Fannie Mae Proposes Bulldozing U.S. Homes

As the collapse of the U.S. housing sector worsened in 2008, and the precise nature of this supply-driven bubble became apparent, I laid out a very specific “blueprint” for putting a genuine “bottom” in this market.

The U.S. government needed to commit $1 - $2 trillion paying-down the mortgage balances of U.S. homeowners, in order to restore some badly-needed equity for these homeowners, which in turn, would provide some stability to the U.S. housing market – by eliminating most/all “underwater” mortgages, and thus ending the incentive to “walk away” from these mortgages.

By 2009, with the U.S. government having done nothing to mitigate this collapse and U.S. homeowners having lost much more equity, I raised the necessary government ante to $3 trillion: enough to pay-down mortgage balances by roughly 20% (only a small fraction of the $10 trillion used to bail-out Wall Street). But there was a second structural problem in the U.S. housing market which I identified: a supply-glut which could only be “fixed” by bulldozing vast numbers of homes.

Not only was there a gross excess of total housing inventory, but the bubble-driven insanity had resulted in the construction of vast numbers of homes in totally impractical locations: the “exurbs”. These were new housing (and population) enclaves which were springing up so far from major population (and employment) centers that they couldn't even be classified as “suburbs”.

In February of 2009, I wrote a piece which I referred to as a “case study” of the U.S. housing collapse: the town of Merced, California. Merced was located 110 miles southeast of San Francisco, the nearest employment center, and thus the average length of commute facing Merced residents. If such housing developments were ever viable, it would only be in a world of cheap oil. That world no longer exists.

Given this reality, I reiterated my position that the U.S. government would have to demand that at least 1million of these homes be bulldozed. This would solve two problems. It would eliminate housing units which would likely never be sold and remedy the problem of overall excess supply, where there are currently somewhere around 20 million empty homes in the U.S. (and an even greater number of “underwater” mortgages).