There is no "shadow inventory"


By wave9x   Follow   Wed, 15 Aug 2012, 4:03pm   17,813 views   175 comments
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According to Foreclosureradar.com, there is no shadow inventory, so good luck to those waiting for a flood of houses to go on the market...
http://www.contracostatimes.com/ci_21312143/bay-area-foreclosures-jump-july

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  1. CDon


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    136   9:49am Fri 24 Aug 2012   Share   Quote   Permalink   Like (3)   Dislike  

    FamilyForce6 says

    As Keynes said, "markets can stay irrational longer than investors can stay solvent"- though it should be modified to say "markets can be rigged longer than economically sensible families looking to buy a house can hold out for sanity to return to the markets". I guess that doesn't flow as well- I'll have to work on that one.

    Try: "the government can play kick-the-can longer than you can stay alive".

  2. SubOink


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    137   10:55am Fri 24 Aug 2012   Share   Quote   Permalink   Like   Dislike  

    Homeboy says

    zesta says

    In Los Angeles there aren't many more empty areas to build that are within an hour's drive of major employment centers.

    Said everybody in 2006, right before the crash.

    It's easy to talk about this. Do you SEE any areas where you can build?? I don't.

    Done.

  3. zesta


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    138   11:12am Fri 24 Aug 2012   Share   Quote   Permalink   Like   Dislike  

    dodgerfanjohn says

    That's not exactly true. When proper demand exists, the building WILL take place.

    There's plenty of neighborhoods in LA ready to gentrify. And don't give me that nonsense about how no one wants to live in gang wasteland. People said the same thing about Silver Lake, Echo Park, Atwater Viliage, Altadena, and Highland Park.

    You're right about the neighborhoods ready to gentrify. There are plenty.

    There's a big difference in buying 1000 acres of land and putting cookie-cutter housing tracts and scraping individual lots and putting up SFHs or mixed-used projects. The margins aren't the same and the additional red tape makes it exceptionally time-consuming.

    Playa Vista was the last major residential development in LA's westside and it took them almost 30 years to build ~3k units.

    There's probably more room to build Orange County, but gas prices are killing the exurbs and major development in LA.

  4. Homeboy


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    139   12:00pm Fri 24 Aug 2012   Share   Quote   Permalink   Like (1)   Dislike  

    SubOink says

    Homeboy says

    zesta says

    In Los Angeles there aren't many more empty areas to build that are within an hour's drive of major employment centers.

    Said everybody in 2006, right before the crash.

    It's easy to talk about this. Do you SEE any areas where you can build?? I don't.

    Done.

    Miss the point much? I thought this was obvious, but:

    Many people in 2006 said that L.A. was "built out", that there was a housing shortage, and that therefore prices would continue to rise.

    Did prices continue to rise? No.

    What can we learn from this? That it is a bogus argument. It was bogus then, and it is bogus now. I am not questioning whether there are places to build; I am saying it is not relevant.

    DONE.

  5. Homeboy


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    140   12:14pm Fri 24 Aug 2012   Share   Quote   Permalink   Like (3)   Dislike  

    Oh, and to answer your question - Is there any vacant land within an hour of major employment centers in L.A.? Yes.

  6. zesta


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    141   9:07am Sat 25 Aug 2012   Share   Quote   Permalink   Like   Dislike  

    Homeboy says

    SubOink says

    Homeboy says

    zesta says

    In Los Angeles there aren't many more empty areas to build that are within an hour's drive of major employment centers.

    Said everybody in 2006, right before the crash.

    It's easy to talk about this. Do you SEE any areas where you can build?? I don't.

    Done.

    Miss the point much? I thought this was obvious, but:

    Many people in 2006 said that L.A. was "built out", that there was a housing shortage, and that therefore prices would continue to rise.

    Did prices continue to rise? No.

    What can we learn from this? That it is a bogus argument. It was bogus then, and it is bogus now. I am not questioning whether there are places to build; I am saying it is not relevant.

    DONE.

    Gas prices during the boom years were about $2-$3/gallon.

    In 2007/2008 gas prices spiked to above $4 and people realized that high gas prices were a strong possibility. There's been a change in where people are willing to live, and you can see it in the fall of housing prices in the exurbs. Santa Clarita, Riverside were places that you could build housing tracts. If nobody wants to live there anymore, where else will you build?

  7. Homeboy


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    142   12:00pm Sat 25 Aug 2012   Share   Quote   Permalink   Like (1)   Dislike  

    zesta says

    Gas prices during the boom years were about $2-$3/gallon.

    In 2007/2008 gas prices spiked to above $4 and people realized that high gas prices were a strong possibility. There's been a change in where people are willing to live, and you can see it in the fall of housing prices in the exurbs. Santa Clarita, Riverside were places that you could build housing tracts. If nobody wants to live there anymore, where else will you build?

    Well, no - prices fell because they were unsustainable. We had a bubble, and then it burst. Gas prices had nothing to do with it.

    If you don't believe people commute anymore, try getting on ANY freeway during commute hours.

  8. Goran_K


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    143   10:42am Sun 26 Aug 2012   Share   Quote   Permalink   Like   Dislike  

    zesta says

    There's been a change in where people are willing to live, and you can see it in the fall of housing prices in the exurbs. Santa Clarita, Riverside were places that you could build housing tracts. If nobody wants to live there anymore, where else will you build?

    Have you seen the 405, 91, 55, 57, 10, and 110 during rush hour? There are still a lot of people willing to commute from Santa Clarita, Corona, etc to get to job centers.

  9. zesta


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    144   3:26pm Sun 26 Aug 2012   Share   Quote   Permalink   Like   Dislike (1)  

    How far have housing prices fallen in the Central Valley compared to SF?

    How far have housing prices fallen in the Inland Empire compared to LA?

    Using traffic as a metric is ridiculous. Can I use that same metric and conclude that since there's a lot of traffic during rush hour unemployment is low?

  10. Homeboy


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    145   9:35pm Sun 26 Aug 2012   Share   Quote   Permalink   Like (1)   Dislike  

    zesta says

    How far have housing prices fallen in the Central Valley compared to SF?

    How far have housing prices fallen in the Inland Empire compared to LA?

    That will tell you nothing. You need to know how far prices ROSE during the bubble. Outlying areas are always more volatile. Prices rise AND fall more in outlying areas.

    Using traffic as a metric is ridiculous. Can I use that same metric and conclude that since there's a lot of traffic during rush hour unemployment is low?

    No, your analogy is ridiculous. The difference in unemployment statistics between good and bad times is going to be 5% or less. Are you telling me you think you can spot a 5% difference one way or another in traffic congestion just by looking? No, that is going to be a miniscule difference. But if people stopped commuting from outlying areas, the difference would not be miniscule.

  11. Goran_K


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    146   8:01am Mon 27 Aug 2012   Share   Quote   Permalink   Like   Dislike  

    zesta says

    Using traffic as a metric is ridiculous. Can I use that same metric and conclude that since there's a lot of traffic during rush hour unemployment is low?

    http://www.redfin.com/city/17676/CA/Santa-Clarita

    Homes sales in Santa Clarita are up 16% YOY. Who is being ridiculous now?

  12. nobaloney


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    147   6:33pm Mon 10 Sep 2012   Share   Quote   Permalink   Like   Dislike  

    There is much being made about the alleged “shadow inventory” of homes being held by banks that are in some stage of foreclosure. Advocates of the “the shadow inventory is ‘out-there-lurking-and-ready-to-dump-new-inventory-on-the-market’ obviously have no idea about the disincentives for banks to do that.

    In addition to the mistake of perhaps selling too soon into a rising market, banks have a very important reason not to sell their property at a loss. If a bank sells a property at a loss, they must immediately show that loss on their books and every loss affects their stock, their loss ratio and their P&L sheets. Analysts of banks look very carefully at loan loss coverage ratios and it has a major effect on the market reputation of the bank as well as how the investor community sees that bank.

    This issue was seen during the financial crisis of 2008/09 when many securities held on banks' balance sheets could not be valued efficiently as the markets had disappeared from them. In April of 2009, however, the Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation. Starting in the first quarter of 2009, banks were allowed to not “mark-to-market”. This ruling fixed an accounting problem which had been causing many banks to appear undercapitalized when in fact they were not.

    When a bank has to write down an asset on its books, it not only has to take the loss, but also has to beef up its reserve of cash to cover its declining asset base. The net result is a black eye and less money to lend— even if the bank plans to hold the asset until indefinitely or until maturity. So basically, there is no incentive whatsoever for a bank to rush onto the market any properties subject to foreclosure. Those who fail to understand the internal workings of banks are still believing the myth of “shadow inventory” rather than the fact that the FASB accounting rules allow banks to hold troubled real estate assets without having to write down their value. Maybe these “believers” should come out of their own shadows and see the light of day.

  13. doctorbee


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    148   8:37am Wed 24 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Here's your shadow inventory. Take the average number of foreclosed homes before the robosigning settlement and compare it to the average number of forclosed homes after. The difference in those averages multiplied by the time since forclosuregate is where all your shadow inventory is.

    http://www.zerohedge.com/news/foreclosure-stuffing

  14. Beaconhis


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    149   8:24am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    There is in West Palm Beach. I see it almost everyday while doing home inspections. Homes that are vacant, haven't been sold in years and not for sale at the present time. I get calls all the time that have recently hit the market that have mold issues from sitting vacant and improperly air conditioned for so long.

  15. RentingForHalfTheCost


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    150   9:05am Sat 29 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    zesta says

    In Los Angeles there aren't many more empty areas to build that are within an hour's drive of major employment centers.

    That has been always a gimmick of realtors for years. If you opened your eyes and looked around, even in L.A., you would see there is land everywhere. Yes, more than enough to meed the piddly demand that exists. Only one way to go with prices from here. Interest rates are half what they used to be in 2007 and prices are less. Not a good sign and that speaks the truth. People are extended to death and just barely hanging on. "No shadow inventory"? Reading thing like this means that the bang will then be even worst. Good luck out there.

  16. Kevin


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    151   2:29pm Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike (1)  

    As someone who has been trying to find a good lot to build on for months, I'm going to have to disagree about land near big cities.

    Every lot I've seen is either too many expensive to build on (half of my budget or more) or unsuitable for building (slopes, wetlands, protected species, etc.)

    For subdivision builders, things are not even worse since they tend yo need good plots in the 10 acre+ variety.

    New construction just can't be competitive with existing inventory in the present market. When you can buy a 3000 sf home with hardwoods, granite, high end appliances, Trippe paned windows, etc. For $500k, there's no way for new construction to be competitive.

    Expect future builders to focus on smaller homes and quality design to be competitive. Either that or they wait until all the mcmansions start falling apart so that they can go back to vinyl and carpet and be competitive

  17. HousingBoom


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    152   4:51pm Sat 29 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Maybe the govt invented an invisible cloak to cover the empty homes so nobody can see it.

  18. The Professor


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    153   5:19pm Sat 29 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike   Protected  

    There is no shadow inventory. It is in the sunshine.

    Troubled to for sale properties are up to over eight to one in Pittsburg CA.

    The fortress outer walls are being reduced.

  19. RentingForHalfTheCost


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    154   1:20am Sun 30 Dec 2012   Share   Quote   Permalink   Like   Dislike (1)  

    Kevin says

    As someone who has been trying to find a good lot to build on for months, I'm going to have to disagree about land near big cities.

    With cities poised to go bankrupt all through the U.S. you can bet that re-zoning will be done in metro areas. I didn't say the land was accessible right now, but it will be. Look around, it is everywhere. The one thing this country has is land.

  20. The Professor


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    155   12:50pm Sun 30 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike (1)   Protected  

    Zillow map from one of the "better" 'hoods in Pittsburg.

    Blue is distressed 369 properties.

    Red is for sale 30 properties (5 of which are foreclosures)

    12 distressed per everyone for sale.

  21. The Professor


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    156   5:56pm Sun 30 Dec 2012   Share   Quote   Permalink   Like (5)   Dislike   Protected  

    Phoenix AZ

    6225 Distressed (not in Robertos hood)
    5664 for sale (including 302 foreclosures)

    More than one distressed for every for sale.

    I have noticed more listings on Zillow lately. The shadow inventory is revealing itself.

  22. iwog


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    157   5:17pm Mon 31 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    The Professor says

    Zillow map from one of the "better" 'hoods in Pittsburg.

    Seriously man, you have GOT to stop trying to second guess the market and look at THE MARKET! The dream of waiting for the shadow inventory to force down home prices was shattered in 2012. Home prices have to FALL 25% just to get back to January and they show no sign of slowing down........even in the dead of winter! Sales numbers have to more thanTRIPLE just to get back to December 2011. Trying to make a case about foreclosure pressures in Contra Costa County is like trying to prove the Titanic is seaworthy while water keeps pouring into the hull.

    It's time to concede, regroup, and try to figure out what the next 5 years will look like.

  23. David Losh


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    158   5:48pm Mon 31 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    If you can see, and quantify the shadow inventory, it's no longer a shadow.

  24. The Professor


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    159   6:08pm Mon 31 Dec 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    Thanks for the pep talk Iwog.

    High prices are not good. Wages are not rising so it means that people must pay larger mortgage or rent payments. Costlier housing is going to leave less spendable income to fuel our consumer society. Less consumerism less jobs.

    Who's gonna pay the rent?

    Contra Costa County Quantified
    1645 For Rent
    5441 Distressed (not in Iwogs hood)
    1240 for sale (including 131 foreclosures)

    About four distressed for every one for sale.

    Many of the distressed loans will probably become shortsales or foreclosures.

    The investers are buying these up as fast as they can because they think that they can rent them back to the defaulters for more than the defaulters were paying in mortgage.

    Is the future like Pittsburg? All the old homes that used to be manicured by proud old Italian men are becoming high density single family rentals with many more cars on the block and many less gardens in the yards.

  25. Kevin


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    160   8:12pm Mon 31 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    The Professor says

    The investers are buying these up as fast as they can because they think that they can rent them back to the defaulters for more than the defaulters were paying in mortgage.

    This makes roughly zero sense. If they can afford a higher rent payment, they wouldn't be in default on the loan.

  26. iwog


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    161   11:32pm Mon 31 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Kevin says

    This makes roughly zero sense. If they can afford a higher rent payment, they wouldn't be in default on the loan.

    Absolutely false. I'll use my own tenants as an example:

    - Lost home to foreclosure in 2008. His payment was $4600 1st and 2nd.
    - Rented from me in 2008 for $2000 per month in a house that is worth $250,000.
    - Is just emerging from credit jail.
    - Can EASILY afford PITI on this exact same house at $500,000 and a 10% down, which would result in a payment of just over $2000.
    - Using this example, which is identical to nearly every house I own and rent out in Concord, the market could quite quickly double in price while still being quite affordable to most people who are currently renting and a fraction of the 2006 market.

    This is the real on-the-ground situation. It is radically different from the picture being painted here.

  27. Kevin


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    162   1:05am Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    iwog says

    Kevin says

    This makes roughly zero sense. If they can afford a higher rent payment, they wouldn't be in default on the loan.

    Absolutely false. I'll use my own tenants as an example:

    - Lost home to foreclosure in 2008. His payment was $4600 1st and 2nd.

    - Rented from me in 2008 for $2000 per month in a house that is worth $250,000.

    - Is just emerging from credit jail.

    - Can EASILY afford PITI on this exact same house at $500,000 and a 10% down, which would result in a payment of just over $2000.

    - Using this example, which is identical to nearly every house I own and rent out in Concord, the market could quite quickly double in price while still being quite affordable to most people who are currently renting and a fraction of the 2006 market.

    This is the real on-the-ground situation. It is radically different from the picture being painted here.

    Your renter isn't paying you $4600 a month, so its really not countering what I said.

    Nobody is going yo default and then rent the same house for a higher payment.

    And if the place is only worth $250k, nobody will rent it for $4600 period.

    They'll certainly rent it for more than what *you* pay, but thats not what the professor was claiming.

    (I highly doubt they'd pay double, either, unless shit hits the fan and inflation goes through the roof. Try charging $4000 when the lease is up and let me know how many tenants you attract)

  28. The Professor


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    163   2:30am Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    iwog says

    Can EASILY afford PITI on this exact same house at $500,000 and a 10% down, which would result in a payment of just over $2000.

    So when is your tenant closing?

    The Professor says

    The investers are buying these up as fast as they can because they think that they can rent them back to the defaulters for more than the defaulters were paying in mortgage.

    Kevin says

    This makes roughly zero sense. If they can afford a higher rent payment, they wouldn't be in default on the loan.

    The key word in my statement was "think".

  29. Kevin


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    164   3:46am Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    I don't think anybody is that dumb. They're buying the properties because they can make a decent rental profit, not because they're delusional.

  30. iwog


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    165   10:08am Tue 1 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Kevin says

    Your renter isn't paying you $4600 a month, so its really not countering what I said.

    Of course it is. You said:

    Kevin says

    If they can afford a higher rent payment, they wouldn't be in default on the loan.

    I gave you an example of someone who defaulted on a loan, and who could easily afford to buy the house he's living in for the rent he's paying now at double the price!

    The factors preventing him from doing so are temporary. There are only two:

    1. Saving up for a down payment, which he may have already done for all I know and
    2. Getting out of credit jail which will happen eventually regardless of circumstances.

  31. The Professor


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    166   10:39am Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    3. Competing with all of the investers that want double the PITI.

  32. iwog


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    167   11:05am Tue 1 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    The Professor says

    3. Competing with all of the investers that want double the PITI.

    Of course investors want double the PITI, who wouldn't? The opportunities for that are mostly gone now.

  33. The Professor


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    168   12:04pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    iwog says

    The Professor says

    3. Competing with all of the investers that want double the PITI.

    Of course investors want double the PITI, who wouldn't? The opportunities for that are mostly gone now.

    Mostly?

    What is the ratio of expense vs income for your properties?

    I know you are just playing the game by the rules and if you did not do it someone else would, BUT don't you see anything wrong with taking advantage of the market by outmaneuvering first time buyers and then renting to them for more than PITI?

  34. Kevin


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    169   12:28pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    iwog says

    Kevin says

    Your renter isn't paying you $4600 a month, so its really not countering what I said.

    Of course it is. You said:

    Kevin says

    If they can afford a higher rent payment, they wouldn't be in default on the loan.

    I gave you an example of someone who defaulted on a loan, and who could easily afford to buy the house he's living in for the rent he's paying now at double the price!

    The factors preventing him from doing so are temporary. There are only two:

    1. Saving up for a down payment, which he may have already done for all I know and

    2. Getting out of credit jail which will happen eventually regardless of circumstances.

    That is not what the professor was claiming at all Mr duck. Read it again.

  35. Goran_K


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    170   12:36pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Even the biggest of Ponzi enablers, JP Morgan Chase, doesn't claim there isn't any "shadow inventory":

    People just disagree on the numbers, and how it will have an effect on the market. But the homes aren't really in the shadows.

  36. The Professor


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    171   12:58pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    Goran_K says

    Even the biggest of Ponzi enablers, JP Morgan Chase, doesn't claim there isn't any "shadow inventory":

    People just disagree on the numbers, and how it will have an effect on the market. But the homes aren't really in the shadows.

    It looks like the outflow exceeds the inflow. We should be out of the housing mess within a couple of years.

  37. iwog


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    172   1:16pm Tue 1 Jan 2013   Share   Quote   Permalink   Like (3)   Dislike   Protected  

    The Professor says

    I know you are just playing the game by the rules and if you did not do it someone else would, BUT don't you see anything wrong with taking advantage of the market by outmaneuvering first time buyers and then renting to them for more than PITI?

    If I saw something wrong with it, then I would be making an argument prohibiting the ownership of private property.

    I am not a communist. I really do wish I could make as much money creating real wealth instead of hoarding wealth, however 30 years of gross stupidity by American voters have stripped my customers of their ability to pay.

    I would rather be running a farm, mine, factory, or restaurant but the current economy is very hostile to any of these industries.

  38. Goran_K


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    173   1:17pm Tue 1 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike (1)  

    The Professor says

    It looks like the outflow exceeds the inflow. We should be out of the housing mess within a couple of years.

    I think at minimum, 3-4 years. That's assuming the fundementals such as unemployment, growth, etc correct as well.

    If unemployment remains high, and we continually hit debt ceilings, I think all bets are off.

    One thing is for sure, we're not out of the woods quite yet.

  39. The Professor


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    174   1:28pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike (1)   Protected  

    iwog says

    running a farm, mine, factory, or restaurant but the current economy is very hostile to any of these industries.

    So true.

    I see a death spiral if we don't change things.

  40. Kevin


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    175   3:57pm Tue 1 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    iwog says

    I would rather be running a farm, mine, factory, or restaurant but the current economy is very hostile to any of these industries.

    Farming has always been tough. That's why we subsidize the industry so much.

    Mines are doing great if you're mining the right thing. Copper, rare earths, and precious metals are doing particularly well.

    Factories also depend highly on what you make. Foxconn, samsung, and other large manufacturers are going gangbusters. There's just no opportunity for anything small scale.

    Restaurants have never really been both good investments and producers of quality food. You can get a nice consistent return owning a fast food chain, but then you're just contributing to the demise of society.

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