156 Hamilton St., Leominster, MA

There are around 1.6 million homes in the U.S. in foreclosure or close to foreclosure, and the inventory of bank owned homes continues to grow. Market economists fear that a steady stream of home sales from banks may depress prices for years to come.

However, there is a chance that many of these bank owned homes may never hit the market. Banks are increasingly turning to demolition teams instead of real estate agents to dispose of many of the nearly worthless properties. Bank of America recently announced plans to demolish over 90 foreclosed homes in the Cleveland area. They will then donate the land to the local government authorities. Bank of America says that their donations in Cleveland are part of a larger plan to dispose of un saleable properties. According to a company spokesperson, these homes are worth less than $10,000. Bank of America has already donated homes in Detroit and in Chicago, and plans to do the same in other cities by the end of the year.

Many other banks are also increasing their efforts to dispose of their unwanted homes. Fannie Mae has a program to sell houses to local municipalities for around a few hundred dollars. Wells Fargo has donated 800 homes to be demolished since 2009. JPMorgan Chase is one of the first banks to begin donating houses it couldn’t sell, or identified as un repairable. Since 2008, the JPMorgan has donated or sold at a discount 1,900 houses to cities and county authorities.

The main incentive for these dispositions and donations is based on the tax obligation. The banks take this measure because once the properties are donated they no longer have to pay taxes or for upkeep. Banks may also get a write off for the donation. To the banks that better than trying to repair some of these homes, which according to a bank spokesperson are more economical to demolish than fix up. The local governments participate because they get free land to develop or use for open space. One Ohio County made a deal with Bank of America and has been one of the most aggressive local government organizations in striking these deals. Housing economists like these deals because they remove homes from the market that would otherwise sell for a low price or not at all, depressing overall home price. One of the big problems plaguing real estate has been an oversupply of homes on the market. Current residential real estate inventory suggests that it would take nine and a half months for the current number of homes on the market to sell. The housing market is considered healthy when supply equals six months of sales. Taking some of these homes permanently off the market could reduce some of the depressing effects.

What isn’t known is whether the banks will ever put enough housing up for demolition to make a difference. The Obama administration says it is working on its own plan to revamp its loan modification program in order to help keep more people in foreclosure in their homes, reducing the number of foreclosed properties on the market. Some areas of the country are looking at how to speed up foreclosures in an effort to return some normality to the market. It’s not clear that any of this will work. Certainly, the idea that we are at the point where banks would be better off knocking down houses that reselling them shows there is still something very wrong with the housing market. But what is clear is that banks and others are at the point where they are ready to try something new to boost the housing market. And that is a good sign for the future.