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The Collateral Damage in This Housing War

We try our best to deliver a blog post everyday that is filled with facts and studies on the housing industry. Every once in a while, one of our bloggers asks to be able to voice their ‘opinion’ on a particular point. This is one of those days. Here is Steve Harney’s opinion on the current housing debate.  – The KCM Crew

There is war going on currently with both sides digging in and shooting at the other side. On one side, we have a group defending homeowners from the big, bad, greedy banks who tricked buyers into taking crazy loans and now are illegally evicting them from their homes. On the other side, we have those defending the banks from those deadbeat borrowers who are living rent free in the house. These families have been called many things including ‘thieves’.

I have no interest in taking up arms in this battle for either side. Both have blame in this mess. Instead, I want to take some time and mention the innocent bystander who has been injured in this war: the homeowner next door to a foreclosure who has done absolutely nothing wrong yet has suffered grave injury anyway.

Those suggesting that anyone not paying their mortgage should be evicted immediately (and led out of down after being tarred and feathered) must realize that what is left behind is a vacant house. That house harms the other innocent people left in that neighborhood. We are already at levels of home vacancy that are way above historic norms. Here is a chart from the Harris Private Bank Innovative Solutions Team:


We can see that both rental vacancies and homeowner vacancies are at unhealthy levels. We do not need any more vacancies, especially vacancies which are foreclosures.

What impact does a vacant foreclosure have on a neighborhood?

Vacant foreclosures have deferred maintenance which makes them readily noticeable. That leads to a whole plethora of challenges for the neighbors. Pests move in and, in many cases, so does crime.

There are those that worry that families are staying in homes without paying rent to the bank. They are concerned that the bank is losing perhaps $2,000 month. Therefore, over six months the bank would lose $12,000.

Studies have shown that just one vacant foreclosure in a neighborhood can cost the other homes 1% in value. In a neighborhood of fifty homes worth $250,000, each innocent homeowner loses $2,500. If you multiple that by fifty, the neighborhood lost $125,000 in net worth.

The Center for Responsible Lending has done great research on this issue. In my state of New York, foreclosures will cost innocent, near-by homeowners an average of $37,649 over the next few years. Go here to find out the numbers in your state.

It is time to end this war and stop killing the equity in the homes of innocent bystanders. The banks and families unable (or even unwilling) to pay the mortgage must come to an agreement to sell the home even if it is a short sale. All those who have taken up arms in this senseless battle should calm down.

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8 replies
  1. Carole Sanek
    Carole Sanek says:

    Here in Florida the latest thing is “someone” is hiring people to bash in the doors of “vacant” homes. First they drive by and take pictures to show when they are arrested and in court that the house is purportedly vacant. They are not. They get paid about $40 to do this to homes and there is an entire catalog of people to call to get the job done. Needless to say this is terrifying to the owners because the houses are not vacant – it is a strong-armed tactic to scare people already in foreclosure to move them out more quickly. I know what a vacant house can do to a neighborhood. I also know how my value has gone down because of short sales and foreclosure sales here over to 50% of original value. I would guess almost everyone in the country has been affected in one way or another by this. We have green algae filled swimming pools, we have homes with mold growing in them because the power is off, we have homes filled with termites and other wood destroying organisms – someone needs to make a decision and come to a solution – this is way out of control, and one of these days one of the $40 per door thugs could get shot – it’s that crazy.

  2. Jim Paulson
    Jim Paulson says:

    It is very interesting that both segments of rentals have increased simultaneously. In the near absence of new construction in the past 2 years, that tells me that more and more people are sharing homes effectively turning single family residential into multifamily.

    If this is true, we have a lot of phantom families who will eventually move back into their own homes and help correct the problems, but first they probably need to get jobs or move up from the ranks of the underemployed.

    In Boise Idaho, I know of a number of people that have taken in renters or family members to help consolidate bills. I even heard of one couple that got divorced but still lives together since they can’t afford to separate.

  3. Karen Turney
    Karen Turney says:

    I know that neighbors are upset when a foreclosure occurs, but what they dont know is that usually that owner tried to modify the loan and was rejected, tried to short sale, only to have the bank reject any offers and want to foreclose instead. It is better to let people stay in their home as long as possible to keep the neighborhood stable. Vacant homes show signs of fatigue very quickly in this 120 degree desert heat, floors crack or peel, bugs move in, mosquitos in green pools spread viruses and crime occurs. So if your neighbor lost their job and has to stop paying the mortgage, be grateful that they are still mowing the lawn and have the lights on at night.

  4. Debbie Meiliken
    Debbie Meiliken says:

    Nothing is gained in war. Like any war this is scary!! Where will it end? I always tell my customers and friends, if you are thinking of selling, better to sell NOW. We are headed for some very uncertain times and with uncertainty comes reduced prices. Unless you can wait it out 5 years or more, better do it now, before you are looking at 5%, 10%…….20% less. How do you know when it will end?

  5. Carl S
    Carl S says:

    @Debbie Meiliken – What do you tell the buyers? Sorry Steve, I couldn’t agree with you less on this one. The fault lies squarely with banks and the government. In fact, if you’ve been around as long as I have, this is the THIRD time in my lifetime that this has happened. The first, was in the early 80’s with interest rates going through the roof as a repercussion of the country coming off the gold standard in the 70’s, the 2nd was the seemingly now forgotten S&L scandal, due to deregulation, and now this, also due to deregulation. The common thread through all these scandals is they were all caused by conservative type policies. Yet here we are once again poised to elect the same know-nothings back into power. I think it was Mayer Amschel Rothschild that said, “Give me control of a nation’s money supply, and I care not who makes its laws.” Indeed. Yet you’re advocating that now that my entire life’s work has been destroyed by the ignorant, I should just shake hands with the crooks, take my lumps, and go home? I think not. I could write a book on this subject but I’m too busy trying to survive from month to month right now, so I’ll leave it at that . . .

    Carl S

  6. Rod
    Rod says:

    As usual, your article is right on and the comments posted all make sense. I haven’t been bashing either side, but it sure does gall me when someone (either side) takes advantage. Case in point: someone has had their home on the foreclosure list for over a year. They brag about living “rent free” and state that no mortgage payments are being made. Lots of loud parties are held around the pool and they just bought a Corvette. That just really rubs me the wrong way, you know what I mean?


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