Three ways to help fix the vacant house problem

By Contributor Archive

Filed Under General on Dec 18 

This is another home run from Chuck Muth. The one thing the Government could do to drag the housing crisis deeper they do. Typical Washington.

By Chuck Muth
December 16, 2008

On Jon Ralston’s “Face to Face” (local Las Vegas) television program today, Senate Majority Leader Harry Reid was asked about “criticism from struggling homeowners that the bailout has done little to help them.” Reid responded, “I think they’re right.”

Is anyone really surprised that despite everything the government is doing to “fix” the problem of vacant, foreclosed homes – especially in Clark County, Nevada – the problem appears to be getting worse rather than better? Here are three things the government could do, from the perspective of a would-be buyer, which would actually help.

Although the government’s “no money down” programs resulted in some people being able to buy homes they couldn’t afford, the absence of having a “skin in the game” wasn’t the real cause of today’s mess. The real problem was that once their adjustable-rate mortgages went up, they could no longer pay the higher monthly payment.

Yet in October Congress eliminated the down payment assistance programs for folks ready, willing and able to buy vacant, foreclosed houses around the valley. Buyers with good credit and who can afford the fixed monthly payments for these homes at today’s prices and interest rates, but who do not have several thousand dollars in cash for a down payment, are now out of the market.

If the government truly wants to move more of these houses, it needs to come up with some new kind of down payment assistance program.

Secondly, a large number of the vacant, foreclosed homes on the market today are practically brand new homes in new developments which are now selling for as much as half of what they were selling for a year or two ago. That means these homes are now in the price range of a lot of people who were previously priced out of the market.

Except.

When you buy one of these relatively new homes, the property tax is based on the assessed value of the home back in the “old days” when the property’s value was twice as high. So even though a potential new buyer could afford the mortgage on the current purchase price of the home, the government still wants to charge the home-buyer the property tax at the inflated value. This can add hundreds of dollars to a potential buyer’s monthly payment – keeping these homes out of their reach.

I can appreciate the government wanting to keep getting the same level of tax revenue at the higher rate, but if the primary objective here is to clear out the inventory of vacant, foreclosed homes then they ought to automatically reassess the property tax on the actual purchase price, not the hyper-inflated assessed value of a year or two ago.

And lastly, many of these vacant, foreclosed homes have been virtually stripped bare and destroyed inside. Not only are major appliances missing, but in some houses even the bathtubs and kitchen cabinets have been removed. In others, people have destroyed the carpet and punched holes in the walls. If you want to move these “dog” houses, there needs to be a way to include rehab money in the home loan for people who can make the payments but don’t have a lot of cash lying around to do the necessary repairs.

Do these three simple things and you’ll quickly see fewer vacant, foreclosed homes in your neighborhood.

Comments

  • Fabs

    I don’t think Mr. Muth was too far off, but there is some space to argue his points. I actually agree with his downpayment perspective. The market is tightening up to the point where banks REALLY want 20% down, so it’s not just folks with zero down payments that are having a tougher time getting a loan. When you’re paying rent and trying to save for a large down payment, that’s going to take a LONG time to get 20% for the average Joe Shmoe. So I agree that there should be more room for those with at least a small down payment since down payment size isn’t necessarily a great indicator of one’s ability to pay monthly.

    The property taxes isn’t such a big deal because if the home values are really that different from the assessed value you can usually dispute it. It takes some work, but worth the effort if it’s a legitimate problem.

    And I don’t really buy the rehab money arguement since those types of damages are factored into the market value of a home and will usually drop the home’s value more than what it actually costs to fix it up. You shouldn’t need access to additional funds to fix it up since you’ve already got a bargain price because of it. If you’re really that stretched to only afford the home and can’t fix it up, then you should be finding ways to enjoy those holes in the walls.

  • JE

    Gonna disagree with chuck on this one, troy.
    If you are a potential buyer with no money to put down and can barely make the payment but would be stretching to pay property tax, you probably are not in a good enough financial shape to be buying a home. I agree the property tax being based on prior levels is stupid, but when the market turns the taxes would go back up with the value of the home, so unless you are buying it just to flip it for a profit later, you will wind up with those property taxes at some point. (And then there is upkeep, insurance and a list of other hidden costs to ownership). I know, the assumption is that income will rise…but that is the thinking that roped people into ARM’s and when the rate went up it led us into this mess because people tried to buy more house than they could reasonably afford. Not everyone needs to be or is capable of being a home owner…this is one lesson of the housing collapse.