On Wednesday the Obama administration said that it was looking for ways to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private businesses or sold in bulk. In a desperate attempt to clear the nation’s balance sheet of foreclosed homes, the government may now become the nation’s largest landlord.
The Federal Housing Finance Agency, the Department of Housing and Urban Development and the Treasury Department are jointly requesting ideas for sales, partnership ventures or other strategies that would help to unload approximately 250,000 properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Those properties account for only half of all properties that have been foreclosed upon and are still awaiting resale nationwide.
With so many foreclosed homes on the market, the sale price of occupied homes continues to be plummet. In some condo buildings in Florida as many as 1 in 3 units are in foreclosure. When an owner goes to sell their condo for $100,000, buyers can find dozens of foreclosures for $75,000 or less. As a result, the owner must either lower their price, stay put for another decade until prices rebound or stop paying their mortgage (which they are likely upside down in) and allow the bank to foreclose on them. It’s this vicious cycle in the hardest hit parts of the country which are causing apocalyptic real estate markets.
By taking federally owned foreclosures off the market and renting them out, the administration hopes to stabilize neighborhoods where large supplies of empty, foreclosed properties have crushed property values. In effect, the government is saying that they own a quarter million homes they can’t sell. If they did, it would contribute to a more severe and prolonged housing price collapse. This is unprecedented in US history.
To give perspective to the impact that Fannie Mae, Freddie Mac foreclosures could have on home prices, consider the fact that only 70,000 of their 250,000 homes are currently on the market for sale. We’ve all seen what’s happened to home prices in the past three years. Now picture three times more foreclosures in the market, and continued erosion of America’s employment base. The result, not pretty.
One thing is for sure – someone is going to make a killing when the government decides what action to take. Unfortunatly, I can garantee you that it will be massive investors that can afford to buy thousands of homes at a time. It will likely even be the same corporations responsible for millions of Americans losing their homes. Small business owners, property management companies and individual landlords will be left with the scraps of this deal… if that.
It’s going to be a very interesting 2012. Perhaps the Mayans weren’t predicting the end of the world, but rather, the end of an era.