Banks are holding between 30-60% of their REOs off the market, inventory known in the industry as shadow inventory.
In the Bay Area, for example, banks repossessed 51,602 residential properties between January 2007 and February 2009. Only 30,823 were listed and resold during that same period, leaving 20,779 (40.3%) unaccounted for.
With anywhere between 80,000-100,000 shadow-inventory homes in California, it’s obvious that the foreclosure numbers are being artificially depressed by the banks holding on to these REOs.
Whether it’s due to a bank system overwhelmed by the sheer number of homes they need to process to get them market-ready, or due to lenders deferring sales in order to turn a blind eye to the real extent of their actual losses, we can definitely expect more homes to hit the market and further depress home prices.
How much those prices drop will depend on whether the banks are and will continue to strategically hold back some of their REOs so as to not flood the market.
first tuesday take: The delay in getting properties foreclosed, some 800,000 to go in California during 2009 through 2013, will delay the recovery. Just as investors thankfully rolled into the market of single family residences (SFRs) as buyers to rent or flip the properties, they will soon, with equal force, feel uncertain about the future as the dumping of the coming flood of properties destabilizes prices and rents. Last year’s good deal looks different this year. It always does.
All this inconsistent foreclosure activity is bad for clearing out the properties which must become REOs and resold. The culprit is both the Congress and state legislatures; they dammed up the clearing of foreclosures which had been taking place in an orderly manner by placing unnecessary conditions on getting the job done. By doing so, they effectively extended the duration of the recession by stopping foreclosures until the lenders could get their footing and get the job done.
Now lenders have to pick up the pace of foreclosures to both catch up on those defaults that stacked up during the moratorium and handle the current additional defaults.
The Federal Deposit Insurance Corporation (FDIC) modification effort has been mostly futile with modified loans re-defaulting at a rate of around 65%– without the necessary cramdown of loan balances needed to keep the loans on the books and off the trustee’s sale roster, it’s all just another delay engineered by the government.
Re: “Banks aren’t reselling many foreclosed homes” from The San Francisco Chronicle