Thursday, May 7, 2009

So it's come to this

This is in Victorville, CA; reports are that the same thing is going on or planned in Temecula. Spec homes in new developments demolished rather than completed or sold at a lower price:

The builder was Matthews Homes, a long-time California builder, the bank foreclosing on these properties was Guaranty Bank of Austin, and the destruction of these new homes shouldn't really be so surprising.

Many areas of California (and elsewhere) were vastly overbuilt during the real estate boom. There is a huge inventory of unsold and foreclosed new and nearly new homes throughout the state, and despite extraordinary efforts by the state and other interests and authorities, these homes cannot realistically be sold soon in this market. In many cases, the inflated mortgages have already been paid off on foreclosed properties through Private Mortgage Insurance, but the idle properties themselves are an expense (fines, taxes, upkeep, security, etc.) and rather than pay for the expense involved in holding these properties, owners of record demolish them. By doing so, they reduce inventory, clear the "nuisance" and the costs associated with it from the property and they make it possible to eventually rebuild if market conditions ever warrant.

And that's a big If.

Many areas of California have gone through repeated real estate booms/busts, and of course some of them have ultimately become very successful. Los Angeles itself is a prime case in point. But the outer fringes and most desert areas of California have had their occasional booms (or not as the case may be) only to see the projects ultimately abandoned and never revived. The skeletons of these projects are all over the state, if you know where to look and what to look for, some completely abandoned, others barely hanging on with a relative handful of hardy residents.

Victorville is not exactly a highly sought after location, but it is not by any means an abandoned railroad siding like many other places in the Mojave Desert. It "grew" very fast during the real estate boom, and it has suffered more than many other areas during the bust. How much of the "growth" can be sustained still remains to be seen, and one way to manage that "growth" is to prune the excess.

Demolishing houses that have already been paid for (or have already been written off as the case may be) in areas like Victorville -- where growth is not likely to return soon to the rates seen during the boom -- makes a kind of yucky economic sense, and we're liable to see more of it as the real estate market finds its bottom and stabilizes.

Still, it's shocking to witness.

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