Tuesday, November 23, 2010

Real estate shadow inventory up 10% year-over-year

There is now an 8-month supply of shadow inventory:
There's a large number of homes, either already repossessed by lenders or very seriously delinquent, that are poised to be added to the already glutted regular supply of homes on the market.

This "shadow inventory" jumped 10% during the past year, to an eight-month supply at the current rate of home sales, according to a report issued Monday.

According to CoreLogic, a financial information provider, there were 2.1 million homes in this uncounted inventory as of the end of August, up from 1.9 million units 12 months earlier.

Adding the shadow inventory to the visible supply of homes on the market boosted the total housing-market supply to 6.3 million units from 6.1 million in August 2009. At the current sales rate, it would take 23 months to go through the entire visible and shadow inventory of homes — more than three times the normal rate of six to seven months.

The potential extra supply raises the risk of further home price declines, according to Mark Fleming, CoreLogic's chief economist.
For several years now, we've been hearing about how all this shadow inventory was going to hit the market and push down prices. I'm starting to think someone's crying wolf. (You remember how The Boy Who Cried Wolf ends, right?)


  1. I think it all depends on how long the banks want to put up with carrying costs and how long it takes them to move through the shadow inventory.

    I got into a quibble about this with a realshill on another blog, and asserted there is a lot of shadow inventory, even in "immune" DC neighborhoods. She pooh-poohed this for two reasons:

    - the banks were managing it.
    - the flippers were the only people who were buying those homes and therefore it wasn't really the same market.

    The latter struck me as the usual REALTOR-spin: the only "real" market is the one we are the market-makers for - the MLS. That's a tad self-serving in lots of subtle ways - for example, as many other doomers like to point out: with comps.

    So, I was motivated to get a handle on this...I've started tracking foreclosures (trustees sales notices) in the WaPo for the 'hood I'm interested in (serious gentrification). You can see that map here. It's not precisely defined; the neighborhood is shaded, but I'm picking listings from a larger area.

    I've only been accumulating data for a couple of months, but I'm fairly stunned by how much there is out there. I'm watching these properties to see how much they go for at auction and how much they go for on the re-list. They are not all flipper material; some are previous flips.

    The map makes it look like a lot of inventory, but this is row-house territory, so as a percentage of the housing stock, it's not that much. I've also only just started keeping track. The banks are "managing" it by simply being slow to process (either deliberate or incidental, doesn't matter).

    There are flippers coming in for the real "bargains" and they are moving them. I just watched one house on a very busy street corner (New Hampshire) move for $550k. That's a lot of scratch for a so-so neighborhood with lousy schools. It's not what it was before, and prices are 10%-15% off peak, but I still feel the prices are ridiculous, bubblicious and not really corrected. Volume is way off. I'd bet this stuff is all supported by conforming loans - Realtors actively promote FHA rehab financing (for non-flips or prior flips - they often don't hold up well).

  2. The District`s debt per capita is among the highest in the country at $11,822 for every man, woman and child in D.C., according to Gandhi`s office.

    DC is bumping up against its debt caps. Infrastructure investment and redevelopments will stop by 2012.

    Debt is normal. Be weird.

  3. Very interesting Montpellier!

  4. It seems that the banks have been slow to clear their books, both commercial and residential portfolios.

    On residential the excuses have been that they don't have the staff and that the courts are causing bottlenecks, which may be true. On the commercial side many lenders are opting to simply continue accepting payments rather than force a new loan, knowing that the appraisals will be well below the loan balance resulting in a loan denial and forced sale.

    IMHO the lenders are buying time, hoping that the economy will turn around and soak up some of the losses both in renewed payments and in rising appraisal values.

    I agree with James, if we look at the number of homes with non-performing loans, the total inventory, new homes coming to market, things should be much worse than they are price wise. Since the overhand is coming down as a drizzle instead of a torrent, things aren't so bad.

    Another reason to drag things out is that the government may yet come in with significant principle reduction support, either as direct payment or special tax considerations.

    Of course it will all be for not if the economy languishes for years longer or takes another downturn.

    Montpellier, people are buying at just under the peak prices? Wow. Time will tell, but I wouldn't feel good about that. Your analysis over time will be interesting

    Just casually nosing through listings I am amazed to see some properties still sporting pre-bust prices. I'm wrestling with the idea of a FL winter residence and some of the prices are way above the curve. And who knows, they may get their price, just not from me.


  5. @jj - Yes, the price drop in this general area (Petworth, Crestwood, 16th St. Heights, 14th St. Heights) for SFR appears to be roughly ~10-15% off peak - pretty stable, esp. considering how big the gains were from 2004-08. The thing is, there are buyers in DC for those listings, not so much in FL (Mia is >50% off peak, my former in-laws live there and tell me it's not pretty).

  6. jj Amazingly montpelier should consider himself lucky. Some areas of Arlington & Alexandria are flirting with new peak highs (up from 5-10% off peak at the bottom).

    I used to be skeptical of this too, but after 5 years of seeing a non stop parade of buyers, ive made my peace with that fact. Thankfully, my area of focus did soften up quite a bit (Fairfax co.) so I am lucky. Nevertheless, it is truly amazing how well a few areas held up, relative to others.

  7. I'm also watching these properties to see how much they go for at auction and how much they go for on the re-list, to agree with Montpellier

  8. Great point Montpellier. Totally agree. Maybe the banks are intentionally delaying the release of their shadow inventories to keep the prices of visible inventories where they are? If the supply booms the prices drop right?

    - John Wake