Shadow Inventory?
Shadow inventory has become a new and mysterious term in the world of Real Estate. What is shadow inventory exactly? It is the unknown volume of foreclosure inventory that banks don’t really feel like talking about. It hides in the banks shadow and leaves most of the common world to wonder…..Just how much inventory is there? How many people are sitting in their homes, not paying their mortgages, hiding in the shadow inventory?
So let me tell you if it is real and how much there really might be based on credible sources.
First off, yes it is real. When Bank of America started getting questioned for wrongfully foreclosing on homes as a result of “Robo-Signing”, the process of working through the inventory yielded. Let me take a minute to say that this accusation against B of A was an absolute joke. Maybe the paperwork wasn’t processed correctly, but these individuals weren’t paying their mortgage! This is a trustee state! Anyway it slowed things down. Since then inventory has been building. Try to imagine a toll booth on a major interstate. All of a sudden, they start only letting one person through every 15 minutes instead of every 15 seconds. The booths are the banks and the cars are individuals not paying their mortgage.
What is happening with inventory right now in today’s market? Here is one example. On Thursday approximately 300 homes were scheduled to be sold at the court house steps (Auction, Trustee Sale, Sheriff’s Sale, whatever you want to call it). Out of those, 26 actually made it to bid and only a handful, maybe 7 sold. Do the math, that means that 274 people are still at the toll booth, not paying their mortgage and hiding in the shadow inventory. That is one day people!!!!
So, how many cars are backed up at the toll booth, when will the traffic jam break, how fast will it go and what will be the end result? Here is the view point from two of my best anonymous resources for inside information.
REO Asset manager for Wells Fargo: Right now there are 6 million people who have a Notice of Default filed against their properties. Basically, 6 million people are facing foreclosure and are backed up at the toll booth. This manager who moved 4300 foreclosures last year, who has been in the business for decades feels that a day will come when the wheel barrel dumps and all of the properties hit the market at one time. This would hypothetically drop the market by 25% overnight. I am not so sure that I agree with his wheel barrel dumping theory, but I do trust his inventory assessment.
Asset Manager for 182 banking institutions: Before 2013, there will be 25 million more foreclosures. This inventory is in the projected shadows should unemployment stay high and asset values depreciate. Basically, if we stay in the same slumped economy with little improvement, we are going to get body slammed. Let’s multiply each home by 2 people. That is 50 million people without homes who can’t buy again for 3-7 years depending on the product they choose to purchase. That is almost 17 times the amount of people living today in Orange County, which has more people than the entire state of Ohio.
I don’t believe, even though it is hard not to based on credibility that the shadow inventory will dump like a wheel barrel. I feel the banks will continue to balance their check books absorbing liability at a sustainable rate and selling it at a sustainable rate. This will keep the market pretty flat to mild softening for several years (maybe 5?).
The given here is inventory. The unknown variables are: Government rescue programs, jobs and interest rates.
My advice is that you buy when you find a house you really love and can afford. It may not be the bottom, but it will be a great deal. In the long haul you will make money. Watch the 10 year bond which is an inverse of the stock market. The 10 year bond parallels interest rates. If the stock market gets bullish, the 10 year bond rates go up. If the 10 year goes up so do rates. Last week’s bullish stock market hiked interest rates in the short term. The fact is, even if you wait for lower prices, which is likely, you may miss interest rates. Overall, rates will affect your affordability index and home price index options the most. If you can lock up a 4% give or take on a 30 year fixed today, do it. You will make money. You will only know when the market hits bottom when you are looking back.
Share on FacebookHello clients and Friends:
Hello clients and Friends:
Team Sackin hopes you had a memorable Labor Day weekend filled with your favorite activities & traditions.
As you may know, Labor Day pays tribute to the contributions and achievements of American workers. It was created by the labor movement in the late 19th century and became a federal holiday in 1894.
As I began my own ‘day off from Labor’ this morning, I was curious and wanted to know more, wondering EXACTLY how this holiday originated. I found lots of insightful reading. I’d like to share if you are interested. Enclosed is a link to the full article from History.com, ( the folks behind the History channel). I found this one to be the most complete plus it had great related stories and video too!
Since Labor Day often also symbolizes the end of Summer & start of Fall, Philip, Brian and I express our best to you and your families as we enter the new season.
Labor Day at HB State Beach click to see all CA. State Beaches
Showing properties
1 - 7 of 83.
See more Downtown HB.
Listing information deemed reliable but not guaranteed. Read full disclaimer.
(all data current as of
2/22/2012)
$309,900
:
4561 Warner Ave 302, Huntington Beach
3 beds, 1 full, 1 part baths
$309,900
:
4676 Marea Dr 66C, Huntington Beach
2 beds, 1 full, 1 part baths
$323,990
:
4682 Warner Ave A110, Huntington Beach
2 beds, 2 full, 1 part baths
$325,000
:
4978 Marlin Dr, Huntington Beach
3 beds, 1 full, 1 part baths
$325,000
:
17058 Bluewater Ln, Huntington Beach
1 bed, 1 full bath
$329,890
:
4675 N Pinecrest Cir 21, Huntington Beach
2 beds, 1 full, 1 part baths
$339,900
:
4681 Pinecrest Cir 19, Huntington Beach
2 beds, 1 full, 1 part baths
Huntington Beach Pier, site of Nike US Surf Open
Downtown Huntington Beach, next to the Huntington Beach pier is the site of Nike US Surf Open. Check the best surfers this weekend with live entertainment and freebies. For more information watch video and view link.
Official page for NIKE US SURF OPEN 2011
Check out what’s for sale near the Huntington Beach pier.
Showing properties
1 - 9 of 83.
See more Downtown HB.
(all data current as of
2/22/2012)
-
$309,900 : 4561 Warner Ave 302, Huntington Beach3 beds, 1 full, 1 part baths
-
$309,900 : 4676 Marea Dr 66C, Huntington Beach2 beds, 1 full, 1 part baths
-
$323,990 : 4682 Warner Ave A110, Huntington Beach2 beds, 2 full, 1 part baths
-
$325,000 : 4978 Marlin Dr, Huntington Beach3 beds, 1 full, 1 part baths
-
$329,890 : 4675 N Pinecrest Cir 21, Huntington Beach2 beds, 1 full, 1 part baths
-
$339,900 : 4681 Pinecrest Cir 19, Huntington Beach2 beds, 1 full, 1 part baths
-
$345,000 : 4438 Shorebird Dr 3, Huntington Beach2 beds, 2 full, 1 part baths
-
$355,000 : 16912 Sims Ln 210, Huntington Beach2 beds, 2 full baths
-
$430,000 : 16291 Countess Dr 315, Huntington Beach2 beds, 2 full baths
Listing information deemed reliable but not guaranteed. Read full disclaimer.
Share on FacebookWhy the Real Estate Market Should be Stabilizing
Let’s first talk about why most people feel that the market is NOT stabilizing. The number one reason is people don’t have jobs and therefore cannot consume. Second, the media keeps reporting the doom and gloom of more foreclosures and short sales. Simple economics, supply will continue to out way demand. So with increased inventory and no people to buy, the market should continue to trend downward, right?
Those of us who are actually in the market 24/7 should be reporting more often. Not those who report the same news about Casey Anthony. So allow me to dissect what the experts in the industry are seeing, that includes us.
The Wall Street Journal recently posted an article that home sales in Orange County CA actually saw an increase in the median home price over the past few months. This is not the compelling aspect of the artice. Anyone worth their salt will respond correspodingly “It’s the summer selling season skewing the numbers and median has very little statistical weight.” I would agree with that statement. What is more interesting is the report that 25% of purchases were made by investors. The fact is, large corporations are doing well and the private sector is making money, they just don’t need any additional employees to run their businesses. Those with cash are getting richer and are eating up these Real Estate and Financing opportunities (4.5% Fixed 30 year loans with 0 points or underwriting fees). So much so, that they boosted the median numbers. I know what you are thinking “Separation of classes” absolutely.
Now let’s address the second and probably the most significant element determining the stabilization of Real Estate, inventory. What everyone is saying “The banks are holding all of this inventory and they are going to let it all go.” Why would they do that? All of the big banks are showing earnings and have learned to balance their books with distressed property as a liability. I can only speculate, but it seems that the bank chooses based on how much they can absorb monthly which properties to foreclose on. This is why some people hang out for 2 years without making payments and others get tagged in 3 months. It appears to be random, but I cannot confirm that. It is a simple system of checks and balances. It is working! Banks are profitable. Furthermore, and this I can confirm, banks have developed much more efficient systems for the short sale and foreclosure process. Banks are sending out multiple appraisals in some cases to determine the values of short sales before they approve them. Meaning, the smoking deals and huge losses by banks are eroding almost completely. Short sales used to take 6 months, we just closed 3 in under 90 days. Foreclosures are flying off the shelves as they come on. Everyone knows that a foreclosure is going to be fairly easy to negotiate, the banks set the price off the bat! Pay this get this! It is simple, fast and there are some good deals as a result of the risk taken for “As Is” no disclosure.
The wrap up is that there are buyers and the banks have become efficient liability balancing, short sale and foreclosure processing machines. Before you say “The banks are going to foreclose in 2012 in drones” ask yourself. Why would the banks disrupt their check books?
These two elements, supply and demand and lack of buyers has destabilized our market for the past 4 years. The changes in the market that I have addressed in this blog are what lead me to believe that the market is stabilizing.
Your Thoughts?
Share on FacebookConnect With Us
