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Ghost Inventory


By David9   Follow   Sun, 18 Nov 2012, 3:23pm PST   2,964 views   17 comments
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http://www.ritholtz.com/blog/2012/07/us-housing-inventory-requiring-deleveraging-30-million-units/

'Ghost Inventory' I like the new term.

Don't recall this 2012 article being posted.

“The present RRE situation can be best described as massive Fed stimulus + government induced foreclosure abatements = some stabilization. Anything beyond that statement falls between wishful thinking and a guess.” are dead on . . .

Comments 1-17 of 17     Last »

Kevin   Sun, 18 Nov 2012, 5:45pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

His argument appears to be that every homeowner with negative equity, a second mortgage, or "impaired credit" is a distressed seller.

People who believe this shit represent everything wrong with housing bears. You have to argue using actual data, not the kind of BS fantasy writing from people who think they're going to be buying 10000sf beach front mansions for a satchel of gold coins next year.

Goran_K   Sun, 18 Nov 2012, 10:36pm PST   Share   Quote   Permalink   Like   Dislike     Comment 2

I'm not sure we have 25,000,000 homes sitting around ready to be put onto the market, but I do believe that inventory ready for market is being suppressed (my own neighborhood has empty homes with a "Chase" letter on the door, and they are not on the MLS).

Also he's correct in that the FED soft stabilization is the only thing propping prices in the market. If the FED stopped buying MBS, the 2011 to the first half of 2012 downward spiral would have continued in California.

QE seems to be working, except for the fact we also have demand destruction (sales are down 20% month-over-month in OC, higher in other cities). You can make prices rise, but can you actually get buyers at the inflated prices?

FHA is about to be bailed out and restructured.

Private banks certainly won't make those loans without some real skin in the game (20% down).

So I'm not sure what the end game is, but the housing market is in gridlock right now in OC (rising prices, disappearing demand, disappearing supply).

I actually wonder how some brokers/realtors make a living in OC these days. There's a little over 1 month's supply, and sales have drastically come down since the Summer high (not that I favor having as many RE agents as we already have, we could use a good culling).

wave9x   Sun, 18 Nov 2012, 11:35pm PST   Share   Quote   Permalink   Like   Dislike     Comment 3

I noticed something strange with a couple recent sales in my area. Both were renovated and in nice areas, and both sold for over list price in bidding wars. Now, though, both are vacant a few months later. Maybe a second home for some rich guys? Puzzling...

dodgerfanjohn   Mon, 19 Nov 2012, 12:43am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 4

robertoaribas says

Goran_K says

(my own neighborhood has empty homes with a "Chase" letter on the door, and they are not on the MLS).

those homes however can be counted. Almost certainly, a notice of foreclosure has been filed on them, and those are recorded documents.

Actually this is not the case.

Which is why the bears have such a difficult time proving their case.

Many many many homes in So Cal have gone 2-5 years w/o the mortgage being paid, but no NOD being issued.

tatupu70   Mon, 19 Nov 2012, 12:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 5

dodgerfanjohn says

Actually this is not the case.
Which is why the bears have such a difficult time proving their case.
Many many many homes in So Cal have gone 2-5 years w/o the mortgage being paid, but no NOD being issued.

But do those homes have a "Chase" letter on the door? That's what Roberto was talking about.

And the houses that have gone 2-5 years w/o the mortgage being paid are certainly in the delinquent mortgage reports.

Those homes are being counted.

country_stroll   Mon, 19 Nov 2012, 1:04am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 6

Ghost inventory isn't inventory at all. In fact, if anything, it's "dead" inventory. Perhaps that is what Mark Hanson is saying: not that this is pending inventory, but that it isn't.

Consider this: what would happen to your daily commute if 25% of all cars ran out of gas at the same time? Nightmare. That is what is happening to the housing market right now. Homes that would be moving every 7 to 10 years are languishing on the vine. Would-be move-up buyers are not moving up, down or laterally -- they are frozen in situ.

While we have lost 30 million home from inventory, we have also lost 30 million move-up buyers from demand. The net of the real estate landslide is certainly a damming (or damning?) of the flow of houses to market but it is equally a slowing the rate of emancipation for move-up buyers. This means that your commute through life, at least for owners, is blocked, as well.

As your housing needs change to accommodate family, employment, lifestyle, etc., housing will not be available to meet those changing needs. Is seems to me that the question left unasked is what is net the economic effect of an RE market that has stagnated?

Going back to the admittedly stretched commuting analogy: how would we deal with 25% of cars out of gas on the road? Normally, in a rational world, we would push all the cars to the side and clear a few open lanes to traffic. Instead, we declare that the cars are not to be moved under any circumstances, that the owners are entitled to leave their cars in the middle of the road despite their failure to put gas in their tanks, and that it would immoral for the rest of us to clear the lanes.

So, this is why it takes a generation to recover from a real estate collapse. We have to build entirely new roads to circumvent all of the existing roads clogged with unmovable derelict houses. In many respects, we are starting afresh. The move-up buyer of 10 years from now, is the starting home buyer of today.

By lowering interest rates, the FED is tilting all the roads and hoping that the constant gravity of cheap money will start the flow of real estate traffic moving again. This could work, but it carries the risk of having to quickly tilt the road the other way if inflation takes root. This would spell disaster for not only the the cars racing down the hill into the stopped traffic ahead dealing with the sudden change in grade, but also for the housing market suddenly confronted with steep increases in borrowing costs.

David9   Mon, 19 Nov 2012, 1:10am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 7

So glad I found an article worthy of debate.

Starting locally, there are like 5 - 7 properties available for sale in Tarzana right now under 350k. To me this is not 'normal'. Yes, south of the boulevard are the $million dollar plus homes, but north to Victory are many condominium communities, one comes to mind with 317 units, rarely anything available these days.

I am going to do some investigative journalism myself, no one else will, and call the HOA to see what they have to say.

dodgerfanjohn   Mon, 19 Nov 2012, 1:13am PST   Share   Quote   Permalink   Like   Dislike     Comment 8

tatupu70 says

dodgerfanjohn says

Actually this is not the case.

Which is why the bears have such a difficult time proving their case.

Many many many homes in So Cal have gone 2-5 years w/o the mortgage being paid, but no NOD being issued.

But do those homes have a "Chase" letter on the door? That's what Roberto was talking about.

And the houses that have gone 2-5 years w/o the mortgage being paid are certainly in the delinquent mortgage reports.

Those homes are being counted.

Really? Thats never ever a number I see cited here, nor at other real estate oriented sites.

dodgerfanjohn   Mon, 19 Nov 2012, 1:25am PST   Share   Quote   Permalink   Like   Dislike     Comment 9

David9 says

So glad I found an article worthy of debate.

Starting locally, there are like 5 - 7 properties available for sale in Tarzana right now under 350k. To me this is not 'normal'. Yes, south of the boulevard are the $million dollar plus homes, but north to Victory are many condominium communities, one comes to mind with 317 units, rarely anything available these days.

I am going to do some investigative journalism myself, no one else will, and call the HOA to see what they have to say.

Theres another factor in Tarzana. Besides the shadow inventory(which I guarantee you is substantial), you also have a very large number of investment properties, both north and south of Ventura. This is because Tarzana has been much less expensive than its neighbor Encino. The issue has to do with the culture of the people who own those investment properties. Simply put, they will keep them empty rather than rent them below a certain point(which is already fairly low..$1800-2100 for a small 3bd/2ba home) and they absolutely will not sell at a loss. So you have something of an artificial barrier on both rents and sales. The barrier on rents being that there will be no section 8(apartments/condos are another matter though and lots of those are section8). The barriers on sales being that many owners will simply hold, lie on their tax returns about how much money they are losing due to not being able to rent, and thats that.

Of note, where I live in DTLA there is currently construction and new units opening. And those new places had NO problem renting their places at current market rents(1800-1900/mo for similiar places as those below). Whats curious though is that new people did not fill these units. Rather it was people escaping ridiculous rent increases at other buildings(as much as $500/mo). Whats even more curious is those places that people fled from are now advertising units at the same rates they were depressed at when I moved to DTLA 2 years ago. Very very odd how that works.......

http://losangeles.craigslist.org/lac/apa/3419170140.html

http://losangeles.craigslist.org/lac/apa/3419773775.html

dodgerfanjohn   Mon, 19 Nov 2012, 1:28am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

robertoaribas says

dodgerfanjohn says

Really? Thats never ever a number I see cited here, nor at other real estate oriented sites.

http://articles.marketwatch.com/2012-11-15/finance/35123807_1_foreclosure-rate-foreclosures-drop-foreclosure-process

Now you've seen it.

Forgive me for questioning the numbers, but if the delinquency rate + foreclosure rate in CA is only 2.5%, considering current housing prices, why is no one building in So Cal again? Seems really ripe for the pickings.............

David9   Mon, 19 Nov 2012, 1:41am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

dodgerfanjohn says

The issue has to do with the culture of the people who own those investment properties.

Thank you for the insight, I appreciate it.

I can't prove it, but recently I came across this website, most of the rental properties are in condo complexes. The investors have set up their own website to rent their court house step auction buys!

http://sfvalleyrentals.idxco.com/i/15451/Tarzana_Rentals

But hey, it's a free service.

Goran_K   Mon, 19 Nov 2012, 2:04am PST   Share   Quote   Permalink   Like   Dislike     Comment 12

Going back to the admittedly stretched commuting analogy: how would we deal with 25% of cars out of gas on the road? Normally, in a rational world, we would push all the cars to the side and clear a few open lanes to traffic. Instead, we declare that the cars are not to be moved under any circumstances, that the owners are entitled to leave their cars in the middle of the road despite their failure to put gas in their tanks, and that it would immoral for the rest of us to clear the lanes.

So, this is why it takes a generation to recover from a real estate collapse. We have to build entirely new roads to circumvent all of the existing roads clogged with unmovable derelict houses. In many respects, we are starting afresh. The move-up buyer of 10 years from now, is the starting home buyer of today.

By lowering interest rates, the FED is tilting all the roads and hoping that the constant gravity of cheap money will start the flow of real estate traffic moving again. This could work, but it carries the risk of having to quickly tilt the road the other way if inflation takes root. This would spell disaster for not only the the cars racing down the hill into the stopped traffic ahead dealing with the sudden change in grade, but also for the housing market suddenly confronted with steep increases in borrowing costs.

One of the best analogies describing the current housing market I've read on the site recently.

Goran_K   Mon, 19 Nov 2012, 2:06am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 13

robertoaribas says

1. Many underwater owners are moving up.

No they're not. That's actually one part of the market that has nearly disappeared.
http://articles.latimes.com/2011/aug/01/business/la-fi-move-up-20110801

dodgerfanjohn   Mon, 19 Nov 2012, 2:19am PST   Share   Quote   Permalink   Like   Dislike     Comment 14

robertoaribas says

dodgerfanjohn says

Simply put, they will keep them empty rather than rent them below a certain point(

said no housing investor ever.... Please, think before you write! vacancy is the most hated thing to an investor ever.

I agree with that! Which is why the situation is so bizarre to me.

zesta   Mon, 19 Nov 2012, 3:08am PST   Share   Quote   Permalink   Like   Dislike     Comment 15

dodgerfanjohn says

Of note, where I live in DTLA there is currently construction and new units opening. And those new places had NO problem renting their places at current market rents(1800-1900/mo for similiar places as those below). Whats curious though is that new people did not fill these units. Rather it was people escaping ridiculous rent increases at other buildings(as much as $500/mo). Whats even more curious is those places that people fled from are now advertising units at the same rates they were depressed at when I moved to DTLA 2 years ago. Very very odd how that works.......

IMO, people buying/bought in DTLA weren't looking for rental cashflow properties. They were speculating that DTLA revitalization, LA Live, and the possibility of Farmer's Field being built would increase property prices in DTLA.

Horrible idea for investing if you ask me, but great for renters.

Goran_K   Mon, 19 Nov 2012, 5:22am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 16

The only buyers left are first-timer buyers, or investors, and they are both competing for the last remaining stock of sub-$500,000 homes on the market in SoCal. All the high end stuff just sits and sits.

David9   Mon, 19 Nov 2012, 6:20am PST   Share   Quote   Permalink   Like   Dislike     Comment 17

A small treasure trove of more 'Ghost Inventory' articles.

http://mhanson.com/archives/991

http://www.lvrj.com/business/concern-over-ghost-inventory-called-threat-to-housing-recovery-177022641.html

"We didn't invite Bank of America, Wells Fargo and Chase because we keep hearing the same rhetoric that they're sitting on zero ghost inventory," Shelton said Thursday. "Banks realize they need to manage the release back into the market for stability in the short term."

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