Glut of REO's means prolonged agony for CA governments


Inquiring minds are digesting The Contra Costa Times article on the issues their county’s current and shadow housing inventory create. First the inventory problem:

Tens of thousands of homes in the East Bay are in foreclosure or are owned by banks. Some sit empty; a few are boarded up.

In the East Bay, banks own more than 10,000 homes, only a fraction of which are listed for sale. Another 20,000 are in foreclosure, headed toward bank ownership, according to data from RealtyTrac.com.

The article also explains the problem this poses to the effected governments:

Beyond the squatters and overgrown yards blighting neighborhoods, the glut of bank-owned homes means years of decline in the property taxes on which cities, schools and the state of California depend.

So local governments that already have sent out layoff notices by the hundreds may be forced to make more cuts.

For those losing their homes to foreclosure, the end of the line comes when banks reclaim the house keys.

For governments, that is just the beginning.

Foreclosed houses do not obtain lower property tax assessments until banks sell them. So tax revenue will keep falling until banks sell all the houses they end up with, creating a long-term lower tax base.

And more importantly, what the future holds:

The number of bank-owned homes is a double-edged sword. For the moment, banks are still paying the higher taxes associated with the original values. So for the moment, local and state governments still receive the higher allocations.

“(Banks) are not dumping all these properties on the market at once,” Kramer said. “If they spoon-feed them out, it just spreads out the pain a little bit longer.”

This brings to the fore in very provincial terms how we are entering a new era. Debt bubbles take years to unwind.

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