Last week I visited Stockton, California. I met with a residential broker who covers certain Stockton neighborhoods. He showed me a map of his areas with each foreclosure indicated by a little circle. I couldn’t see street names or other features on the map because there were so many circles.
According to this article from September 2007, Stockton was the foreclosure capital of the country with nearly 4% of homes in foreclosure. Since then I have heard that Detroit has overtaken Stockton but Stockton remains in a close second place.
More Foreclosures Than Buyers
There are so many foreclosures in some areas around the country that banks can’t find buyers. According to this article, many foreclosed properties are simply abandoned by the banks. Apparently the property has lost so much value that it’s more cost effective for the bank to abandon it rather than incur carrying costs and the expense of finding a buyer or auctioning it off. Amazing.
Foreclosures Are More Than Just a Financial Problem
When a property is abandoned it can create opportunities for drugs, crime, or other problems. The city is forced to board up or demolish the abandoned properties. There’s not much worse for a neighborhood’s property values than six boarded up homes on every block.
In Syracuse, New York, vacant homes were sold for $1. Yes, you read that right - one dollar. You can either buy a hot dog at the movies or 5 homes in Syracuse.
In Cleveland the mortgage companies are dumping properties through the internet. Prices are so low that investors are buying anywhere from 15 to 100 at a time.
All told the U.S. homeowner vacancy rate is 2.8%, or about 1 million vacant homes. Wow.
Know Your Finances
The record number of foreclosures has affected a record number of families. I hope the affected families will land on their feet and make wise money decisions to be in a position to become homeowners again.
I suspect that many of the foreclosed owners chose a house based on a broker’s assurance that they could afford a certain monthly mortgage payment. Then it turned out the broker was too optimistic. It is unfortunate that some brokers had no qualms about taking advantage of an unsophisticated buyer.
It is a good reminder for all of us to exercise control and responsibility over our finances. I feel bad for foreclosed homeowners. At the same time I recognize it was irresponsible to outsource the task of calculating how much house they could afford. Especially to a broker whose commission was linked to the amount of the mortgage.
The better approach is to determine how much house you can afford, and then talk to the broker.