Shadow Inventory Growing – Foreclosures

We’ve been saying that despite media reports that the worst of the Housing Market is behind us, that’s just not how we see it. Though real estate has been and always will be a “Local” market there are many places in the country where housing prices have fallen and will continue to fall despite the recent firming of prices.

How can this be? Two words for you “Shadow Inventory” which are the homes that are in defalult but the banks have yet to start the process to foreclose on them. This process has been delayed by lawsuits over the “Robo-Signing” scandal by Bank of America, Chase, Citi, and Wells Fargo, but sooner or rather later these homes in default will be foreclosed upon. When that happens the supply of homes will go up and prices will again fade.

Here is an article from the National Association of Realtors that describes what we’ve been saying:

An estimated 1 million foreclosure-related notices for defaults, auctions, and home repossessions that should be filed by lenders this year will be pushed back until next year, according to the latest report by RealtyTrac.

While the delays could give home owners more time to catch up on their payments and try to avoid foreclosure, housing experts warn this means the looming shadow inventory of distressed properties likely will continue to plague the real estate market even longer.

“The best-case scenario is we don’t get back to normal levels of foreclosure activity until 2015, which means the housing market recovery gets delayed by at least a year,” says Rick Sharga, a senior vice president at RealtyTrac.

Foreclosure Notices Drop, Threat Still Looms
Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays with lenders taking longer to take action against delinquent borrowers is stalling the housing recovery, experts note.

About 1.2 million homes received a foreclosure-related notice in the first six months of this year in other words, one in every 111 U.S. households, RealtyTrac reports.

Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.

The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)

As you can see we’ve still got a lot of inventory to dipsoe of on an already fragile real estate market. Texas has the shortest time frame and corresponding one of the lowest amounts of foreclosures. Thank your luckly stars if you live in Texas.

This entry was posted in Mortgages and tagged , . Bookmark the permalink.

Leave a Reply