Debunking the "shadow foreclosure inventory" rumor

Rumors goin' round: I continue to hear that the banks are holding on to a huge amount of foreclosed property.  Apparently, the banks are doing this in order to keep home values high and to not flood the housing market, thereby driving home prices down again.  The second part of the rumor is that the banks will release this "shadow" inventory at the first part of the year.  I've had strong doubts about this.  At this point, the banks have nothing to gain by holding anything.  Banks lose money by holding non-performing assets and gain money by making mortgages.

There's finally a study that debunks the shadow inventory myth.  Today, Lansner on Real Estate says foreclosures in the state are down by half.  Here's the link.  And here's a quote:

“We continue to hear about the foreclosure wave that is coming after the election or after the New Year. There is clearly no foreclosure wave in sight,” Michelle Lenahan writes in Foreclosure Truth...".

 

 

Shadow inventory of solds?

We’ve all heard about the “shadow inventory” of foreclosures that is supposed to hit the real estate market. But could there be a “shadow inventory” of sold properties? Last week, L.A. Times published an article which states that real estate sales and home prices are not so hot for the Southland. Here’s the link if the title won’t link. As always, I’m not going to argue with statistics, but I don’t know that they tell the whole story. Yes, the early part of 2011 was slow, but I think there could be another reason for low numbers.

IMO, the sales numbers may be skewed by the sheer number of short sales out there. Here’s how it works. A regular home lists, attracts offers, and the buyer and seller enter a contract. The house usually closes escrow 30 to 90 days later and the sale is reported in both the multiple listing service and to the county tax assessor. That’s where all the data comes from. But with short sales, the buyer and seller can be in contract for four to eight months before the bank even approves the sale. During the time period, regardless of the agreement between buyer and seller, the house must be listed as “active” on the mls (the banks in their wisdom mandate this.) And then it can take a month or so to close. (For example, I had one last year that went eight months before it closed, and another one cancel after four months before the bank even got around to approving it.) Not to be Pollyanna-ish, but considering that a high percentage of homes on the market are distressed sales, I think we may be experiencing more of a time delay in reporting actual sale transactions, than in actual sales. What do you think?