Sunday, May 2, 2010

Chicago is in the Top Twenty Cities for Foreclosures and REOs: No Shortage of Affordable Housing

Illinois is one of the top ten "scam" states for mortgage fraud and Chicago is among the top twenty cities as ranked by percentage of home sales that are "distressed" sales. Distress sales comprise more than 30% of all home sales in the Chicago area at this time. Click on chart below to blow it up.

So it looks like the rollback in house prices is not over. Rogers Park and other far north neighborhoods are extremely hard hit by foreclosures, in direct proportion to the rash of condo conversions. According to the 2008 report compiled by Lakeside Community Development in 2008, over 3, 600 Rogers Park rentals were converted to condominiums.

Many of these units, which are frankly less than luxurious, are being offered at prices below $50,000, even though financing is not available on many of them and many others are uninhabitable, or are in buildings that are vacant and in boards. Many will be purchased by investors for cash below the prices offered, and fitted for rental. Others will be sold to buyers looking for a bargain-priced dwelling they can afford to invest money and love in without living on Raman Noodles for the next five years. On the city's poverty-stricken south side, the carnage is still more widespread, with many hundreds of beautiful 6 and 8 flats standing empty and in boards, and available to cash buyers for as little as $5000 a unit?

So why are we spending as much a $400,000 a unit for publicly funded "affordable" housing? I have personally counted over 40 units on the multilist in zip codes 60640, 60660, 60659, 60626, and 60645 that are available for less than $40,000 and could easily be made habitable and comfortable for another $20,000. Moreover, I discovered that behind every unit listed lurks a "shadow inventory" or "market overhang" of about 20 units that don't appear on the multilist but sit empty and in default. I personally can't put my finger on the precise number of vacant units, but my rough calculations tell me that we have at least 300 units that are "shadow inventory" between these five areas.

And why are we subsidizing more bad mortgages through FHA mortgage guarantees? Clearly, home ownership is not for everyone, especially in a period of falling incomes and unstable employment, and the government's efforts to re-inflate the housing bubble have so far not prevented prices from falling but have produced another bumper crop of bad mortgages: FHA is now the major subprime lender and recent-vintage FHA mortgages have a combined delinquency and "serious delinquent" or loans-in-default rate of nearly 20%, a really good indication that we're headed for another monster bailout in a couple of years. Bill Zeilinski of Mortgaged Future writes;

 Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves.

Given the continued high rate of default, high unemployment rates and dropping incomes, and huge inventory of unsold housing, does it make sense to force the taxpayers to back yet another wave of soon-to-default mortgages made to unqualified buyers at prices they can't afford?

And given the massive glut of unsold inventory, much of which is available for less that $40,000 a unit and could be made habitable and comfortable for less than $25,000 a unit, does it make sense to drive honest low-to-middle income homeowners, who bought their places honestly, out of their homes by confiscatory property taxes in order to divert tax money to construct more luxury condos in a glutted market and subsidized "affordable" rentals that cost $400,000 or more a unit to build? 

This is really not about the "rich" folks vs. the "poor" folks, or even the taxpayers vs everyone who wants a gift at their expense. What this is really about is the massive misallocation of resources and money that will be very scarce in the near future, as fossil fuel resources continue down the other side of the slope. The money diverted to wasteful projects designed to sustain the unsustainable, in this case an inflated housing market and tax-funded boondoggles  designed to enrich politician's cronies, is money taken away from the systems and industries we will desperately need to maintain our cities at a reasonable level of amenity and comfort, let alone safety and sanitation, and to have an economy that enable the creation of new industries and jobs. It isn't just our money or our houses at stake here,it's our lives.

1 comment:

what is a loan modification california said...

Great post! I've got an idea here. Thanks for sharing this information. It will really help.

what is a loan modification california