Great news: Foreclosures getting spruced up while taxpayers get trimmed

Since most people can’t afford to sell their homes, they have had to rethink their existing homes instead — remodeling, painting, perhaps getting some new landscaping.  Unfortunately, thanks to low employment and high gas prices that hammers disposable income, the funds for those activities are on the low side for most homeowners, too.  However, the good news is that a number of homes do get the full treatment.  The bad news?  You’re paying for it:

American taxpayers own close to 200,000 vacant houses, and over the next year they will spend more than $40 million just to mow lawns at these properties. Taxpayers also foot the bills to paint walls, fix cabinets, plant flowers and more — expenses that just last year, exceeded a half a billion dollars.

The housing bailout has already cost taxpayers $124 million, now Americans are spending hundreds of millions more fixing up foreclosed homes to try and sell them. It is a bizarre and expensive side effect of the housing market collapse and failure of Fannie Mae and Freddie Mac, the mortgage giants that went into federal conservatorship in 2008. …

Fannie Mae says fixing the houses and maintaining them will ultimately save taxpayers money, because they will yield higher prices in the marketplace.

Well, that’s true — and that’s why people usually invest in their own homes, and not those of others.  That was one side effect that often gets overlooked from the housing bubble collapse and the crisis in home equity.  During the bubble, people used the rapidly-escalating home values to pull cash out of their homes.  Under normal circumstances, that money would have gone back into the house, making its value increase; during the bubble, homes got used as ATMs in order to buy vacations and merchandise instead.  That leaves a lot of people able to cover their mortgage now but without the equity to do the kind of maintenance work needed to keep up their own homes in the next few years.  Instead, the government now has to take their taxes and use those funds to improve houses just enough to get them off the books.

Don’t expect those outlays to get covered in the eventual sale price, either.  All that remodeling, lawn-mowing, and painting would only impact the sale price significantly if inventory was tight.  The markets will have a glut of these foreclosed properties over the next several months, perhaps for the next couple of years.  Thanks to low employment and high energy prices, demand will remain light for the foreseeable future, too.  At best, taxpayers will take a bath but get out from underneath the foreclosure overhang in a reasonable amount of time.

Unfortunately, all of this is unavoidable now.  Hopefully, though, it will serve as a lesson for the next time that people propose government interventions in lending markets in order to distort outcomes to favor their political priorities.