Money for nothing...and your house empty
Get out your calculator and do a little staggering math.
Housing units in the U.S. increased by 8.65 million from 2002 to 2007. During that period, the number of households rose by only 6.7 million. Subtract a half-million homes that were torn down or blown away by hurricanes or other disasters, and that leaves you with an excess of 1.3 million units -- not including vacation homes.
These vacancies produce winners and losers. These days I'm not sure which I am.
All of these empty houses are old news for those of us who live in Detroit, where the housing market has been in decline for 10 years. In my neighborhood, things are not terrible, but practically every block has at least one house where no one has lived for the last year.
The last vacant house on my block sold in 2006 for $285,000. It went into foreclosure within six months. Mallards took over the swimming pool. The neighbor across the street made it nearly her full-time mission to harass Countrywide Mortgage and the city zoning office in hopes of forcing somebody to cut the grass. In February, the house sold at auction for $75,000. We neighbors all took big gulps and said a prayer that we wouldn't have to sell our own homes at anywhere near that give-away price.
The house is still vacant, papered with official notices. We're all sorry we didn't take up a collection and buy it because now we're stuck with an absentee neighbor who appears to be even less responsible than Countrywide.
Meanwhile, for the last few months, my 25-year-old musician son has been trying to buy a duplex in New Orleans, where there are thousands of vacant properties. The ones in decent condition are selling like crazy. My son bid on four houses and was too slow or bid too low and they went to someone else. He got lucky on the fifth bid. The house was originally a short sale – the owner fell behind on the mortgage and was hoping to unload the property for less than she owed before the bank foreclosed. My son bid $72,000 shortly before the bank filed the foreclosure. Two weeks later, the bank put the house back on the market for $6,000 less than my son had offered and the real estate agent adjusted my son's bid and resubmitted. The bank took it – and also agreed to pay all closing costs.
The house is a remarkably good deal. The mortgage is at 4.5%. The state of Louisiana is offering a 0% interest soft-second mortgage that my son can use to do some fix-up work. If he lives in the house for 10 years, the soft-second loan will be totally forgiven. The federal government, as part of the economic stimulus program, is offering 10%of his purchase price – $6,600 – as a credit on his 2008 taxes. All he has to do is re-file once the sale has closed, and the government promises to deposit the money in his account within a week. On top of that, the house is a duplex in a neighborhood where half a house like his rents for at least $1,000 a month, so he plans to live on one side and use the rent from the other side to pay the mortgage -- and the cable and gas and electric, too.
I suppose this math makes perverse sense in tough times when a generation of boomers has accumulated more than they really need. The decline in the value of my home will cut into the amount of money that I will eventually leave to my son. But that's offset by my son's ability to purchase a property at bargain rates and have his deal subsidized by my tax dollars. I guess that's the new American way.