Sunday, October 11, 2009
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, City-Data.com 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.