A home bought for $110,000 in Flint, Michigan (2005) was recently foreclosed and can’t be sold for even $5,000. In an ominous sign of financial troubles;
Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show.
The oversupply of homes is now coming home to hurt the US and increasingly the global economy. As Phil Anderson explained on yesterday’s Renegade Economists, land prices play a unique role in the economy in that they are the security for the vast majority of bank lending. Thus if the property market falls, inferring that land prices are also falling (land makes up the majority of each housing price), then banks are limited in the credit they can supply.
This is one of the many reasons why we say the boom-bust nature of government economic policy must be reformed. If speculation was discouraged at source, by placing a decent holding charge on land in the form of a site rental, then it wouldn’t matter what CDO or CMO financial trickery Wall St invented, it wouldn’t be possible to chase speculative profits in land and housing.
With China having dominated manufacturing, it seems that Western governments have created a Ponzi like atmosphere in the property market as a way for ‘entrepreneurs’ to hone their business skills. This leads to an over-investment in the land market and the resultant screams from the middle & lower classes. Is the answer more bank bailouts?
What will Michael Moore say is the solution for his home town? Please Michael, look outside the square and into the warmth of an economic system where the community is rewarded for its efforts, the billions required in sustainable infrastructure funding is possible and the vacant properties can be turned into a vibrant area for creative types. Urban density ensues and small business is encouraged. C’mon – now is the time!