Housing Prices and Government Influence

Housing prices have begun to tick back up in many areas across the U.S.  We will have to see if this will continue or if we will see another bottom in the future.

The government and the central bank (the Federal Reserve) caused the unsustainable housing boom in the first place.  In particular, it was the easy money/ low interest rate policies of the Fed that contributed the most.  But there were certainly government laws and tax considerations that contributed also.

I believe that the government and the Fed are helping to prop up prices once again.  This is not really a recommendation to buy or sell real estate.  I am simply pointing out that the housing market is being altered by government policy.

While there has been a pick up in prices, it is curious to me why there are so many empty houses out there.  I see it with my own eyes.  I don't need to look at any statistics or charts.  I have seen houses that have been sitting empty for at least two years and I would find it hard to believe that the owner is someone other than a bank.

There is something going on that the American public doesn't know about.  I have heard the explanation that banks are releasing foreclosures onto the market slowly, so as not to crash the prices again.  It is a controlled release of their inventory.  While this might seem to make sense, it really doesn't make sense, unless it is being encouraged (or forced is more likely) and coordinated by the government.

Imagine if you owned your own small bank.  You own 100 houses that you obtained through foreclosures because the borrowers were not repaying their loans.  At this point, it doesn't matter whether you lost money on these loans or not.  You own 100 houses.  Does it make sense, for you as an individual business owner, to have some of these houses remain empty and off the market?

Don't forget, when a house sits empty, you still have to pay property taxes.  You have to pay any association dues, if they apply.  You have to maintain the lawn.  You probably have some electricity bills.  If you shut off the electricity, you are risking mold in the summer time.  You are also risking other problems with the house sitting empty for a long period of time.  In other words, there are considerable expenses to owning a house and letting it sit empty.  For an individual business owner, you would want to get rid of this inventory as quickly as possible, unless you decide to get in the landlord business.

Prices are not going to go down with any significance in this example because of the bank selling 100 houses.  Even if the bank owner thought prices might be a little higher two years from now, it probably wouldn't make up for all of the property taxes and other costs over that period of time.  So even for a large bank that might move the market significantly with putting a huge number of foreclosures on the market at once, it still wouldn't make much sense to let these properties sit empty.  They are losing money like crazy.  That is probably why the Fed started QE3 to bail out the banks again.

Letting foreclosed homes sit empty makes no sense from a business aspect.  This is why it is probably being dictated and coordinated by the government, at least upon the big banks.  They are trying to do a controlled liquidation.  They do not want another crash of the housing market and are doing almost anything to keep it from happening.

The housing market is nothing resembling a free market right now.  But that doesn't mean that it might not be a profitable business for those with capital.