Shadow Housing Inventory: The Deception of the Foreclosure Numbers and the real REO Picture. A Case Study of Southern California Real Estate. How 40,000 Homes are Hidden From Public View by Banks.
The much anticipated bottom in real estate is here! It is time to rejoice people. Let us for a second forget about the 336,000 foreclosure filings last month and the 26,000,000 unemployed and underemployed Americans. The time to buy real estate is now. If you didn’t buy a home yesterday do it now! Grab your phone, call up your agent with the glossy business card, line up your carefully saved down payment, and buy up that 900 square foot home in Culver City for $500,000 because this is it. We can also disregard the analysis from Moody’s that California’s unemployment rate will top 13 percent in 2010. Another estimate places the unemployment rate at 14 percent (we are at 11.6 percent today) so things will get worse before they get better but who cares! Real estate prices will go up on pure hype. The cash for clunkers Real Homes of Genius program.
In 2006, when I talked about the absolute shady underbelly of the housing industry including no-doc loans, forgeries, mortgage broker corruption, agent shenanigans, bought off appraisers, crony Wall Street, there was a sizable contingent that believed it was a tiny group of bad apples. I argued the vast majority of the industry was polluted and as we are now painfully finding out, that is the case. Last year, I started discussing the shadow inventory data and we had another group that simply did not believe this. They thought for the most part, only one or two homes were off the books and shadow inventory was basically a misguided assertion. Today, I am going to prove to you with Southern California data that there is a gigantic shadow inventory building. The Alt-A and option ARM tsunami will be the match that sets this housing tinder box off in 2010 (with the peaking unemployment rate). Keep in mind, we may have a national economic recovery but California housing is done for many years.
What is shadow inventory? First, shadow inventory is housing units that are not making it onto the public market for one reason or another. There is speculation surrounding why this is happening. Lenders are overwhelmed and simply do not have the human capital to handle the glut so goes one theory. Others speculate that lenders are simply too incompetent to have a system in place to handle the mess they created. There is truth in both of these scenarios. What I am starting to believe is the massive glut of housing is being caused by the inability of banks to sell homes for losses and take write-down’s to their already weak balance sheet. Think of all those notice of defaults for example. Technically, the bank can value the price at an overly optimistic point because mark to market has been suspended and the bank technically hasn’t sold the home. So this may be more of a practical survival mechanism for the banks. However, with such a crony capitalist system then why would we continue to hand money out to these institutions? We are back to the hype based economy. This is like a person saying “yes, I own $2 million in real estate” except they have $3 million in debt which they don’t openly talk about.
http://www.doctorhousingbubble.com/shadow-housing-inventory-the-deception-of-the-foreclosure-numbers-and-the-real-reo-picture-a-case-study-of-southern-california-real-estate-how-40000-homes-are-hidden-from-public-view-by-banks/