THE SHADOW KNOWS

WHAT'S GOING ON WITH PROPERTY VALUES??

the shadow knows

There's a lot of talk in the real estate world about the "Shadow Inventory".

So, what is it?? How is it affecting the value of MY HOME??

Well, there are a couple definitions for this elusive shadow.
The first, is simply the real estate that the banks have foreclosed on, the redemption period has ended and the folks have moved out, yet there's no FOR SALE sign in the yard. Instead, the bank is paying someone to change the locks, mow the lawn, occasionally check on the security and general condition, and don't forget, they're also paying the taxes and utilities (if they've been left on). Why would they do this? I'll explain that a little later.

Now, some people also include properties where the owner is in default and the bank just hasn't dropped the hammer on the foreclosure process yet. Then add to that, the properties where the banks have started the foreclosure, but the "owner" is waiting out the redemption period, while saving their money for rent for the next place where they'll live.

But really, just how much real estate are we talking about here? Well, this past spring, it was estimated that there were 7 MILLION properties likely to have been seized by lenders that have yet to hit the market. That could have a disastrous effect on listing inventories, 1.35 years worth, IF NOT ANOTHER HOME ADDED TO THE MARKET. High inventories will collapse prices, knocking another 8% off homeowner equity, with a domino effect on the sick economy.

Since late 2009, home values have tended to somewhat stabilize, and even show a slight increase in a few markets, due to a decline in inventory as the banks held properties back and while our Government was paying people (tax credit) to buy now, rather than later. The banks can't hold these properties on their books for ever, and as our Government will also cover the bank's losses, they'll will begin dumping houses into the inventory. When that happens, we'll see home values take another big hit. Some of the number crunchers say that it's going to take 3-4 more years to clear out the bank inventory, as new foreclosures repopulate both the public MLS inventory and the shadow inventories. Until these bank properties are down to just a blip on the radar again, they will continue to force the values of all real estate down, eating away more of what's left of our equity.



OOPS!!
I almost forgot to explain WHY the banks (and our Government, through "Fannie Mae & Freddie Mac") are hanging on to these houses.

The first reason ( and the most common excuse) is that these banks truly care about our home values, so they aren't flooding the market which would make most real estate almost worthless.

Personally, if I thought that were true, they'd be offering their homes for sale through reputable Realtor firms, at or near market value, rather than dumping them at "wholesale" prices through agents and Brokers who's only concern is "how fast can I make a commission on this one". Don't get me wrong, there are a hand full of good, ethical agents and Brokers working the REO (bank owned) listings.

The second reason put out there, is that the banks are carrying these homes on their books at the foreclosure "Value" (which in almost every case is way more than their market value), thus propping up their bottom line, allowing the CEOs to collect more of those big bonuses for doing such a great job, even though 1 out of ten families no longer own a home.

What's going to happen when these institutions dump all these properties and their bottom line turns very RED?? That's a story for another week....sorry...