Massive "Shadow Inventory" Overhang Will Keep Pressure On House Prices

[Robb]

This is an idea (I believe was) pioneered by DoctorHousingBubble, but the notion is gaining popularity. To wit:

...The inventory (supply) of houses on the market has dropped significantly in recent months, fueling hope that the housing bust is over and done with.

Unfortunately, the inventory of houses listed for sale may severely understate the actual inventory of houses owners want to sell. This, in turn, may be creating a far too rosy picture of supply and demand.

Amherst Securities has produced a scary analysis of this "shadow inventory" overhang, which Amherst estimates is a shocking 7 million houses. (The consensus is only 2-3 million).

7 million houses represents 1.4-times the number of houses currently sold in the country each year. So this represents a massive overhang. As these houses hit the market in future years, they will keep pressure on house prices. This will likely either lead to further declines in prices or delay the recovery.

More...

[BlooInBloo]

1. CalculatedRisk talked about this a few months ago...

http://www.calculatedriskblog.com/2009/08/shadow-inventory.html

[orpupilofnature57]

2. Shadow inventory don't lie , but liars use language to avoid the truth.

Bankers are still using the money on parachutes and exotic investments ,housing isn't even a concern to them.

[Wilms]

3. You mean to tell me housing won't sell for many times over what it's worth?

What about getting rich quick off housing trade and community destabilization?

[Tansy_Gold]

4. I was just talking about this with my mother this afternoon

She is 80 and would like to sell her place. In fact, it was on and off the market for about two years until two years ago, when the market crashed and she knew it wasn't going to sell.

She met with a real estate agent a couple of days ago. The agent told her the market is starting to come back and maybe now would be a good time to list it again. Of course, the asking price will be about 20% less than what she paid for it in '04.

When my mother, shocked, asked why the price would have to be so low if the market is coming back, the agent told her: All the people who have been wanting to sell but haven't even listed because the know what the market has been like are going to be listing their stuff. All the bank-owned properties are still hanging out there, waiting. And if the economy doesn't turn around (which it isn't likely to do very fast) there will be more and more foreclosures.


Add to that: At least two couples I know who winter in AZ and spend summers up north have had to cut back on expenditures as their retirement portfolios have taken a beating the past few years. They'd like to unload their older homes up north and live full-time in AZ, but they know there's no sense even listing their homes because the market is crap.


So that's at least three homes that are in that "shadow" inventory. I'm sure I'm not the only one who knows people who are in the same position.


TG

[Mist]

5. I wonder if some shadow inventory is due to people listing their houses for 3-4 months, then

taking them off the market for a while, as their listing is no longer "fresh." I've heard realtors say you don't want a house listed too long--people in the market to buy will see it continuously listed, and assume there's a good reason it hasn't sold.

[pscot]

6. I know of several houses that have come off the market

after sitting for months. At least 2 of them are vacant.

[wuvuj]

8. The shadow inventory consists of...

...homes that are or should be in foreclosure...but aren't because the banks don't want to mark to market and admit they exist? Some people haven't paid their mortgages for a good while because the banks don't want to admit to a loan gone bad.

When these banks fail...you get to see all the bad loans they were hiding.

The people who can't or don't want to sell their homes because they are underwater aren't really considered a part of the shadow inventory...just more victims of the housing crash.

[northernlights]

12. that's not shadow inventory

that's people that would like to sell but not at current price levels.

Or people like me, who were getting effed over by their realtors so they have to scuttle the deal and start over. I just pulled mine off the market, or rather am switching to FSBO for a while. The realtor, w/Coldwell Banker not some local yokel, effed up totally from day 1. They effed around for a month before listing it on realtor.com and the other websites. When they finally listed it, they posted the worst pix possible and the listing it was filled with mistakes that lowered its value (gave it propane heat instead of central oil w/propane backup, zero bathrooms, fusebox instead of cb, no mention of it's maintenance, no mention of it's sunroom addition, no mention of wide pine up/hardwood down, orchard, gardens w/raspberries & strawberries, and so on. Effed up to the point that another realtor's mother suggested to me that they were deliberately sabotaging me.

And then a couple weeks ago someone drove by who had come by back in early August. They called the realtor after talking to me in August, and she never called them back! So yeah, realtors are sometimes deliberately sabotaging. Go effing figure. :shrug:

[barb162]

7. Expect this to go on for about ten years

according to a broker who is working on a lot of foreclosures.

[notesdev]

9. I think he is right

It's going to be a long, long road to correct the financial industry destabilization of the housing market. We haven't even seen the nasty part yet, when a lot of the shadow inventory gets forced into the open.

[Robb]

10. The worst part is, if that happens, much more is screwed.

The banks won't let that inventory onto the market unless they're in a lot of trouble they can't get out of.

Anecdotal evidence on the web abounds that people are going three, four, twelve months without making mortgage payments. The bank's just waiting, because in the past something like 90% of "troubled" mortgages worked themselves out without any work on the part of the bank -- the homeowner eventually figured out a way to get current.

Also, if they move to foreclose, they've got a house and the appurtenant insurance, taxes and upkeep. If they just sit there, they have a (say) $400K loan that's delinquent, but not defaulted. That's worth more to the balance sheets.

It's a waiting game, and the banks can wait longer than anyone else at the table. But they can't wait forever.

[notesdev]

11. Even worse

The banks are playing a serious game with the defaulted-not-foreclosed mortgages. They keep racking up penalties/fees on the defaults, which they know will never be paid, but they add them to their balance sheets anyway. So the longer this goes on, the more and more fraudulent the banks' accounting becomes. And of course they are already so far from any honest accounting to begin with, that one wonders how many more CFO suicides are in our near future.