Even some of the sharpest folks [Or perhaps I should say ESPECIALLY the sharpest folks] in real estate have gotten out of house "flipping". In a declining economy, with a glut of homes on the market, and financing difficult- it’s next to impossible to have flipping make financial sense.  That doesn’t stop government from wanting to get in the business though. On May 8, Representative Maxine Walters (D-CA) posted these comments about legislation she had introduced on her website:

By a vote of 239-188, the House passed The Neighborhood Stabilization Act (H.R. 5818), which authorizes a $15 billion federal grant and loan program to help state and local governments purchase, rehabilitate, and resell or rent foreclosed homes.

“To understand the urgent need to enact this legislation, you just need to visit — as I have —communities like Cleveland, Detroit, or the San Bernardino and Stockton metropolitan areas in California, where block after block is dotted by foreclosed properties, many of them suffering from neglect or actual vandalism.  These abandoned and foreclosed properties drag down the value of the homes still occupied by working families, contribute to a cascade effect whereby plummeting home prices erode the tax base of state and local governments and harm real estate related industries such as the construction trades,” Congresswoman Waters said.

Using well-accepted construction activity multipliers, the National Foreclosure Prevention and Neighborhood Stabilization Task Force calculates that the bill’s proposed $15 billion investment will generate at least $38 billion in direct and "ripple effect" economic activity nationwide, employ 120,000 people, and restore nearly $225 million per year in local government real estate tax collections.

Reality often doesn’t work as well as theory.  From today’s Toledo Blade:

In the midst of a national foreclosure crisis, the Toledo-based Neighborhood Housing Services has been buying more houses than it can afford to rehabilitate, Executive Director Bill Farnsel said.

Residents living next to two of the agency’s vacant properties say the houses’ conditions attract rats and other vermin, as well as thieves and loiterers.

And the neighbors say they’re sick of it.

"[NHS] should be prosecuted," said Dave Geoffrion, who lives on St. Louis Street in East Toledo. "They should be forced to live in that house with the rats and the mice and the groundhogs."

The agency is a nonprofit community development corporation that buys foreclosed houses, fixes them up, and offers financing to low-income and middle-income people so they can buy the properties.

So what happened?

In 2005, [the agency] bought two houses at 453 and 505 St. Louis St.

"At the point and time we bought them, we thought we would be able to get the financing," Mr. Farnsel said.
But in 2006, when the foreclosure crisis forced the agency to seize many of the houses its delinquent homeowners abandoned or couldn’t pay for, the agency didn’t have any collateral to purchase lines of credit from local banks.
"We thought we’d be able to access enough credit to do those houses," Mr.Farnsel said. "We can’t obtain the credit right now because there’s no market."

 

Homes are going into foreclosure in many areas, not because potential buyers don’t like the color schemes, but because as Farnsel indicated, "There’s no market."  Apparently even previously renovated homes are going into foreclosure.

Rep. Walters said of the Neighborhood Stabilization Act and others currently being considered:

“These bills are forcing the Congress to have to deal with this problem … we’re trying to teach them that many people who got into these loans didn’t simply make bad decisions. They were tricked into these loans!” the outspoken congresswoman declared.

Do we assume then that when homes sold by agencies such as Toledo’s Neighborhood housing services go into foreclosure, borrowers were tricked by these agencies as well?

It is said that "Fools rush in where angels fear to tread."  Apparently the same can be said of our government and the housing market. When the problem is excess supply in an area of low demand, Congress should understand a little paint and paper isn’t going to fix the problem.