Shadow Housing Inventory: Two Houses for Every One for Sale

RealtyTrac, as reported on Housing Wire, gave a gloomy update on the US housing market. RealtyTrac does granular collection of data on foreclosures, capturing every filing. One of the shortcomings of this approach is that processes vary by state (as in some state require more court filings over the course of a foreclosure than others). In addition, homes can go in and out of foreclosure (an owner gets the first notice, contacts the servicer and works out a catch-up plan, and later falls behind again). So the commentary of RealtyTrac and other market participants is essential in interpreting the data.

The key takeaway:

James Saccacio, CEO of RealtyTrac, said at the current pace, more than 3m properties will receive a foreclosure filing by the end of the year, and lenders will repossess more than 1m of them. According to a report from the Toronto-based Capital Economics, the weight of the shadow inventory may contribute to a double dip in the housing market. The report found that for every home currently on the market, two homes are waiting to be sold.

“The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market,” Saccacio said.

Yves here. The scary part here is this estimate of market overhang refers only to foreclosed and distressed property. There is another category of hidden inventory, people who would like to sell but aren’t even listing their houses. These would include people who want to relocate, aging individuals who’d like to downsize and had hoped to be able to liberate some equity.

More detail from HousingWire:

Foreclosure filings decreased 3% in June after another 3% drop in April. It’s the third straight month of declines. Foreclosure filings were down 7% from June 2009. Despite the recent downward swing, June marked the 16th straight month of more than 300,000 filings.

For the second quarter of 2010, foreclosures dropped 4% from Q110 and remained 1% above Q209. As default and auction notices fell, REOs increased 5% from the last quarter and 38% from Q209. It’s the most REOs measured in a quarter since RealtyTrac began publishing the reports in January 2005.

“The second quarter was a tale of two trends,” Saccacio said. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

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  1. attempter

    And yet the conventional wisdom among even reformist types remains that housing prices are depressed, when in fact they remain bloated far above reality-based values and must still come way down.

    Those already in negative equity who still won’t walk away are not only dragging out the agony but throwing away money they could better use elsewhere. The argument that strategic defaults drag down property values for everyone is fraudulent. Reality is gradually restoring prices to their proper level. For the individual debtor to try to fight that is lying trying to push back the waves of the incoming tide. (And doing it against his own interest and for the interest of the banksters.)

    The most physically insane aspect of all of this is how governments (like that of NJ) are trying to help prop up Big Developers, struggling to find rationales for putting up yet more subdivisions, even as we already have a permanent oversupply of houses.

      1. mortgageBubble bailoutBubble

        people who would like to sell but aren’t even listing their houses. These would include people who want to relocate, aging individuals who’d like to downsize

        Mai oui, your exalted Iveness, but many of these have already moved out to rent off redundant properties to plebes. On the other coin-side, you have not mentioned the largest chunk of redundant overhang == homes that will end up on the block when their noble owners receive *pink slip*. There is lot of more unemployment up the pipe from the looming final collapse of the mortgage bubble coinciding with smaller but significant collapse of the bailout bubble. The crimson of blood will be less of beauty but more of stench.

        Is real-estate no longer a good investment for flipper the porpoise and flipper the bird? Have most other investment opportunities now hit the skids? Are palladium, platinum, and gold our only safe haven for pinched penny and languishing fortune, Cookie?


    1. traderjoe

      Attempter – we agree on something! :)

      I might add that this is all a part of the PTB grand plan. They’ve given people worthless FRN notes in order to allow them to buy houses, getting interest in the meantime. Then, they create a nice deflation to make everyone default – leaving with them the real assets. They’ve traded worthless notes for real property and gotten interest in the meantime – brilliant. And then can argue for QE2/3/4 to stoke inflation/hyper-inflation to pump back up asset prices.

  2. fiscalliberal

    The real overall problem seems to be a presidential focus on patching the system versus identifying go forward programs. He has done this with green energy, but that is a small long range component versus getting visable projects such as infrastructure being fixed. People just do not see a way out of this mess. Yves points out legitimate issues with finance reform – no solutions, The war is not going well, Health care reform is to complex and there is a real wonder if things are fixed. The government seems to be calling for social security reductions when it is solvent untill 2038. The real issue is that the public just does not see any relevant solutions comming from the Democrats and the Republicans are just promoting failed policies or are saying no. Oh – by the way the gulf coast is being eviserated by BP with only hopefull solutions.

    At least we have Yves to comment on what is realy going on in terms of understanding the financial mess.

  3. MolemanUV

    Watching this tragedy slowly unfold reminds me of the chorus to an old limbo record I listened to as a child…

    How low can they go?
    How low can they go?
    We all want to know
    How low can they go!

  4. tyaresun

    Housing is still in a bubble. My house value is still 2.3 times what I paid in 1996. I would not buy my house if I were in the market today even though my salary and savings have increased significantly over these years.

  5. Kimberly Amadeo

    “The scary part here is this estimate of market overhang refers only to foreclosed and distressed property. There is another category of hidden inventory, people who would like to sell but aren’t even listing their houses. These would include people who want to relocate, aging individuals who’d like to downsize and had hoped to be able to liberate some equity. ”

    That part doesn’t scare me. It also represents a lot of pent-up demand – people who are waiting until there are signs the housing market is recovering before they buy.

    Once confidence is restored, I mean really restored, housing prices could scoot up surprisingly fast. Not to 2006 levels, but higher than today. That’s what the banks are waiting for.

    1. traderjoe

      I too find that really unlikely. I read recently (could not find it quickly) that a majority of americans would prefer to rent as opposed to purchase a home. Plus, the baby boomers are retiring and that leaves a huge hole in the demographics story that has played out over the course of the last couple of decades. Also, a lot of the inventory built over the last 8 years (McMansions) will fail to meet the budgets or desires of a newer/thriftier buyer.

      The idea that housing was a good investment was a fantasy pushed by the banksters (mortgage interest on the housing stock), the realtors (commissions), the corporate/industrial complex (long-term debtors enslaved to their homes and therefore their jobs), and the governments (property taxes to support larger governments and stable/enslaved citizens). People mistake the returns of investments through the bulge of the baby boomers as representative of the future. Not so.

      20-40% down-leg on the way…perhaps an entire generation that looks as housing as the anchor it really is.

    2. Doug Terpstra

      I’m afraid traderjoe is right, and this post tells why—the huge oversupply that may take a decade to absorb, or longer given 20% real unemployment. In many bubble states, like Arizona and Nevada, 30% of the frothy market was absentee investors and flippers, so now rents are dropping faster than house prices—even faster in Arizona because where we’re deporting carpenters named Jesus.

      We’ve rented since 2005 but started looking again last year. In one year, since last summer supply in our area and price range has doubled, a 100% increase and it’s not slowing.

    3. jmarkle

      More likely banks will be made 100% whole by taxpayers
      and are in no hurry to foreclose. Additionally, it may
      be a higher level decision to slow down the inevitable
      to stave off social destabilization and panic.

  6. liberal

    “Once confidence is restored, I mean really restored, housing prices could scoot up surprisingly fast.”

    That seems unlikely.

    People need income to afford houses, not just confidence. Income is lacking.

  7. mikefromArlington

    Does anyone know why interest rates are so low? I was expecting after the FED wound down is MBS purchasing program, the demand would go away and rates would increase.

    I’m a financial illiterate so forgive me if my assumption was way off base.

    Anyone care to comment on this?

    1. traderjoe

      Briefly, because it’s only an opinion (no one can know why a market trades in a certain way), and it could be a long comment…

      1. economic numbers lately have suggested a severe slowdown in the ‘recovery’, suggesting deflation (good for bonds) is more likely than inflation (bad for bonds)
      2. the Fed is loaning banks money at .25% and allowing them to buy Treasuries at 3-4% – at unlimited quantities to fund their balance sheet repair
      3. perhaps the Fed is buying some debt in secret off-shore accounts (some people believe)
      4. more buying given the bond issues in Europe means a ‘flight-to-safety’

  8. Vinny

    I am not a financial expert, but as I see this in common sense terms, the US standard of living had gradually dropped to second world levels, and so it is only logical that property prices come down too in order to be correlated with incomes. The reason this is now happening so rapidly is simply because the recent disappearance of credit makes this process much more acute. And I think home prices have a long way to come down still.

    This country is simply paying the price for globalization and for allowing corporations to rape and plunder the US job market, while these crooked politicians and regulators stood by watching, collecting fat bribes and illegal kickbacks.

    This is how I see it, my friends. Any CEO, bankster, or politician here who cares/dares to disagree?


  9. No Problemo

    Hollywood got it right – Money Pit
    Housing is an expense not an investment, except if the government pretends and extends.
    The Day the music died.

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