OT: Shadow inventory research

[Jazzman]

Bearishgirl, everyone has their own definition. Here’s one courtesy of Investopedia:

A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell (for owners) and when a local market can expect full recovery. Also, shadow inventory typically causes reported data on housing inventory to understate the actual number of inventory in the market.

Corelogic defines it as homes seriously delinquent, in foreclosure and owned by lenders.

Standard and Poor claims it is all delinquent homes, not just REOs.

This obviously doesn’t help with determining any kind of precision in numbers, and it probably follows the more complex the definition, the more wild the variances in guesstimates.

The OP may be better served with defining his/her own goal in conducting the research, and then zeroing in on data that is most relevant to it.

[bearishgurl]

[quote=Jazzman]Bearishgirl, everyone has their own definition. Here’s one courtesy of Investopedia:

A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell (for owners) and when a local market can expect full recovery. Also, shadow inventory typically causes reported data on housing inventory to understate the actual number of inventory in the market.

Corelogic defines it as homes seriously delinquent, in foreclosure and owned by lenders.

Standard and Poor claims it is all delinquent homes, not just REOs.

This obviously doesn’t help with determining any kind of precision in numbers, and it probably follows the more complex the definition, the more wild the variances in guesstimates.

The OP may be better served with defining his/her own goal in conducting the research, and then zeroing in on data that is most relevant to it.[/quote]

Jazzman, as to the Investopedia definition of “shadow inventory,” I don’t agree with it. Property owners with “equity,” especially those who have substantial equity or own free and clear have MANY CHOICES of how OR whether to dispose of their property. They are NOT lurking in the “shadows.” They can move on (even out of state/country) and put their properties into rental service and hire a property mgr and STILL be far “above water” and able to financially “manage” vacancies. There are thousands of these owners out there!

I predicted here that this (inventory shortage) would become dire just a few short months ago. At that time, I could see it already happening …

http://piggington.com/people_who_can039t_afford_their_house_but_get_to_keep_it

I know MANY local property owners with substantial equity or who are “free and clear.” These types of property owners have always had the same mindset from day one. They WILL choose to wait for a better day to sell simply because they (or their heirs) CAN!

The vast bulk of the listings today are “desperately-need-to-sell” properties!

Buyers out there today are making offers which attempt to “cram down” neighborhood values to comport with the recent (85% “distressed”) sold prices of properties that have closed at a price below (or far below) market (ESP the SS’s up to and including the “corrupt SS’s” [which were sold to relatives/friends of the listing agent]). This is causing well-kept “equity” properties to be “artificially” undervalued (in appraiser-speak). I don’t have to tell you that EVERY single equity owner knows this (yes, even the 80+ year olds)!

Today’s local buyers are frustrated (and rightly so) because there is little, if any “quality inventory” on the market. Well, bargain-seeking buyers can’t have it both ways. “Distressed” homedebtor-sellers, much more often than not, have NOT had the ability and/or motivation to maintain their properties in recent years. Most of these SS listings and newly-acquired REO’s (before lender rehab) are dirty and in poor physical shape and some are actually stripped.

That is your inventory.

The SS homedebtor-sellers are likely behind in everything from PITI/HOA to child support and income taxes and could also have possible judgment liens against them. All of this (indirectly) becomes the potential SS buyer’s problem when their offer is accepted and it is insufficient and/or needs more $$ kicked into the transaction to “make it all work.”

It’s the conundrum of the buyer wanting the lowest of the low price (to “protect” them against “overpaying”) but ALSO with that low price desiring location, lot and condition.

Again, you can’t have it both ways.

[briansd1]

Bearishgurl, there are some organic sales, not too many, but some.

A friend of mine is buying a place at a fairly good price. I think that he got lucky and paid about 10% under curent market.

The seller lives out of town, has owned the house since 1992 and has plenty of equity. She just wanted to cash out and move on.

Yes, frustration is a problem. Some sellers can tough it out, put their lives on hold and wait. Some other sellers are OK with moving on.

You think that the market is artificially undervaluing houses. That’s only because the bubble has shown people what their houses “used to be” worth; and, in their minds, those sellers are still hanging on to bubble values.

Time fixes everything. But time itself is valuable. Eventually prices will return to bubble prices and higher. But, in the long run, we are all dead.

[scaredyclassic]

I think chess can teach us much about the housing market.

[Jazzman]

Bearishgirl, I actually prefer the Investopedia definition. Sellers who are postponing the sale of their homes are homes being withheld from the market, and are therefore lurking in the shadows. It doesn’t matter whether they have a choice of not. That has nothing to do with it. Lenders have a choice with REOs and they choose to withhold properties.

With regard to buyers not having it both ways, as Brian points out, it cuts both ways. Sellers can’t expect homes to hold values in a declining market. There are those who wish to punish the market for it’s excesses, but equally some segments (higher end/coastal) have remained comparatively immune.

The battle line is still drawn between the minority group “we-did-everything-right”, and Humpty Dumpty who’s been propped up on top of his poorly resurrected wall.

[Jazzman]

[quote=bearishgurl]Username, if you think you will be able to purchase “equity” from a “distressed” home-debtor (whether in foreclosure or not), think again. Even if the home-debtor DOES have equity, there are many pitfalls to this type of transaction, namely a few pesky “legalities,” including the ability of the home-debtor to claim YOU took advantage of him/her and legally recover title to their property.

You would do well to study these types of transactions carefully before “knocking on doors” and attempting to “jump in with both feet.”

Since you are asking these questions here in the manner you are asking them in, it is apparent that you have a lot of “studying” to do. Instead of listening to fast-talkers on infomercials selling books and CDs, I would suggest you begin your “studies” by taking RE Principles and then RE Law at your local community college.[/quote]

This is a huge assumption! What happened to innocent until proven guilty? A guy comes along and asks a perfectly legitimate question and is jumped upon. Maybe he’s doing some research for a paper, or is just curious. And so what if he’s looking for opportunities. Good for him/her. Why is the free market great when it serves it’s masters and evil when it doesn’t. To use your own expression, you can’t have it both ways. Anyway, it looks like he’s been chased out of town. Pity so many threads end up this way. 🙁

[sdrealtor]

Jazz
There are always people thinking about it. Thinking about buying, thinking about selling, thinking about a vacation home, thinking about a vacation, a new car, a haircut or whatever. Those folks are always out there in good or bad. Simply because they are thinking about doesnt mean they will ever sell it or sell it for the reason they are thinking now. People inherit money, get bonuses, promotions, parents need places to live, values start going up and they decide to hold on. The investopedia definition is far too broad and impossible to quantify.

Brian
Regarding long time owners not selling? I agree with you. Its simply not true. Have an offer on a great ocean view home right now for a buyer. The 30 yr owner/seller’s husband passed and she is moving onto to an independent living facility nearby. Lots of other long time owners with equity recognize thats its a great to move up. The gap between higher end homes and middle of the road homes has greatly narrowed. Throw in low interest rates and its a fabulous time to move up for those who can.

Its never as simple as folks try to make it.Most people interpret the market based upon their individual circumstances rather than having a broad view of what is actually happening out in the streets.

[briansd1]

[quote=sdrealtor]

Its never as simple as folks try to make it.Most people interpret the market based upon their individual circumstances rather than having a broad view of what is actually happening out in the streets.[/quote]

I agree that the vagaries of life affect the selling decisions. There will always be people selling and buying.

The extremely low inventories, as compared to a normal organic market, do indicate that people are not selling because they don’t want to “give it away.” Why? because sellers still want bubble prices.

Stats indicate lower mobility due to housing bust.
http://www.nber.org/digest/oct08/w14310.html

The data indicate that homeowners are hunkering down because of loss aversion. They will pay for it in terms of time value of money.

We are 1/2 way into a lost decade for housing… give it a decade and people will more likely give up. As I said before, we will not see it reflected in nominal prices (because of inflation and government intervention) but after 10 years, real, inflation adjusted, prices will reflect reversion to the mean.

To those who don’t take care of oral hygiene, dentists like to say “pay me now or pay me later, but eventually, you’ll pay me.” I think the same thing will play out for homeowners (50%?) who bought, or refinanced at the peak.

[quote=sdrealtor]The gap between higher end homes and middle of the road homes has greatly narrowed. Throw in low interest rates and its a fabulous time to move up for those who can.[/quote]

Yes, I agree.

Unfortunately, “those who can” are a small group. Cash for downpayment and financing are hard to come by.

[an]

[quote=briansd1]I agree that the vagaries of life affect the selling decisions. There will always be people selling and buying.

The extremely low inventories, as compared to a normal organic market, do indicate that people are not selling because they don’t want to “give it away.” Why? because sellers still want bubble prices.

Stats indicate lower mobility due to housing bust.
http://www.nber.org/digest/oct08/w14310.html

The data indicate that homeowners are hunkering down because of loss aversion. They will pay for it in terms of time value of money.

We are 1/2 way into a lost decade for housing… give it a decade and people will more likely give up. As I said before, we will not see it reflected in nominal prices (because of inflation and government intervention) but after 10 years, real, inflation adjusted, prices will reflect reversion to the mean.

To those who don’t take care of oral hygiene, dentists like to say “pay me now or pay me later, but eventually, you’ll pay me.” I think the same thing will play out for homeowners (50%?) who bought, or refinanced at the peak. [/quote]
I don’t get it, if price rises in nominal term but decrease in real term, why should home owners care? If anything, in that scenario, it would be a no brainer to stay in the place. Especially if you’re locked in for 30 years years. Rent tracks nominal price, not inflation adjusted price. So, if nominal price keep on rising, then the rent vs buy equation keeps on getting better for those who are staying put.

[briansd1]

[quote=AN] if price rises in nominal term but decrease in real term, why should home owners care? If anything, in that scenario, it would be a no brainer to stay in the place. Especially if you’re locked in for 30 years years.[/quote]

They do care because they want to move, but they are “locked in.” They are less likely to sell because, as you explained, the cost of ownership gets easier over time.

Government intervention works because of that effect. By putting a floor on housing, government intervention encourages people to stay put. The “clearing” of the market is lengthened over a period of years, perhaps decades.

Here’s the link to the full paper on mobility.
http://www.nber.org/papers/w14310

As sdrealtor mentioned before, low interest rates make it attractive to buy now… but negative equity makes it less desirable to sell. So we have opposing effects on the market right now.

Behavioral economists rely on prospect theory’s claim that reference points are important,
and that individuals will react differently to a housing bust based on their degree of loss aversion. In this framework, a household without any financial constraint can become less mobile if nominal loss aversion leads it not to sell the home after its price has fallen.

I think that loss aversion is still high because peak prices are still fairly fresh in people’s minds. After a decade, things will look different.

[sdrealtor]

[quote=briansd1][quote=sdrealtor]

Yes, I agree.

Unfortunately, “those who can” are a small group. Cash for downpayment and financing are hard to come by.[/quote]

The group isnt as small as you think and the things for them to move up to isnt big either. Its all well on its way to balancing out nicely. Its funny because yesterday i walked into an open house and the realtor was the biggest pollyanna around during the bubble. Now she is a complete doomist and cant see the forest for the trees. She is one of the biggest producers in my area and I am always amazed that she had the best possible seat with 20 to 40 listings around her at all times. didnt see it coming and now doesnt see it going.

[an]

[quote=briansd1][quote=AN] if price rises in nominal term but decrease in real term, why should home owners care? If anything, in that scenario, it would be a no brainer to stay in the place. Especially if you’re locked in for 30 years years.[/quote]

They do care because they want to move, but they are “locked in.” They are less likely to sell because, as you explained, the cost of ownership gets easier over time.

Government intervention works because of that effect. By putting a floor on housing, government intervention encourages people to stay put. The “clearing” of the market is lengthened over a period of years, perhaps decades.

Here’s the link to the full paper on mobility.
http://www.nber.org/papers/w14310

As sdrealtor mentioned before, low interest rates make it attractive to buy now… but negative equity makes it less desirable to sell. So we have opposing effects on the market right now.

Behavioral economists rely on prospect theory’s claim that reference points are important,
and that individuals will react differently to a housing bust based on their degree of loss aversion. In this framework, a household without any financial constraint can become less mobile if nominal loss aversion leads it not to sell the home after its price has fallen.

I think that loss aversion is still high because peak prices are still fairly fresh in people’s minds. After a decade, things will look different.[/quote]
No, they don’t care. If nominal price goes up, then they’ll be able to sell at a higher price than what they paid for nominally, even if in real term, it’s not. So, they’re not “locked in”. The only time they’re locked in is if the nominal price is below what they paid for it.

Government intervention doesn’t encourage people to stay put. It encourage people to move. If price keep on going up nominally, then people can sell, make a nominal profit (not needing to save for additional down payment) and buy the next house.

I understand what sdr said, but if nominal price goes up, then you would have less people with negative equity. Equity is in term of nominal price, not real price.

[The-Shoveler]

I don’t know if any of you are watching, but man we are in the mists of a market melt-up (or blow-off), that looks all the world like 2000.

Now if this persists Shadow or no shadow, people in general are going to be feeling a lot better and they are going to be looking to upgrade their lives.
Now the real questions IS “is this for real ?”
If this market is for real and not a blow off, Standing in front of that is going to feel like standing in front of a mac truck.,
If it is just a blow off, then look out below!!!!

[briansd1]

[quote=AN]
Government intervention doesn’t encourage people to stay put. It encourage people to move. If price keep on going up nominally, then people can sell, make a nominal profit (not needing to save for additional down payment) and buy the next house.
[/quote]

Intervention is designed to stop prices from collapsing further than they already have, encouraging people to stay put.

Remember, because of loss aversion, homeowners will willingly sell only after prices return being above mortgage balances (above water) + cash sunk (downpayment, remodel).

Theoretically, as prices firm up and become organically sustainable, government intervention will be withdrawn, thereby creating a drag on the market, but not enough of a drag to reverse previous gains.

We may question Federal intervention being withdrawn; but Federal Reserve intervention will eventually be reversed.

There are different forces at play. There is pent-up demand, but there is also pent-up supply.

I believe that interests also affect affordability.

[Coronita]

[quote=Nor-LA-SD-GUY2]I don’t know if any of you are watching, but man we are in the mists of a market melt-up (or blow-off), that looks all the world like 2000.

Now if this persists Shadow or no shadow, people in general are going to be feeling a lot better and they are going to be looking to upgrade their lives.
Now the real questions IS “is this for real ?”
If this market is for real and not a blow off, Standing in front of that is going to feel like standing in front of a mac truck.,
If it is just a blow off, then look out below!!!![/quote]

As long as people’s stock options/RSU’s are in the money, they don’t care… You have one very large employer on an 52 week high rampage almost weekly… So yes, even all those 1-2 year new employees have 50% vesting and ESPP shares totally in the money probably could come up with a decent downpayment on a decent condo…Yeah, it’s going to be interesting in the next few months… Welcome to multiple counter offer world….

[Author]

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