"Shadow Inventory"
March 4, 2010
For the past year or so, there has been talk about the "shadow inventory" of homes. These homes are not presently on the market, but are allegedly already part of a lender's real estate owned (REO) property rolls. I have read articles that suggest that to clear out this "shadow inventory" of REO properties will take three years and put pressure on home prices. This forecast has been appearing for well over a year. The flood of REO properties was predicted to occur in 2009, but did not. In February of this year (2010), Standard & Poor (certainly a respected financial entity) reiterated that the "shadow inventory" problem still exists.
Thus far, lenders have not flooded the market with foreclosures. Th federal government is giving incentives to lenders and loan servicers to modify existing loans or to approve short sale transactions. If these incentives work, the number of REO properties should decrease.
Quite frankly, from my observations, lenders are not putting their REO properties up for sale at prices hugely below comparable sales. The real discounting by lenders is occurring on the court house steps as they reduce their opening bid price and investors snap up these bargains. Many investors then rehab the properties and put them on the market at competitive prices, but not substantially below current market sales.
I would not presume to challenge the experts at Standard & Poor, but I shall keep careful tabs to see a serious increase in the rate of foreclosures and the number of REO properties on the market in our region.
Just as a footnote, Zillow's latest study of negative equity indicated that the percentage of homeowners with negative equity appears to be on the decline. In the communities that I track, Riverside was mentioned as being down 5.7 points - whatever that really means.
For the past year or so, there has been talk about the "shadow inventory" of homes. These homes are not presently on the market, but are allegedly already part of a lender's real estate owned (REO) property rolls. I have read articles that suggest that to clear out this "shadow inventory" of REO properties will take three years and put pressure on home prices. This forecast has been appearing for well over a year. The flood of REO properties was predicted to occur in 2009, but did not. In February of this year (2010), Standard & Poor (certainly a respected financial entity) reiterated that the "shadow inventory" problem still exists.
Thus far, lenders have not flooded the market with foreclosures. Th federal government is giving incentives to lenders and loan servicers to modify existing loans or to approve short sale transactions. If these incentives work, the number of REO properties should decrease.
Quite frankly, from my observations, lenders are not putting their REO properties up for sale at prices hugely below comparable sales. The real discounting by lenders is occurring on the court house steps as they reduce their opening bid price and investors snap up these bargains. Many investors then rehab the properties and put them on the market at competitive prices, but not substantially below current market sales.
I would not presume to challenge the experts at Standard & Poor, but I shall keep careful tabs to see a serious increase in the rate of foreclosures and the number of REO properties on the market in our region.
Just as a footnote, Zillow's latest study of negative equity indicated that the percentage of homeowners with negative equity appears to be on the decline. In the communities that I track, Riverside was mentioned as being down 5.7 points - whatever that really means.
posted by shirley harry at 8:14 AM
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