The "Shadow Inventory" is a useful search term for reading about bank owned foreclosed property that is not being listed for sale. But why is the property not for sale? Perhaps the banks simply don't have the capacity to process so many foreclosures. They are releasing less properties for sale now while they have an even larger inventory than they did in 2009 so lack of capacity is probably not the answer. Perhaps banks like individuals are simply waiting for better prices. Or is the government or the banks following a coordinated policy to try to keep prices from falling? A number of articles say that the banks are especially reluctant to put their more valuable foreclosed homes on the market as if they are fighting a battle to maintain prices at the higher end of the housing market. I personally have talked to a person allowed to live in their foreclosed homes for more than a year mortgage free because the banks don't want to sell the home and don't want the home to be empty and unmaintained. I also know of foreclosed homes where the auction gets repeatedly rescheduled for months later. Officially the banks are keeping 600,000 + (2009 number) homes off the market. Unofficially when you add in homes that are far enough behind in payments that they could be foreclosed on the number of homes that the banks are keeping off the market are in the millions. Next article has more than I quoted particularly about JP Morgan. But look at this graph from the next article. We had negative household formation in the first half of 2010 so the previous articles anticipated using up of housing inventory by household formation may be wrong. Please Register or Log in to view the hidden image! Graph is from the following article: The shift from loose lending standards up to 2008 to tight lending standards now is stopping people from taking advantage of the low mortgage interest rates. Apparently the trend towards banks delaying foreclosures and delaying resale of foreclosed properties has been increasing in 2010. The previous article was from 2009. I think there are three things driving bank policy. 1 they don't want to write down their bad loans. 2 they are hoping to sell in a better market. 3 there is a hushed up coordinated policy of trying to prop up housing prices by not placing extra homes into the market. I don't think this will work. This is not your ordinary recession. There may not be a new bubble around the corner for the USA to save the USA from the effects of outsourcing. Lower incomes and higher unemployment plus tighter lending standards = lower home prices. I think more declines in home prices are coming for many US housing markets.
Man O Man! My Mom moved in with us here in the Midwest from Phoenix.She was forced to let her house go back to the bank due to a job loss.Anyway she was paying just over 1200.00/month mortgage.Guess what? she just seen her X-house still for sale(2 yrs later) by the bank with a stated mortgage of 275.00/month.As you can guess it just killed her,especially since the bank wouldn't work with her on lowering her payments after she lost her job.The bank lost on this deal more than they would have.
Sounds like the bank lost out by not making a deal with your mom also. I have doubts about the competency of the banks. They were not prepared for this many foreclosures.
July 2010, Lowest monthly rate of home sales since 1995. That won't help get rid of the shadow inventory.
As I understand that term, it is much more than just bank foreclosed homes not yet for sale. It is all the owners who want to sell, but not badly enough to accept what the highest bidder will offer. E.g. their identical house nearby has been sitting with for sale sign on it for many months. They asked their neighbor what he was now asking for his house and it was much less than they would accept, so they don't even call a real estate company. I.e. their house is part of the inventory of homes for sale that no-one knows are for sale, but will come on the market if the prices rise of if their economic circumstances change and they must sell. The shadow inventory serves as a cap on home prices to prevent, or at least slow, the recovery of home prices. DEFINITION: The shadow inventory is the set of homes their owners want to sell, but not at the prices that the market offers, so these homes are not part of the listed inventory as only the owner knows he wants to sell. (That owner may be a bank but most of the time it is an individual.)
BillyT, I think you need to update your definitions; Huge shadow inventory fueling home price fears - Boston Real ... Jan 21, 2010 ... Of course, shadow inventory is the fancy name for foreclosed homes and condos that banks have taken back, but have yet to put on the market. ... http://www.boston.com/realestate/news/blogs/renow/2010/01/huge_shadow_inv.html Number of the Week: 103 Months to Clear Housing Inventory - Real ... Apr 24, 2010 ... Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, ... http://blogs.wsj.com/economics/2010/04/24/number-of-the-week-103-months-to-clear-housing-inventory/
I'm no expert but this always sounded like a good solution to me. Wealthy Chinese Buy Foreclosed US Homes
Your link does not state that ONLY bank foreclosed homes not listed for sale are the entire shadow inventory. Certainly, as I said, they are part of it. There is only one difference between a home the owner wants to sell, but does not currently list for sale that depends upon whether or not that owner is a bank or a private individual. That sole difference is that the size of the bank owned shadow inventory is reasonable accurately known, but only crude estimates are available for the number of homes the non-bank owners want to sell but do not currently list. These non-bank owned homes which would come on the market if the prices of homes were to rise have exactly the same effect (retarding the rise in home prices) as the bank owed homes. I.e. they too are part of the shadow inventory, but knowing how large that part of the shadow inventory is based on estimates. Almost all such estimates show that the non-bank owned shadow inventory is much larger than the bank owned shadow inventory. As far as the effect of slowing the rise in home prices, why do you think the bank shadow inventory is more important than the non-bank owned shadow inventory, which is much larger?
Thomas Jefferson - "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. "
"... The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market. Shadow inventory -- the supply of homes in default or foreclosure that may be offered for sale -- is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners. ..." From: http://www.bloomberg.com/news/2010-...three-year-drop-as-inventory-surge-looms.html
Irregardless of proper definitions of 'shadow inventory', it's obviously not in the banks best interest to inundate a market in which they hold a great share. Their lost in repairs and dilapidation will pale in comparison to that of a completely saturated market...not that we've not reached that to this point. The fact of the matter is the banks are acting in their best interests - and coincidently for us, that benefit is shared in the sense our very land retains value...though by technical definition "inflated".
An important part of why they don't sell properties they have taken back is that they will likely sell for less than the mortgage value. Until it is established that the mortgage exceeds the sales value the bank can carry the mortgage (or property) on its books at the nominal value of the mortgage. If they must take a hit in the total value of their book assets, then their asset to liability ratio drops and by law (or regulation) it must stay above specified limits. Thus, they would need to sell stock (or other means) to restore their assets. Few want to do this now, so they just keep up the fiction that the home is worth the mortgage.
Banks are increasingly reluctant to process foreclosures. Many people who stopped making their mortgage payments months ago are still living in their houses and the banks just turn a blind eye to it. They're paying the utility bills, keeping the places clean and the lawns mowed, and helping to maintain a sense of community in their neighborhoods. Children and dogs play in the yards, the smell of cooking comes from the kitchens, and the lights are on at night. Houses that are vacant for months on end--much less years, which is the more likely scenario these days since hardly anyone can afford to buy a house in America--start to deteriorate. Weeds take over, repairs are left undone. Dark, empty houses are kind of spooky to live next to. You never know what kind of animals have made a den out of it, or perhaps hobos are making camp without the benefit of electricity and plumbing, which will soon turn it into a stinky mess. It could even become a crack house with rowdy people coming and going at all hours of the night or perhaps shooting at each other. The value of the neighboring properties starts to fall because it isn't such a nice place to live any more. People who are renting move out because it's very easy to find another, nicer home, probably for less money. If you have as few as two long-term vacant houses on one block, it has a negative impact on the entire neighborhood. This is the last thing the banks want. It is in their own selfish interest to let people continue living in their homes even though, technically, they have defaulted on their mortgages. They're not going to get any money out of it either way.
Chinese whispers will put an end to that. No one underwater is going to keep paying IF their mate is living free. I know I wouldn't.
There is news about fraudulent foreclosures. Banks foreclose on people who are not supposed to be foreclosed on. Banks are having problems with documents and with bank staff not having time to read the fine print and deal with the complexity that their industry created. Banks are having problems proving which financial institution has the right to foreclose. Banks are voluntarily having foreclosure moratoriums due to their paperwork chaos. But I am suspicious. I think banks are using their own chaos as a cover story to do what they agreed to to among themselves which is to leave people in their houses mortgage free because this is not the right time to sell and occupied homes get maintained better than unoccupied homes. As bad as tenants are with their dogs and children empty homes with their squatters, vandals, looters, rats and frozen pipes are worse. In the long run I think the banks will need to become landlords and do the foreclosures, put the losses on their books but collect rental income. Banks just are not going to be able to unload their inventory without lowering prices more and putting more mortgages underwater, leading to still yet more people walking away from their mortgages. The Daily show spotlighted some hypocritical irony. The head of the "Mortgage Bankers Association" has been lecturing America about the shameful immorality of people who can afford to make their mortgage payments walking away from their underwater mortgages while the Mortgages Bankers Association which could pay the mortgage payments on it's Washington DC headquarters chose to walk away from their mortgage on their headquarters when it went underwater. They now have a headquarters in a rental near the building they walked away from.
On Nirakar's post I agree. In fact a few hours ago BofA announced it was termininating all foreclosures nation wide. That should accelerate the "stop paying your mortgage" movment, even for those not yet under water. I.e. banks, especailly small local ones are being crushed between a rock and a hard place. Watch the already high small bank failure rate soar. Minutes ago this BofA news became available in print at: http://www.topstockportfolios.com/report/7898/Bank-of-America-to-Half-Foreclosures
