The House passed a bill sponsored by Maxine Waters of California that will provide 15 Billion dollars to individual states for the purchase, rehab and resale of foreclosed homes. It appears this is an attempt to avoid blight in areas with high numbers of foreclosures. There’s a story if you want to read it here

Now most people could do quite a lot with 15 billion, but how far will it actually go towards preventing foreclosure blight?  Of course, the money won’t be split equally among states because that’s not the way politicians work, but if it was split equally amongst 50 states, each state would get 300 million dollars.

In Los Angeles, California that would allow the purchase of about 667 homes at the median price of $450,000 with 42,647 homes already on the market.  Cleveland, Ohio has a median price of $145,000 so they could purchase a whopping 2,069 homes with 19,959 homes already on the market.  Miami, Florida has a median price of $285,000 so they could purchase 1,053 homes and I’m sure there wouldn’t be any problem at all competing with the 118,793 properties already on the market.

When real estate markets are declining, you really only want to be buying if you can either buy at a very substantial discount from current market value and resell quickly or you are buying at a substantial discount and the property will cashflow through the downturn.  Either strategy is fine, but I’m guessing states would use the money to buy at market value, suffer continuing price decline and rent the properties on a negative cashflow basis.  Why not, it’s federal (your) money, not theirs.