If you repeat something enough times, does it make it true?
If you repeat something enough times, does it make it true?
One of the great Real Estate canards of the past year is the “myth of shadow inventory”. The realtor community had been drum beating this meme throughout 2013 in an effort to show how strong the market has been, and why you need to buy because inventory isn’t coming back. A simple Google Search for that phrase yields hundreds of articles posted just last year….
A myth-busting cacophony, or conspiracy, if you like. But does repeating that shadow inventory is a myth mean it’s true? I don’t think so.
Yes, there are fewer foreclosures thanks to market interference/consumer protective laws like California’s “Homeowner’s Bill Of Rights” and Nevada’s similar legislation – SB321 – but what about homes still in the pipeline, the “cloud inventory” that isn’t easily found? Let’s take a look:
On the one hand from the SI denial perspective there’s this:
“We’re smack in the middle of a seller’s market and numerous discussions about “shadow inventory” hitting the market abound. Shadow inventory refers to real estate properties that are either in the process of foreclosure and subject to potential short sale or are already “owned” by banks or GSEs. In either case, these properties are “in the shadows” and not “on the market” but will be sometime in the future.
This is a hot subject because shadow inventory creates uncertainty about the best time to sell because if a flood of these “shadow” homes came on the market prices would decline due to inventory increasing beyond buyer demand. A flood of shadow homes would slow a full housing recovery and the price increases we are currently seeing.
Personally, I’m not buying it. We probably won’t see this inventory materialize anytime soon, and here’s why:
To begin with, compared to the rest of the country, the Pacific Northwest did not have that much shadow inventory.
Well, with a 210 day length of time to foreclose, it’s no wonder Washington State didn’t have as many foreclosures as the rest of the nation – a solid article on the subject: Foreclosure Timeline in Washington State
Much of what was reported by the media was nothing more than hype.
Many home owners that might have been in trouble on their mortgages have seen improvement in their economic situation. They are not necessarily looking to get out of their homes anymore.
Programs that assist distressed homeowners, such as HARP, have been able to provide relief to people that might have otherwise needed to sell.
Real estate investment trusts (REITs) like America’s Homes 4 Rent, have purchased tens of thousands of homes and turned them into rentals.
Eh?…. American Homes 4 Rent Offers Intriguing Value – Of America’s Homes 4 Rent’s 21,267 properties, only 14,384 are rented. That’s a 33% vacancy factor and a huge drag on the business model.
Banks have become more sophisticated in managing their inventory of short sales than in years past. As a result they are more measured in the pace at which they are putting these properties back into the market. Additionally, they are not in as big a hurry to release inventory when prices are rising faster than cinnamon rolls near a wood stove.
Um…so there is Shadow Inventory…
The next time you hear rumblings about shadow inventory materializing in a significant way, keep these six things in mind. …”
But on the other hand – here on Planet Reality – there’s this:
The November residential and foreclosure sales report from RealtyTrac shows that sales of homes, condominiums and townhomes saw a slight uptick between October and November 2013 – up less than 1% to 5,146,565. More positively, that’s a 10% increase for sales over November 2012.
According to RealtyTrac’s numbers, annualized sales declined from October to November 2013 in 18 states, and were down from a year ago in four states.
“The housing market recovery continued to be driven by investors and other cash purchasers in November,” said Daren Blomquist, vice president at RealtyTrac. “Lenders are taking advantage of this environment to unload more of their bank-owned inventory and in-foreclosure inventory at the foreclosure auction.”
“But as the backlog of distressed inventory available dries up in many of the markets with the most efficient foreclosure processes — namely California, Arizona and Nevada, with Georgia not far behind — overall sales volume is declining and will continue to do so until more non-distressed sellers enter the market,” he said.
Median sales prices mirrored the percentage gains in sales. The median sales price of all residential properties (this includes both standard and distressed properties) was $169,000 in November, up 1% from October and up 7% from November 2012. That makes 19 consecutive months of median home price increases on an annualized basis.
Interestingly, a lot of the sales were driven by investors and other cash purchasers, as was the case over the past several months. All-cash purchases accounted for 42.0% of all residential property sales in November, up from 38.8% in October and also up from a year ago to the highest level since RealtyTrac began tracking all-cash purchases in January 2011….
Other significant finds centered around investor buyers and foreclosure auctions:
Institutional investor purchases represented 7.7% of all residential property sales in November, up from 7.1% in October and up from 6.3% a year ago. Markets with the highest share of institutional investor purchases included Columbus, Ohio, Phoenix, Atlanta, Jacksonville, Fla., and Cape Coral-Fort Myers, Fla.
Sales of bank-owned homes (REO) accounted for 10.0% of all residential property sales in November, up from 9.1% in October and 9.4% a year ago. November marked the third consecutive month where REO sales increased from the previous month.
Metro areas where REO sales accounted for at least 20% of all sales and increased from a year ago included Stockton, Calif., Las Vegas, Cleveland, Riverside-San Bernardino, Calif., and Phoenix.[dfads params=’groups=165&limit=1′]
Sales to third-party investors at the foreclosure auction represented 1.3% of all residential property sales in November, up from 0.8% of sales in both the previous month and a year ago to the highest level since RealtyTrac began tracking third party foreclosure auction sales in January 2011.
Metro areas with the highest share of third party foreclosure auction sales were Miami (4.0%), Atlanta (3.9%), Jacksonville, Fla. (3.9%), Orlando (3.6%), and Las Vegas (3.6%).
So which viewpoint is true? Neither, and both. REO sales are increasing as banks begin to push homes out of cloud inventory yet there hasn’t been a corresponding increase in foreclosure activity. Much of these unmarketed REO’s AKA Shadow Inventory, have languished for years off the books and finally being pushed into the open. As with any uncertain phenomenon – the Yeti, the Chupacabra, or Shadow Inventory – the best proof is physical evidence.
HOA lien 2010, multiple Grant Deed exchanges 2010-2011, Foreclosed in 2011, Listed 2013
Loan modified 4/2011, Foreclosed 10/2012, Listed 2013
Both homes were delayed through the best efforts of the loanowners, but failure was unavoidable. But…but… it takes time to put homes back on the market? O RLY? – 1 to 2 years??? Here’s a great property (\sarc off\) that went from court house to resale in less than 10 days! It’s now a flip if you’re in the market for this kind of home…
The volume of homes coming to market has been constrained by loss mitigation programs like HAMP, HARP, and legislation preventing the efficient foreclosure of distressed property. Personal incomes have not increased (bad), but job losses have stabilized (good) so there’s some light at the end of the tunnel for “soon-to-be home sellers” in trouble. Home buyers in 2014 needing more inventory to hit the market will likely be rewarded by seeing fewer short sales to pick through, higher numbers of equity sellers, and a greater choice of homes that once was shadow inventory now finally being released.
Will there be a return to 2008-2010 levels of REO inventory? Likely not. Are there plenty of ready to sell homes still being retained by the banks? Of course. You don’t have to work very hard to find them. For some within the real estate sales community to trumpet how Shadow Inventory never existed, didn’t have an impact on the market, or was completely mythical might be caused by some form of reality distortion field… What benefit is there to say one thing expecting it to be true when everyone else can see that it’s not? When I hear people babbling about the “myth of shadow inventory” all I know is this:
Sometimes…. I feel like I’m taking crazy pills.