Bank demolishing 16 new and partly built houses

No sale: Bank destroys newly built homes
Blaming the current housing market, a bank decides it would be cheaper to tear down 16 new and partly built homes rather than try to finish and sell them.
By The Wall Street Journal

Shannon Bennet picks through the site in Victorville, Calif., where homes were demolished rather than completed and sold. © Nick Ut/Associated Press
more on WSJ.com
In bank demolition, echoes of the Great Depression
Home price drops leave more ‘underwater’
Foreclosure trouble comes to rural America
A Texas bank is about done demolishing 16 new and partly built houses acquired in Southern California through foreclosure, figuring it was better to knock them down than to attempt to sell them in the depressed housing market.

Guaranty Bank of Austin is wrecking the structures to provide a "safe environment" for neighbors of the abandoned housing tract in Victorville, a high-desert city about 85 miles northeast of Los Angeles, a bank spokesman said.

Victorville city officials said the bank told them the cost of finishing the development would exceed what they could bring in by selling the homes. The houses were built by a California developer less than two years ago, according to city records.

The bank also faced escalating city fines as vandals and squatters took over the sprawling housing project, leaving behind graffiti and drug paraphernalia, city officials said.

What's your home worth?
"It's unfortunate," said George Duran, the city's code-enforcement manager. "We would have hoped for these houses to be finished. But it's up to the owner to see what is best for them."

Home prices in San Bernardino County, where Victorville is located, have fallen 60% from the housing peak in 2006, according to research firm DataQuick. The median new-home price in Victorville is $265,990, according to Hanley Wood Market Intelligence. Homes in the Victorville development were priced at a range of $280,00 to $350,000 in early 2008, Hanley Wood said.

Guaranty spokesman John Wessman said four of the 16 structures slated for demolition were "substantially complete," while the others were less than half finished and "exposed to the elements." Guaranty obtained the property through foreclosure in December. The builder, Matthews Homes, couldn't be reached.

A Guaranty official in California told the Victorville newspaper, the Daily Press, that it would cost more than $1 million to finish developing the property so it could be occupied. Wessman said that official wasn't authorized to speak to reporters. He said he didn't know how much it would cost to finish the job. A demolition job of this size would likely cost more than $100,000, according to a person familiar with the matter.

A video of the houses being knocked down was posted on YouTube by the founder of a Web site called Vision Victory Manifesto, which has been warning of economic disaster. He declined to give his full name for this story.

Many of the appliances had been stripped out of the houses, according to the demolition company. "I was a little surprised they couldn't come up with an alternative" to demolition, said Ron Willemsen, president of Intravaia Rock & Sand Inc. of Montclair, Calif., which did the demolition.

Willemsen said he would grind up much of the wood into mulch for landscaping, while some of the lumber would be sent to Mexico for construction there.

Home affordability calculator
Yearly gross income $
Monthly debt payments $
Cash available for purchase $
Demolishing vacant houses in economically troubled, inner-city neighborhoods is common. But the demolitions in Victorville show how the housing market is weighing on lenders even in once-booming suburbs. Guaranty Bank has significant exposure to construction loans to homebuilders. Last month, its parent company, Guaranty Financial Group, was issued a "cease and desist" order by the federal Office of Thrift Supervision, citing the firm's "unsafe and unsound banking practices."

Many lenders, like Guaranty, have been foreclosing on homebuilders whose projects have gone bust. Regulators told Guaranty to come up with a plan to dispose of its foreclosed properties. But finding buyers is difficult, as home values remain under pressure.

Posters wanted to know why homes werent donated to Habitat for Humanity. A sign of the times? Purely business decision. A donation to Habitat would have gotten them a tax write-off, at the very least. At the same time, nobody would want these homes to become crack dens, either.

Your thoughts?