Bank Demolishes New Homes In Depressed Market

Chalk this story up as being one that can be found in the category, “if you think that you have problems, then take a look at this.”

In California, the housing market has seen some of the steepest price corrections since peaking in 2006. Over the past two to three years, some local markets have witnessed home prices falling by as much as 60% including in Victorville a southern California community located along Highway 15 north of San Bernadino.

Sixteen Homes Meet Their Fate

One out-of-state bank who owned sixteen partially finished or new homes located in a Victorville housing development recently took drastic action, choosing to demolish the homes instead of trying to sell them in a depressed market. Guaranty Bank of Austin (Texas) figured that it was cheaper to dismantle the homes than to pay someone to finish them.

A representative from the bank explained that only four of the homes were substantially complete with most only partially finished and exposed to the elements. The bank gained control over the homes through foreclosure this past December when the builder, Matthews Homes, lost ownership.

Would Cost More To Finish Than To Destroy

The bank’s move was a drastic one, but based on estimates that it would cost more than one million dollars to finish the project and that the Victorville housing market is still saturated with unsold homes, the alternative would have been a costly one. Besides, with squatters and vandals damaging the properties and city officials levying daily fines, then that move seems to be logically based.

Most of the appliances in the homes had been stripped out with some of the wood slated to be ground up and used for landscaping. The remaining lumber will be resold, likely to find their way into new homes being built in Mexico.

Average home prices in Victorville once topped $600,000, but have since fallen back to $265,990 according to DataQuick, a research firm. Federal regulators have been pressuring Guaranty to dispose of its foreclosed properties, citing what they said are its “unsafe and unsound banking practices.” To that end, Guaranty now has sixteen fewer homes to worry about.

Source: The Wall Street Journal

Also Read — When Government Comes to the Aid of Big Business

Maybe This Recession Has Short Legs After All

Uncertainty adversely impacts consumer spending, however could pent-up demand bring a quick end to the current recession?

My entire business hinges on how well or poorly the economy is faring. Not so much that my work is dependent on how well Wall Street is performing, rather my writings often reflect the prevailing mood of the consumer and the investor. And, over the past few months that mood has been quite grim.

Honestly, there are times I would prefer to write on lighter topics such as human interest stories or perhaps an enrichingly descriptive nature story where I can go wild with collective nouns such as those describing a sedge of herons or a scourge of mosquitoes, etc. I don’t pretend to have the talents of a Charles Dickens or a C.S. Lewis nor do I have the financial resources to sustain me to bring a book to publication.

I’ll stick with what pays the bills and at this point in my life it is business writing that meets my needs.

The Unfolding Stimulus Package

I’ve made quite a few comments lately regarding the economic stimulus package currently winding its way through Congress and I know that opinions are divided as to its usefulness. While it appears that support for the bill is split among party lines, I believe that there is an undercurrent sweeping through the nation where the average citizen seems to be very uncomfortable with what is going on in Washington, DC.

I’m not going to suggest that there is open revolt pending, but what I am sensing — thanks to what I read and as a result of conversations with friends and neighbors — is that even some of the most diehard liberals are worried what this debt will do to our country. $900 billion added to the $700 billion TARP (Toxic Assets Relief Program) plus whatever else is coming down the pike is something hard to fathom. Moreover, how can it possibly be paid off?

Bequeathing Debt To Future Generations

Worse, is what effect an increased debt level will have on future generations: will our children and grandchildren be forced to pay down what we owe via a heavier tax burden? I don’t think anybody knows how things will play out, but the discomfort remains. And, when people are not comfortable they are also uncertain — the type of consumer who puts off making major purchases as long as possible.

A Ray Of Light

Gloominess aside, I do see some light shining through the darkness which I believe suggests that the current downturn may soon be over.

Call me crazy, but there was a spike in housing sales in December and when auto sales fall to historic low figures, then a rebound can’t be far off.  Housing and car sales are the two biggest consumer ticket items and when one or both begin to pick up, the impact is felt throughout the economy. Right now, automakers are offering the biggest discounts in memory and I believe that consumers who have been putting off buying a new car will get in while the getting in is good.

I also have the benefit of an article which appeared recently in The Wall Street Journal to give me some encouragement. Justin Lahart has been reporting about the recession for the WSJ and in his most recent piece, Pent-Up Demand Could Quickly Pull Economy Out of Its Hole (February 9, 2009; A2), he points to the short-lived recession of 1980 as an example of one downturn that was over quickly.

Pent-Up Demand To End The Recession?

Lahart’s argument is that pent-up demand fueled the end of that recession as consumers who had been putting off their purchases jumped back in when government induced credit controls were abandoned. Today, we have market induced credit controls in place which, when also lifted, could quickly end this current downturn.

As much as I hated the TARP bail out and have a big problem with the current faux stimulus package, there may be enough cash in there to free up credit to get consumers to spend again. Should that happen, we could begin to see visible relief by this summer as housing sales increase and new car sales do the same. In both situations, job loss would stop and hiring would begin anew.

A Brief Recovery Followed By A Deeper Recession

Of course, one of the lessons of the recovery following the 1980 recession is that it, too, was short-lived. According to Lahart, rampant inflation and and overdependence on a declining manufacturing base brought about a longer, more sustained recession by mid-1981. Yes, it was that very same recession I remember all to well, one that erased the gains of the 1980 recovery in short order.

Inasmuch as I believe that we could see daylight within the next few months, our debt burden may keep this recovery short and sweet too. For the person who has excellent credit and wants to buy a home or a new car, a brief window of opportunity is open, one that could come crashing shut when the effects of the multiple trillion dollar spending spree kicks in.

I apologize for a mixed news narrative, but in these challenging times it is best that we remain vigilant, making the right decisions in order to stay afloat. But, don’t put away the anchor just yet — the tide may change fast with this recovery.