The foreclosure home market is improving and home prices are rising because of simple supply and demand – there are more buyers chasing fewer homes. Skeptics often point to a potential tidal wave of new foreclosure homes pushing down prices. The supply supposedly will come from “shadow foreclosure inventory” of foreclosed houses or defaulted home loans hitting all at one. (Learn more this Wednesday, live here.)
Foreclosure Home skeptics are wrong –
and if you listen to them, you will miss the housing market recovery already underway. Here’s why…
While it is true that it will take time to absorb the excess backlog of foreclosure homes, the bigger question is “will the phantom foreclosure inventory derail the housing recovery?” I say NO, and many housing analysts agree. This recent 3 part article in the Wall Street Journal “Shadow Inventory: It’s Not as Scary as It Looks” makes my case.
Foreclosure home shadow inventory isn’t as scary as it sounds:
- It is concentrated in a handful of markets— it is not a national phenomenon.
- It is being offset by increased demand, particularly from investors.
- The housing vacancy rate is low because of very little new home construction over the past few years easily counterbalancing high inventories of foreclosed homes.
- Lastly, although shadow foreclosure inventory is large, it isn’t nearly as large as it was two years ago.
Barclay’s Capital estimates at the end of May there were around 1.8 million mortgages in the foreclosure process and another 1.45 million where borrowers have missed at least three payments. The total number of properties that could be repossessed and resold by banks is around 3.25 million mortgages.
2012 will see about 4.8 million sales of previously owned homes. The shadow inventory is dropping. Barclay’s estimates at the current rate, delinquent loans will fall to around 2.4 million loans later this year.
Two Important Factors to watch on the foreclosure housing market:
- The Pace of Disposition: It is clear that banks are not foreclosing quickly and re-listing all of their foreclosure homes at one time. What we need to look at is how fast banks dispose of their shadow foreclosure inventory—and whether there are enough buyers willing to purchase the homes when they do. Listings of foreclosed properties have fallen in 17 of the last 19 months and are down 47% from their October 2009 peak and down by 23% from one year ago. Banks are selling more homes to investors and approving more short sales then taking them back as REO and selling themselves.
- The Lack of New Construction: While there was severe overbuilding from 2006 to 2009, since then new home building has been at its lowest levels since World War II. This coupled with increased household formation, has allowed much of the excess vacant foreclosure inventory to be absorbed. Currently the share of vacant homes for rent is down to the lowest level in 10 years and the vacancy rate of for-sale homes is down to it’s lowest in six years.
I will be discussing all of these important housing and foreclosure market changes – along with my plan on “How to Make Fast Foreclosure Profits” – Live this Wednesday in my New Foreclosure Investor Webinar Event at 6pm Pacific, 9pm Eastern. Please register now, join early and stay late to get Your plan to launch your foreclosure investing business for 2013 now and make your New Years resolution a reality!