As more and more abandoned homes begin to crop up in urban areas across America, Mayors and city officials are becoming acutely aware of the problems that foreclosure homes are raising in their cities. With 2007 experiencing new highs in the nationwide foreclosure homes rate and experts predicting even more new foreclosure homes to come onto the market in 2008, municipal authorities are bracing themselves for the economic and social impacts that these new foreclosures will have on their cities.
Foreclosure homes were one of the hot topics of discussion at the annual U.S. Conference of Mayors that wrapped up last week. One of the biggest issues was that the rampant rate for foreclosures, which is as high as 1 in every 50 homes in some urban areas like Miami, Detroit and Cleveland, is going to lead to much lower home values. While this trend has already occurred due to a flooded market, foreclosure homes and abandoned houses, especially in dense urban areas, are notorious for bringing down market value on homes all over.
2007 already saw the steepest decline in median home value properties nationwide in 27 years. And with more adjustable rate mortgages ready to reset and no solutions in sight for bucking the upward trend in foreclosures, property values, especially in urban areas, are primed to fall much lower as the foreclosure homes inventory increases.
One of the problems that foreclosure homes and low property values raise for cities is lower property tax revenue, and that means budget cutbacks. With less people paying their property taxes, and with low property values dragging property tax values down, this results in a severely decreased allocation of money for basic city services, including the ones needed to handle to additional strain abandoned homes and foreclosure homes put on cities. Abandoned houses in low income areas have long been linked to increases in crime, but with less money to work with, cities can’t adjust their police force tactics accordingly.
Chicago city officials estimate that abandoned foreclosure homes cost the city $34,000 each every year in inspections, court actions, increased policing, city utilities and even demolition.
City officials are now taking steps to work with local banks and lenders, who they feel are responsible for much of the economic crush bearing down on the cities. An estimated 50% of homeowners who face foreclosure never even speak with their lender before their properties become foreclosure homes, and cities like Chicago are seeking to change that. The city of Baltimore has gone so far as to sue Wells Fargo over what it considers to be unfair lending practices. Officials seem to be united in emphasizing that banks and lenders play as much a part in local urban communities as the Mayor’s office, and that their responsibility is to help combat the rise of foreclosure homes.
Foreclosure homes investment is one way for the problem to begin to right itself, as is the buy up of surplus property on the rest of the market. But with so many new foreclosure homes coming onto the market every week, it seems that property values and foreclosure homes sale prices are destined to fall even further, creating a problem that is going to be extremely hard for many city government to keep up with.
