Sunday, October 11, 2009

Shadow inventory

Here's a long and boring read about shadow inventory. This is a report put together by the Amherst Securities Group for their investors. There report starts off with...

With the apparent stabilization of home prices and the increase in new and existing home sales, many investors believe the housing market has bottomed, and is beginning to recover. We believe this optimism is premature. We acknowledge that there are a lot of positives in the market—prices have fallen significantly and housing is more affordable than at any point over the past 2 decades. The tax credit for first time home buyers has helped spur purchase activity. However, investors are overlooking one critical factor—the size of the “housing overhang”; i.e., the # of loans in delinquent status or in foreclosure. We estimate the housing overhang at 7 million units – these loans are destined to liquidate, and are creating a huge shadow inventory.

Interestingly, they used the city of Riverside as an one example.

The break out is as follows:
For Sale = 1,372 Units
Banked Owned (but not yet listed) = 1,362 Units
Auction Date Announced = 1,916 Units
Notice of Default Issued = 2,360 Units
Total Probable Inventory = 7,010 (1,372 + 1,362 +1,916 + 2,360)

As of 2007, reports that the city of Riverside, CA had 34,854 mortgaged residential units. It is one of the cities in the San Bernadino/Riverside County areas that experienced rapid home price appreciation during the bubble, with median home prices escalating from $136,000 in 2000 to a 2007 median price of $423,400 (for a 17+%/year price appreciation). Using Loan Performance data, we estimate that almost 50% of the mortgaged properties in the city were financed with Alt-A, Pay Option, or subprime loan product. Recent median sales data indicate that home prices have fallen nearly 60% from the peak.

Thus, the Trulia numbers imply a staggering 7,010 potential properties for sale in Riverside, out of only 34,800 units (thus 20% of all properties!). Stated differently, total inventory (actual listings + REO + Auction Date Announced + Notice of Default issued) are actually more than 5X the number of units listed “for sale.” And this doesn’t take account of homes backed by loans where a Notice of Default has not yet been filed.


California Girl said...

It is one of the cities in the San Bernadino/Riverside County

Where exactly is San Bernadino? Do you mean San Bernardino?

BrianH said...

The total listing/Bank owned not yet listed numbers look way off to me. A quick look on my public records system comes up with way different totals. Later today I'm going to get on my first american real quest thing and pull their numbers.

globalfriends02 said...

We need high inventory to improve the business of real estate. With high inventory, buyers would get the compatible rates of houses. This further improves the sales of houses.
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Empire Realty said...

I have been watching the number of NOD's and NOS's rise, they are now running between 6-10 times the currently listed numbers. This winter could prove to be pretty interesting.

Take care!

Yanki said...

The stated fact these are sub-prime and are Alt-A loans are ridiculous findings. Loan sizes of that amount don't go to high credit risk borrowers. It happens but it's rare in sub prime without large down payments and reserves. On the purchase side.

In fact with the sucky loan terms on ALL LOANS you can call them all sub-prime if thats their little joke

You can also look at the foreclosure records and see. You see something like Fairbanks and a few other select lenders that act as conduits for sub-prime loans. Those are valid.

Industry is geared to sell loans and houses. I wouldn't assume that they didn't play games with the facts. A quick look at CNNmoney today tells the tale. That states only 623k houses have been taken back by the lender. When in 2000 there were close to 1.1 million had been taken back at that point. Their facts defy gravity.

They have a vested interest. (Not disclosed) Which is usually the case unless they feel like it. I have seen skewing of the numbers all over the place. California seems to be the only place they are reporting closer to the real numbers.

I used to teach access classes in Real Estate foreclosure at a local community college. It's an insult to me when someone tries to pass off sales geared facts as fact.