by Erik Hare
Average home prices continue to fall, but it's hard to tell exactly what this means. Before the market settles out, a lot of very cheap houses will sell in order to be renovated. Is that what is going on? What we do know is that the City of Saint Paul is attempting to get that process started and formulating some bold action. It's possible that things are already moving forward.
A few months ago I had a chance to hear Sheri Pemberton of Planning and Economic Development (PED) tell the Fort Road Federation what Saint Paul will do with the vacant and foreclosed homes. The first order of business is to characterize the pockets of vacant and foreclosed homes into places where the market is still working, starting to falter, or has totally broken down. The latter is where you find empty blocks and houses being offered for $40k or less. The strategies to deal with these are based on saving houses where the market is working and creating a new market where there is none now.
Saving houses on otherwise good blocks is a matter of finding homeowners that are willing to take a little bit of a chance. Many of these properties just need a good renovation cycle, which is to say someone who wants to do them up right rather than a quick slam that will get them rented again. We’re trying to break the cycles of bad renovation, rental, value increase, and foreclosure that have plagued some buildings for up to a hundred years. That means we need the knowledge of how to do this and good constructions loans. I hope to be able to convince the city that entorship from people like me is something the city can put together easily.
Construction loans are nearly impossible to come by right now, so perhaps Purchase and Renovation loans called 203ks need to be explored by the city. This is where the city floats bonds to front the money to buy and renovate the home while a Supervisor or Coach watches the whole project. That kind of money is hard to come by now, especially since municipal bonds have pretty high yields. If the Federal Government does one thing to help cities, funding 203ks will help a lot
In places where the market has died, local organizations called CDCs (Community Development Corporations) will probably do most of the heavy renno work. The Fort Road Federation had great success with the last major project it took on, the “Brewery Breakthrough”. This was where the area behind Schmidt’s Brewery was completely re-do, with about 20 houses demolished, 4 moved, and several new townhomes put in their place.
The City of Saint Paul is still putting together its plan for the next 5 years, but we can see where it will go. We do have a lot of success in Saint Paul doing things well, so we have lot to pull from. Between what we’ve done well in the past and some high quality PR telling people how great this city is, we’ll do well.
Erik-
My head swims every time there is talk of more borrowing.
We borrowed our way into this mess.
How can borrowing be the way out as well?
The giant spike in mortgage rates is a SERIOUS WARNING that sustained borrowing is going to become much harder going forward. Even the Treasury, with the best credit rating in the world is getting hit with higher rates.
Here is what must AND WILL happen to solve this problem.
House prices will drop until people can buy them, afford the monthly payment and service all their other obligations WITHOUT DEBT.
In light of recent economic developments, I am changing my prediction. I had posited that the biggest declines in prices were over, and we would see flat appreciation until unemployment improved.
Now, I am expecting another large downdraft in prices. Not as big as what we have had so far, but close enough.
We are seeing the unwinding of 30 years of leverage.
The Federal Reserve can print all the money it wants, but it can’t recreate the destroyed wealth.
Think of all the California idiots who HELOCed 50k, 100k, or more and spent it on cars furniture, granite, vacations, or landscaping.
Now they have defaulted.
That wealth is GONE, and even if the taxpayers pick up the whole tab, that just means that the taxpayer will not have the extra funds to pay more for a house.
The giants deficits that are being planned are an attempt (like most politicians do) to shift present problems to the future.
This means that your children will be paying principal and interest to fix the banking stupidity of the current ‘adults’.
The bond market issued a warning about that strategy this week, and I do not think it is the last.
Banks are eventually going to sell people property at a cash price.
If you have to borrow, it is not affordable.
No.
More.
Borrowing.
Erik – one thing the city could do is stop holding these registered properties to a higher standard than any other types of sturcture in the city that isn’t new construction. If our own homes had as strict of a code compliance we could never sell them. No one is listening to me on this. My peers and I have been fighting it and questioning it for two years now. Even when a buyer can borrow for rehab they have to borrow more than the home will be worth when it is rehabbed to bring it up to city standards. When the homes are appraised the deal falls apart.
PB you may be right about the downdraft of prices that will occur when the next wave of foreclosures hit. As for the future generations paying I usually don’t get all political on my blog but it seems like republican administrations spend without taxing and defer the bill where as Democrats tax and spend. There isn’t any way around paying for the things we buy. We either pay now or later but we pay.
Let’s look at your last statement:
“…but it seems like republican administrations spend without taxing and defer the bill where as Democrats tax and spend.”
People pay taxes during BOTH Republican and Democrat administrations.
The government also spends money during both Republican and Democrat administrations.
So, your statement would be a little like saying:
“Republicans take out mortgages, whereas Democrats buy houses”. Te reverse would also be true, and the statement by itself does not even imply that anyone is acting incorrectly.
Accounting for entitlement programs, the obligations on future generations has grown steadily for years. Both parties’ refusal to deal with the INEVITABLE social security funding crisis demonstrates irresponsibility.
Additionally, you can’t look at the national debt during a president’s tenure and determine how good a job they did.
A national budget is like an ocean liner, takes a while to change direction. Suppose Obama made all the ‘right decisions” with regard to the budget.
By the time the effects showed up, we might be two presidents further down the road.
This is due to the very long time-frame structure of government spending.
Interest Rates
Each administration’s budget will be heavily affected by the interest rates that the particular administration borrowed at.
It is popular for conservatives to point out the high interest rates during the Carter years. They don’t like finding out that a big part of those rates was due to Nixon’s actions.
Of course Nixon’s stupidity followed Lyndon Johnson’s huge deficit spending, which was also bad.
You are RIGHT that we either pay now or pay later, but the problem with that is that your kids or grandchildren might end up with the tab for benefits that others receive NOW.
Since your/my grandkids will end up with much higher tax burdens, they will, by logical conclusion have less money to spend as they see fit.
So as the boomers ride off into the sunset, repairing the damage THEY DID with their d**m fool credit bubble, the harsh tax hit will only come when they are safe from the reach of it in their senior home in Florida.
I waited tables for years and one thing that never failed was that when a large party with a single check broke up slowly, the people left at the end paid for far more than they had.
I am willing to endure another great depression if that is what it takes to prevent crushing your kids (I have none yet) with debt.
Are other people willing to take their medicine?
r will the Most Cowardly Generation make one last wealth grab with the Treasury and skip out on the tab?
Bush was criticized for $500 billion dollar deficits. GOOD! We should not run that kind of deficit.
Now Obama wants to run $1.8 trillion dollar deficits.