Bank properties

If you were asking yourself what happened to the untold billions poured in to the financial system recently, this is part of the answer – it is tied up in bank-owned properties. The big Banks in the USA are now the largest property owners in the country, and much of the funds poured into them is to prevent these properties from being dumped onto the market in an effort to prevent prices from collapsing any further.

Clearly this is not working and the price of real estate continues to decline. And the new accounting rules introduced allow these banks to value this foreclosed property at the level of outstanding loans that were on it rather than a current market value.

Obviously if the millions – and I do mean millions – of properties being held in reserve by the banks went for sale at a true market price, the market price would be pretty low. In fact – I would hazard a guess that the market price would be so low that almost every American would be able to afford their own home – and we wouldn’t want that.

That was sarcasm in case you were wondering. Nevertheless, foreclosures continue to rise, and the amount of bank owned property with it. A similar situation exists in Spain as well. Although they Spanish banks never got involved in the sub-prime fiasco, they did not need to. They were creating their own mini sub prime crisis. In fact there are an estimated 2 million foreclosure properties in Spain at the moment. Many of them are starting to fall into disrepair and rot away. But, they are actually not worth anything unless they are producing tax revenues it seems. I mean - finding a bank property for sale should not be as hard as it seems to be in Spain. At least at a reasonable price.

The Spanish banks are also the largest property owners in that country and the European central bank printed 60 billion Euros to buy Spanish covered bonds not long ago to prevent the banks from needing to sell their stocks at market prices. Oddly – this went almost un-noticed by the traditional media.

This massive manipulation is destined to backfire at some point. Where that point is, is rather difficult to predict but backfire it must. We cannot have a situation whereby the financial system is being propped up by pouring more and more funds into it from nowhere, with the intention of artificially creating a lack of supply in the housing market to keep prices high for the simple fact that the other half of the equation is not functioning properly. The consumer boom caused by over lending to bad risks against their home equity is over. You just try getting a 100% mortgage on a property right now.

So, demand is low and will stay low all the time home prices are out of reach of a typical buyer and the quantity of bank properties will continue to grow. I have seen several bulk deals of condo sales go through at as little as 6% of the “boom” prices, so who knows where we are going to end up.