basically the institution lost the gamble. Instead of paying up though, they’re going to do everything they can to offset that loss at you, the taxpayer’s, expense. (As though we aren’t suffering enough from there mess.) They’re keeping houses off the market on purpose, which drives up the cost of houses that are on the market. This inflated price means more people need to borrow money to buy the houses that are being marketed. The banks won’t give out money because they at least learned that lesson and have become more selective about whom they will loan money too (and rightly so), so the houses remain unsold.
They’re not making good on their commitment to work with those people still in their houses, so more houses go into foreclosure to sit, unsold, and unmarketed. In some cases, refusing an offer that is only a couple thousand less than the original asking price.. just to maximize the money the can get… all while taking kick-backs from Uncle Sam.
Yet if the housing market were to be flooded with the actual inventory sitting around waiting to be bought, yes they would lose a lot of money in the process. Yet we, the taxpayers who must bare the burden of the economic mess they brought about for their own short-term profit, only find ourselves with a growing barrier to home-ownership.
Let’s just say that these houses did flood the market, and housing prices plummeted to all-time lows of a few thousand dollars. Well, for one it would be less risky to loan money to people who needed, say 7 grand to buy a house. It would certainly be easier for people to come up with the money to buy the house with cold-hard cash.
People who today have no hope of getting out from under the thumb of oppression that is renting, might actually find themselves in a position to own their home. They won’t be wasting their money on rent, but investing in their own future.
Rental rates would also drop with the surplus inventory of housing available, thus even those who couldn’t seize the opportunity to buy a house would nevertheless find themselves with more cash on hand now that their rent is adjusted to the new market-value.
What do we do with that extra money? Hopefully we save a portion of it, but we spend it. Spending it drives our economy in an upward direction.
Its certainly not the fix-all of the current depression. It will certainly mean those who gambled in real-estate will lose their shirts. I suspect that will be short term though. Once the inventory of houses is seized up at insanely low prices, the supply will be decreased, home values will go up. Those who lost can get back in the game and gamble again, and make a buck or two.
Whatever our solution, it will take long-term foresight, not short-term thinking. What we’re experiencing is a market resetting things to what their actual value is. Those who control the goods are suddenly at a loss because they bought into something at inflated prices. Yeah it sucks, but that’s life. Just as I have little sympathy for people who financed a house with a mortgage that was three times what the actual value of the house was (artificial manipulation of the supply/demand market) and now find themselves dreadfully upside down, or worse without a house at all… I have little sympathy for the people who tied their livelihoods to the institutions and practices that sunk us into this mess.
I don’t know if my idea of putting these houses on the market and letting us all get cheap home-ownership will really pay off. Nevertheless I think deliberately keeping house prices at a certain level to ensure your profit isn’t in the best interests of society at large.
Our President and Congress aren’t the people who should fix it either. The City of Reno, the County of Washoe, the State of Nevada… these are the entities that should be enacting legislation prohibiting the real estate industry from keeping inventory off the market. I say we force them to sell it for whatever they can get, and write the losses off. Sure we’ll see real estate companies fold up. We’ll see lenders fold up. I guarantee you new ones will surface to take their place, manned by the very same individuals.
The short term pain may be great, but in the long run I think we’ll all be better off. One of the key jobs of the consumer is to make sacrifices. We sacrifice owning something so that we can send a clear message that we simply will not pay more than something is worth. We sacrifice buying something from Wal-Mart because we value quality as well as price. We pay too much for everything in this country. The only exception is the cheap-low-quality-disposable crap that we have to replace every few months because it broke or tore. Our power, as consumers, is to dictate to the suppliers what the quality of the goods will be and how much we should pay. We wield this power by being very selective about who we give our money too. We buy only those things that meet the delicate balance of quality and affordability. Its not our ability to get insurance that has our healthcare system jacked up, but the outrageous cost we have to pay for something that isn’t that expensive to begin with.
In a real free-market system, human greed is guided along by the invisible hand towards the benefit of society at-large. People get to make money off other people, but the money they make reflects the true value of the goods or services provided. This is not because the supplier is altruistic, but because the supplier simply can’t sell anything for an inflated price. When consumers actually go without, the prices of goods come down. There is something to be said about going to a second-hand-thrift store and getting a can-opener that will still be in your drawer and fully functional some 50 years from now, as opposed to going to your local Wal-Mart and getting a cheaply made contraption to open cans that will break and be in a landfill not 5 years from now.
In our current system, human greed runs amok, unchecked, to the detriment of society at large. Even those who stole the bank with their clever scheming find themselves losing in the long-run.
Change doesn’t happen from the White House though. It happens from your house. As the Bajoran Prophets like to say, Look for solutions from within [your local governments].