Sunday, February 08, 2009

Despair and Foreclosures

A New York Times story looks at the reality of the collapse of the residential real estate in one Florida town, but the story is being replicated over and over again around the USA and it underscores why it is urgent that something be done to revive real estate. Unless and until the free fall is stopped, do not expect any rebound of the economy. One way to breath life back into real estate is to get lenders making reasonable loans once more.
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The mortgage industry has gone from making insanely reckless loans to tightening up underwriting requirements to the near ridiculous with the result that even otherwise qualified buyers cannot secure loans. The result? Homes are not selling and more and more homeowners who have lost jobs or been relocated are seeing their homes go to foreclosure rather than be resold. That in turn further suppressesSadly, the stimulus plan in Congress doesn't seem to have sufficient focus on this problem nor does it make a quid pro quo requirement that lenders receiving bail outs must make loans with the money as opposed to sitting on it. And tax cuts favored by the GOP? They will do absolutely nothing to address this problem. Here are some story highlights:
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LEHIGH ACRES, Fla. — Desperation has moved into this once-middle-class exurb of Fort Myers, where hammers used to pound. Its straight-ahead stare was hidden amid the chatter of 221 families waiting for free bread at Faith Lutheran Church on a recent Friday morning; and it appeared a block away a few days earlier, as laid-off construction workers in flannel shirts scavenged through trash bags at a home foreclosure, grabbing wires, CDs, anything that could be sold. Welcome to the American dream in high reverse.
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In Lehigh Acres, homes are selling at 80 percent off their peak prices. Only two years after there were more jobs than people to work them, fast-food restaurants are laying people off or closing. Crime is up, school enrollment is down, and one in four residents received food stamps in December, nearly a fourfold increase since 2006.
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President Obama is scheduled to visit Fort Myers on Tuesday to promote his economic stimulus plan. But residents here tend to view it as the equivalent of an herbal remedy — it can’t hurt but it probably won’t heal.
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[I]n 2007, it all went quiet. Houses stopped selling. Foreclosures multiplied. The median home price in the Fort Myers area dropped to $215,200 in December 2007, from a peak of $322,300 in December 2005. It had fallen to $106,900 two months ago. . . . Lehigh Acres was particularly hard hit because it relied on construction. This was where the carpenters and exterminators of southwest Florida lived because it was more affordable or close to work. Work disappeared with the profits.
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Real estate agents said the homes that are selling here typically go for only about $45,000, a third of what they cost to build. They predict that foreclosures will continue to keep prices low for two more years.

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