Shadow inventory of foreclosed homes- could it mean we have shadow depression?
November 13, 2010 1 Comment
(See my currnet blog for an updateon foreclosures: http://bit.ly/JGU1dZ ).
There appears to be a definite “shadow market” of foreclosed homes that the banks are holding off the market. They sometimes call this the “shadow inventory”
The banks are holding these homes off the market presumably to prevent a real estate crisis. As I wrote before about this issue there is this huge reservoir of homes that the banks have foreclosed on and taken full possession of. These homes are “shadow inventory” because the banks have kept them in the shadows and they have not listed these homes on the MLS for realtors to sell.
The Wall Street Journal recently did a story on this shadow inventory. In that story they cite a study done by real estate consulting firm in Irvine California. They estimate that there are 4.7 million homes in this unreported market which amounts to a 10 month supply of homes but the number could rise to as many as 5.6 million homes. Some of the worst cities have a 20 month shadow supply of unlisted and unsold homes.
Analysts at Standard & Poor’s report that the largest backlog of shadow inventory exists in New York city followed by Miami. Standard & Poor’s estimates that the time it will take to clear this inventory is up 18% over the first 6 months of 2010.
There is certainly a lot of homes in the “shadows” and this is a serious problem. This is why some realtors are predicting that this foreclosure/housing crisis will be with us for 5 to 10 years. The Irvine report also estimates that this shadow inventory will stay at elevated levels until 2016!
The report says that sales of distressed homes will rise to 40% of all home sales through 2012 and that real estate prices will continue to fall by 8% to 11% through 2012! They also predict that if the economy worsens or if interest rates rise then housing prices will decline further and for longer. According to the report distressed home sales will peak at 2.3 million homes next year. So we haven’t reached the peak yet and it will get worse.
Worse than that a friend of mine was at a real estate conference recently attended by a president of a big bank. The bank president denied the existence of a shadow inventory. If the banks don’t want to admit that there is a shadow inventory and it is well-known enough for consulting firms and the Wall Street Journal to write about then what are they trying to hide and why?
Can we not take the truth? It seems to me as I have written about many times that we are currently in a depression. I don’t expect that anyone in government or the banks (who are now very closely tied to the government) will admit it. They obviously have no problem lying about the shadow inventory of homes so it seems unlikely that we would ge the truth about how deep this economic crisis is.
I’m sure they will tell us when it’s all over.
I am a bankruptcy attorney in San Diego. For further help please visit my website at www.farquharlaw.com.