Vacant Homes Will Drown Housing Recovery

07-28-2011 • CNBC.com

A real estate source I knew recently told me about a guy he knows in Atlanta who has been hired by several different banks to winterize their REO's (real estate owned, i.e. the bank-owned foreclosures). The homes are abandoned and empty, and clearly the banks think they're going to stay that way for a while. The winterizer didn't want to do an interview, for fear he would lose his clients, the banks, who might not want us all to know about this. A new study by an economist at the Cleveland Federal Reserve finds today's foreclosures stay vacant far longer than the historical norm. Studying one Ohio county, Stephan Whitaker found, "foreclosed homes go through more than a year of very high vacancy rates following the auction and are substantially more likely to be vacant up to 60 months after the foreclosure." The higher the poverty rate in the area, the longer the property stays vacant. Foreclosed homes obviously lower the value of surrounding homes, but Whitaker says the damage can go on much longer than we might think. "The data suggest that foreclosure may permanently scar some homes," he writes in his research.