Last August I wrote:
The first thing we noticed is that many houses on the market in our area are completely trashed. …
By encouraging people to buy houses who would not otherwise qualify, the federal government has handed over the keys to people who frankly are not ready for home ownership. Many simply aren’t ready to take care of the houses or to competently rent them out, so they end up dumping trashed-out houses on the market. My guess is that this is a large, if not the major, cause of depressed housing prices in many areas.
Today’s Denver Post offers information on the housing market that seems to verify my speculation:
Of the 150,000 home sales in the metro area in the past three years, about 3,400 homes appear to have been fixed and flipped within a 12-month period, according to an analysis by Your Castle Real Estate. The analysis includes six counties — Jefferson, Arapahoe, Adams, Douglas, Denver and Broomfield.
The gross margin, or difference between purchase price and sales price, on fix and flip homes has steadily increased from an average of $38,792 during the first quarter of 2005 to $80,538 during the third quarter this year.
I assume that a big reason for the increase in margin is that people are buying houses in horrible condition and whipping them into shape.
Clearly there are people who are good at evaluating houses and fixing them up. Unfortunately, the government has gone into direct competition with them, meaning that wasteful bureaucrats will push out profit-driven businesses:
The City and County of Denver has received $6.1 million through the federal Housing and Economic Recovery Act of 2008 to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight. It’s applied for an additional $10 million from the state.
But Denver has no business entering the housing market. The practice falls far beyond the proper scope of government — which is to protect individual rights — and it involves the use of forcibly transfered funds.