San Diego Housing Bubble News and Analysis

Hmmm Seems one way to get the banks to process more foreclosures is to increase the selling price

Or maybe I am reading this wrong, see link below

http://www.housingwire.com/2009/10/15/ca...

But Illinois has issues.

I don't understand the report's argument that "Bottom line- there is no 'shadow' inventory of bank owned homes being intentionally withheld from the market."

"With 90,365 properties in inventory, banks currently carry about 4.77 months of supply, however, it
takes the banks on average 7.33 months to dispose of a bank owned home, thus current inventory is less
than should be expected..."

What? If it takes 7 months to get rid of a property, and there is a 5 month supply, wouldn't that lead to an increasing inventory of bank owned homes in the future?

Someone help me out here....

If this is true, that there is no shadow inventory, then what? Has a price floor been set?

There is no shadow inventory. The servicer's aren't foreclosing and taking possession of the houses, they're just sitting out there and people are living in them for nothing.

I believe that IS what shadow inventory is.

Some people will die next year and their heirs will sell their property. Those should be counted in shadow inventory as well.

Also, some people will move away, retire to the mountains or other scenarios. The future inventory from these sources should be investigated as well.

The real shadow inventory is the millions who wished they would have sold in 2004, 05, or early 06, and now are waiting to sell when "Prices go back up". Good luck with that.

Why? That is normal inventory flux. There will always be people dying and people moving.

Shadow inventory refers to the ABNORMAL current situation where property 'owners' are not fufilling their contractual obligations, and the banks are not acting upon it and taking the house to foreclosure and/or sale.

The properties you describe are not shadow inventory, their owners are paying their morgage, the bank has no legal reason to take the property, and/or no morgage is heald on the property (ie old people paid it off before they die).

I think former was being sarcastic, the initial definition of shadow inventory was bank owned homes being left vacant by the bank to control market prices through inventory control. The definition keeps expanding as the concept has become commonplace and the vacants (while some exist) aren't that big of a number. Some consider non payers with no bank foreclosure process as part of the shadow, some consider anything with a nod part of it, the problem is that the term was born on the boards of housing blogs and it had one definition, now that the msm has adopted the term, it is being defined differently by different people for different reasons and it confuses me sometimes.

I agree I took it as sarcasm as well. FSD knows his stuff so I think he was goofing.

tg - merriman for seymor straight up.

I don't know what the F shadow inventory is anymore and I don't know that I much care anymore either.

So there.

I've been waiting for the flood of the shadow inventory for about 2 years now. Still waiting...

Deal!!!

I just read the linked article, I have to serve myself a plate of crow, that was from a "pay to see the data" website and it was full of indisputable facts with cited sources. I'm hard on the paysites but this is a first, maybe they are trying to put some distance between themselves and the competition, who knows what their angle is, I always have my suspicions about pay sites, but crow for dinner it is, never thought I'd say it.

They also defined shadow as bank owned held vacant, which is what I consider it. They also reported an increasing number of cancellations and third party sales (however they didn't say if it was shorts, so I assume it's just courthouse steps sales, I'd love to know what percentage of nod are selling as shorts), step sales to investors and cancellations is what SD and others have been reporting. The confirmed what rt.66 and a few others have been touting with regards to increasing nods, but then also reported that loans made after Aug 2007 (when the rules about qualifying for loans came in) those properties are not going into default nearly as much, the drop off matches the rule change, regardless of fha. They put a nice little ring around the danger zone (05 and 06 pruchases, +/-) and then broke it all out buy county. There was something for everyone in that, while it didn't predict calamity, it didn't smell of roses either, it just threw down some facts, I like it, more please.

The owner of that website has posted here a few times, if he sees this, pass the salt, this crow tastes like crap, but eat it i will.

The phrase "shadow inventory" came into existence to describe quantities of properties which were expected to appear as listings for sale, but, for some reason, did not.

In that context, there is no difference between any of the following:
1. REO not listed for sale
2. NOT, sale postponed, no short sale in progress
3. NOD, NOT not issued, no short sale in progress
4. delinquent, NOD not issued, no short sale in progress

They are all part of shadow inventory, since each of them is a -1 to the market.

Since only the servicer has details about category 4, nobody has the information required to accurately calculate shadow inventory.

And, it doesn't matter much as long as the mark-to-market rules are suspended and the buyer incentives remain as they are (low interest rates, low down payments, down payment assistance, non-recourse loans). The shadow inventory will remain in the shadows, released to the market at a pace chosen by the owners of the impaired mortgages.

They will choose between one large immediate loss, and years of monthly losses, hopefully followed by a rebound in prices.

Shadow people have to live somewhere right ???

Anyway Google is hiring , says the worst of recession is over.

Maybe they will hire shadow people as well.

Inventory numbers by themselves are meaningless. One needs to also consider the demand side.

For example, if the inventory is 10,000 homes and 15,000 sell in a year that is one thing. If 500 sell in a year it's a completely different story.

So, in that spirit we should start tracking shadow demand. These would be those who will buy in the future but are not current buyers in the market. Current (real buyers) are known from the sales numbers. Shadow buyers would include the following:

1. Those making offers but not getting the house due to competition.
2. Those trolling around realty web sites, saving up down payments for a purchase 12-18 months from now. (these buyers will be ready to purchase about the time those properties in shadow category #2 and 3 come to market).
3. Bubble-sitters.
4. Those aged 26-35 (well, those that still have jobs) who were shut out of housing due to the high prices of the last 5-10 years.
5. Seniors in high school. Some of these kids will eventually go to college, knock someone up and need a place to live in 5-15 years.

Anyone know of good reliable sources to find the number of these buyers ?

Measuring future inventory without considering future demand is a fool's game. Neither is predictable.

I apologize to those who took my suggestions literally. As tg suggests, there has been a gradual shift in the definition of shadow inventory. It was originally something that could be precisely measured. But once those numbers rolled out, we gradually expanded the definition to a point where we include items that are less easily measured.

I was simply taking this to its logical extreme to make a point.

For example, take analyst's category #4
4. delinquent, NOD not issued, no short sale in progress .

These are a long way from being on the market. Maybe a couple years at the current pace. To understand the impact, you'd have to know what fraction of these on average would have come to market as organic sales over the next couple years due to the normal reasons (deaths, divorces, job changes, etc).

These might be impossible to measure.

Measuring future inventory without considering future demand is a fool's game. Neither is predictable.

On the contrary. Not looking at trends and trajectories is foolish and one of severe denialism.

Trend 1: Pent up future inventory is building up. Easy to see with delinquency rates. Moving up quite fast. (Contributing factor unemployment, strategic walkers, some resets) Watch % upside down for future pent up inventory.

Trend 2: Unemployment is trending up (major contributing factor is credit contraction)

Trend 3: Credit is contracting and will do so for the foreseeable future (Major contributing factor defaults) According to Meredith Whitney only half way through.

Trend 4: Wages trending down making the mean a moving target in the future to the down side. This is quantifiable.

Trend 5: No new industry for job growth

Should we not look at these trends and extrapolate out? That is the wise thing to do?

They only thing keeping the whole shebang from not blowing up is accounting rules that allow banks to not count losses, which allows them to build up inventory.

The majority of the pain came in 2009, those losses have not be realized by the market yet. The record foreclosures just reported for Q3 are probably from late 2008. If you want to see what 2009 losses do to the market you wait until between Q4 2010 to Q2 of 2011.

Sure, we should look at all those trends.

For example in 2004-2005 if one used current trends to extrapolate where the housing market and jobs were headed (extremely low unemployment, prices rising) one could have gotten themselves into a bit of trouble.

Shadow inventory is to bears what pent-up demand is to bulls. Both are loosely defined concept which have some truth to them but are impossible to measure.

If one wants to cite shadow inventory as a force on the markets they should be forced to address the potential of pent-up demand.

Only due to the government intervention rules. Shadow inventory is only of interest if you think there is a chance that government intervention will end. It will remain off the market and have no effect if government intervention continues at its current level (or increases).

If mark-to-market were reinstated, and buyer incentives were curtailed, all enjoying government largesse would know it was ending, and ALL the shadow inventory would come quickly to market, REO's as bulk sales or normal listings, the rest as short sales and foreclosures proceeding at normal pace. The aggregate increase in supply and reduction in demand would have a rapid and substantial effect on price.

But, again, there is not much point to trying to calculate and debate the unknowable size of shadow inventory, and its potential effect on prices unless you think government intervention will subside. I put that probability at near zero.

Sometimes you have to integrate common sense with analysis. The housing bubble fueled employment. It was not unpredictable that employment would plummet as the bubble did. The bubble was the economy.

Pent up demand depends on job growth. Unless you count demand as somebody that wants to buy a house and can't you have a problem. Sideline money is dwindling + job contraction=Lower demand

Lower demand + pent up inventory =

See how easy this is

I always thought of us as the shadow people. The people no one ever cared about or ever helped.

Actually, despite record unemployment and the other factors you mentioned, demand was significantly higher in 2009 than the preceding two years, due to a huge improvement in affordability.

If I integrate in my common sense that in some places it might be cheaper to own than rent, I see a limit to pricing downside. Granted, as rents slide (impacted by employment) this downside bar may slide lower.

My posts here reflect being fed up by shadow inventory zealots (not saying you are one, since you did point out at least some factors affecting demand) tend to leave out, forget or otherwise ignore the other side of the supply-demand relationship.

To be a stickler, the article is slightly deceiving. It states:

"Bottom line - there is
no “shadow” inventory of bank owned homes being intentionally withheld from the market."

Since there is an endless amount of NODs that the bank is not acting on, technically, they don't own them yet. That's not even address the NODs that banks aren't even bothering to file on places that they haven't received mortgage payments on for months.

Again, as I've said on other threads, the inventory is there, but in limbo. The question is how it will get absorbed or (sdr) disposed.

The real question is why they're not letting some of it go? We all know that there's a lot of demand out there right now in certain areas under certain price point. If they really are actively and purposely holding those back, would it make sense for them to release some of them now? There are plenty of multiple offers out there, so those unsuccessful other offers = real buyers that would gladly buy at today's price. Why hold back the inventory?

The mortgage is $600K. While the mortgage owner sits idle, due to the suspension of mark-to-market rules, the mortgage owner is allowed to maintain the fiction that an asset worth $600K is owned.

As soon as the property is sold for $400k, whether via short sale, auction, or REO, the deception is no longer possible, and the mortgage owner takes a $200K loss. Do this enough times, and owners' equity in the mortgage owning organization is reduced to the point that they are declared to be the owners no longer (regulatory takeover or bankruptcy liquidation).

When members of congress threatened legislation to override the Financial Accounting Standards Board (FASB) if they did not reverse themselves and withdraw the mark-to-market rules, the leaders of the "independent" FASB "agreed" to go along.

So now mortgage owners have a choice:
1. Go fast, die today.
2. Go slow, remain "solvent" in the short run, hope for salvation in the longer run, either due to direct rescue assistance, the effect of government subsidies to buyers, or generalized inflation driving all prices higher (including the price of of the mortgaged houses).

No it will stop eventually, but growth will not resume. Also, the rate will continue for years to come. With a significant upturn next quarter. Probably around 2011 it will subside and we will stabilize at around 30-40% real unemployment.

That is the million dollar question. I think I figured out the reason for the hold up. Once the banks foreclose on it they have to take the loss. The reason they don't foreclose is because of accounting rules. They do not have to count it that way and can let it sit forever without taking a loss. The problem is they are coming back too fast, so they are bottle necking. How long that can go on. Who knows.

Analyst, according to a longtime pigg who is very knowledgeable about the banking industry, that isn't how it works... see this comment for his explanation:

http://piggington.com/shadow_inventory_t...

Rich