Buying a house with monopoly money
The Denver Post’s Weekly Home Buyers List lists residential real estate sales in Colorado. The homebuyer list for the week of May 24 totaled just 62 sales for all of Douglas County, CO. The low number of sales may not surprise many in today’s market, but a closer look at the problem reveals an uncanny disparity in home prices. It may be easier and a little more fun to think of today’s market as a game of Monopoly.
** The most expensive property listed last week in Douglas County, CO was $1,050,000. That would be Boardwalk in Monopoly terms. The property, on Longsbluff Lane in Parker, CO, had previously sold for $1,120,000, so the price reduction was only $70,000. Not terribly bad.
**Least expensive property to transfer was $139,000 for a new condo on Cutter’s Circle in Castle Rock, CO. That would be the Mediterranean avenue. right after GO, PICK UP $200 on the Montopoly board..
**Again this week, bank foreclosure properties have taken the biggest hits. Things aren’t going so well in the middle of the board, at St. Charles Place and Marvin Gardens. A property in the Cherokee Ridge Estates section of North Douglas County sold for $730,000. The sale would not be noteworthy except for the fact that the foreclosed property had previously sold for $1,549,000. That means this million-dollar home sold for less than half what it sold for two years ago — a loss of $819,000. That’s a big stack of $500 gold monopoly bills removed from the board.
Where did the money go? Could it have simply “evaporated” out of our financial system? The real truth of where this money has gone and is going is so grim that it is beyond the scope of this real estate article.
What is happening right now is that the Federal Government is artificially propping up the real estate market to prevent a free fall in house prices. You are using taxpayer dollars to do it. Currently, the only entity that buys mortgages is the Federal Reserve, and the only types of mortgages it will buy are those that meet FHA limits. The current FHA limit in our state is officially $406,250, but for this year only, the Federal Reserve will purchase mortgages up to $417,000. The Fed is printing the money it uses to buy those mortgages. Monopoly is once again instructive: the government prints and doles out money according to certain rules. However, in this case, there are rules that make it so that no one can win the game, except perhaps those who receive the newly printed money. In the end, if you’re playing this game, you should leave the game board with your game piece in the safe jail and try to get out and hope you don’t get doubles and have to get out.
Here in the real world, the wicked $417,000 limit results in bizarre foreclosure sales with thousands of dollars in principal disappearing. The money just rolls off the board.
One example of continued price collapse is a home in the Sapphire Point section of Castle Rock that previously sold for $1,195,000 in 2007. This year, the lender repossessed the property in foreclosure and resold it for $500,000. Thus, another $695,000 has magically disappeared from the board. Why the low sales figure? The buyer obtained a government-backed loan, the only type that is actually available.
And how much was the mortgage? Why $417,000, of course?
The federal cap has created a de facto cap on home loans and prices, regardless of the home’s previous sales price or the value of the property on which it is located. Whether it’s the poor section of the Monopoly board with Mediterranean and Baltic or the high-priced section with Boardwalk or Park Place, home values are defined by the ubiquitous $417,000 mortgage. This FHA mortgage plan sucks.
With this rigged game of Monopoly, it can be hard to find players and that’s what’s happening now. The end result of this artificially restricted, government controlled market is a drastic reduction in home sales. Even as the Fed frantically prints new money, it can’t match the private sector financing that existed only a few years ago. An examination of the historical data from the Home Buyers List quickly shows that the housing market has dried up. It’s impossible to keep taking Monopoly money off the board, force the values to match, and then expect a player to buy Ventnor Avenue when they land on it.
**In Douglas County, Colorado, for the period January 1 through May 31, 2006-2009, actual sales were as follows:
In 2006 – 3,400 men sold
In 2007 – 2,800 homes sold (a reduction of 600 since 2006)
In 2008 – 2,250 men sold (a reduction of 1,050 since 2006)
In 2009 – 1,000 men sold (a reduction of 2,050 since 2006), that is, a 70% drop since 2006.
**For Castle Rock’s 3 ZIP codes of 80104, 80108 and 80109, the drop has been even worse:
In 2006 – 1,138 men sold
In 2007 -840 men sold
In 2008 – 670 men sold
In 2009 -300 men sold, a drop of 73%.
To achieve even this meager level of sales, the Obama Administration has spent over $2 trillion taxpayer dollars inflating Wall Street banks, AIG, Fannie Mae, Freddy Mac, etc.
There has to be a better way. Everybody knows; even President Obama. Certainly the towns of the Berkshires know this. Right now in Massachusetts’ Berkshire Hills, residents are practicing self-help: they’re printing their own money, which they call “Berkshares.” People get their Berkshares from the local bank for 90 cents and spend them at local businesses at the rate of one dollar per Berkshare.
