Recently, I had an opportunity to view a few foreclosed properties in Houston. What I saw was dramatically worse than anything I personally viewed during the real estate bust of the 1980s. The homes I toured in January had been totally trashed. I had no way of knowing who was responsible for this criminal behavior. It could simply have been vandalism of homes not adequately secured, or perhaps before being forced from these homes because by foreclosure, the resident/owners had completely gutted the properties. The bottom line was whoever the culprits, they tore out all of the fixtures (even wall outlets), pulled out all removable flooring, removed any plumbing and bathroom and kitchen fixtures, and spray painted what was left with various colored paints (a poor attempt at graffiti). Unfortunately, even though in my opinion the acts were criminal, I doubt that anything will be done to stop this. The problem is that the owners of these REOs do not have a clue what is happening to their properties. Each home is merely a line on a large list of foreclosed properties they own. In most cases owners of this REO are out of state and must rely on agents in Houston to peddle the properties, agents who are given little incentive to fully “protect” these properties other than to try to unload them quickly and collect their commission.

While one might think this is just an institutional problem, the ramifications go beyond the losses to lenders and mortgage insurers. As one tours some neighborhoods in Houston where as many a 20% of the homes have been foreclosed, it is a stark reminder of an important consequence of the mindless practice which today we collectively lump under the rubric of “subprime lending”. This practice put households into housing they could not have possibility afforded once the teaser rates disappeared. Second, it reminds us how “distant” most lenders really are and thus, how vulnerable housing collateral is, collateral which was supposed to secure all of those mortgage backed securities that now have to be drastically written down. Finally, it reminds us how exposed some of our neighborhoods are to a devastating change in the demographics which has led to a dramatic decline in the level of maintenance of the housing stock within their midst. While the local foreclosure problems today are still low in comparison to the 1980s real estate crash, the impact upon some neighborhoods may be irreversible as happened in the late 80s and early 90s. Unless this problem is brought under control and unless neighborhoods work more diligently than ever to protect the integrity of their subdivisions, a serious regional problem will emerge, affecting thousands of totally innocent families, even in an urban area like Houston where the housing bust is significantly less severe than other parts of the nation.

Dr. Barton Smith
Director, Institute for Regional Forecasting