By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data
CalculatedRisk has issued another housing cheerleader article, noting the inventory decline, especially in his back-yard, Some more comments on Housing Inventory.
It’s a shorter than usual than piece so here’s a shorter than usual rebuttal: housing inventory is completely divorced from market reality. Much like the laws of physics don’t apply when studying quantum phenomenon the metrics surrounding housing market price discovery are temporarily suspended until the shadow inventory is accounted for and disappears.
CR admittedly slightly tempered enthusiasm stems from an article noting housing inventories are their lowest since 2005, and repeats last month’s post the lower inventory will “lead to less downward pressure on prices.” More tellingly, about twelve hours earlier he posted that CoreLogic’s latest report showing another monthly decline in house prices.
Every day in foreclosure court bank lawyers argue in favor of never-ending delays. Last week I saw a borrower who thought the bank lawyer represented him because the mill attorney faced the wrath of an angry foreclosure judge while arguing for yet another delayed sale date. I went to talk to the borrower but he interrupted me to ask “his lawyer” what he should do now.
Countless homes here in FL are in REO status with no literally no sign of being for sale; no MLS listing, no sign on the front lawn .. nothing. Except for court records, and the lousy job property maintenance companies do maintaining the houses, you’d never know they’re waiting to be sold. Even the NY Times ran an article, “When Living In Limbo Avoids Living on the Street,” noting banks sometimes ask borrowers to stay put after a foreclosure, to live for free, in exchange for maintaining the property and paying the utility bills. Banks even pay the house insurance.
We know that GSE REO volumes are down, but we also know that’s because they’re selling the houses in bulk to investors. That takes the homes out of the shadow inventory counts, which count only foreclosures, but they remain like an off-balance sheet liability. These may be non-liabilities to accountants but they become very real when the costs materialize.
Sellers “waiting for a better market” remind me of my time in Silicon Valley during the dot-com days when people thought their already hyper-inflated stocks would go up higher, only to see their dot-com riches crash and burn. If you want to sell your house anytime soon then sell it now, while the price declines are being artificially dampened by inventory management.
Pump and dump promotion is an ancient problem; promoters pump up the value of an obscure inexpensive stock, sell at the peak, then leave those who received a “hot stock tip” holding the bag as the penny-stock craters. The only difference between traditional pump-and-dump promoters and current housing price cheerleaders are nicer offices, better clothing, and more zeros.