Sacramento Real Estate Views

7 Million Homes In “Shadow Inventory”

Can The National Housing Market Withstand The Next Wave?

A recent article from Bloomberg.com cites evidence that the “shadow inventory” of foreclosed yet unsold homes could be the beginning of the residential housing crash, Phase 2.

Although S&P Case-Shiller reports that 20 metro markets nationwide have shown improvements in appreciation in month over month statistics recently, due to the glut of inventory of unsold homes totaling 7 million, the recovery of values will be short lived and there will likely be a secondary stage to the residential housing crisis.

“The favorable seasonals (aka. seasonal numbers) will disappear over the coming months, and the reality of 7 million-unit housing overhang is likely to set in.”

S&P Case-Schiller

Sweet!

More Defaults

As the economy has grown worse, the unemployment numbers reflect that fewer people are working and those folks are losing their homes or just walking away at the prospect that it will be YEARS before appreciation returns the amount that their homes are currently underwater.

The makes for some pretty tough decisions.

Unless something happens to prevent the wholesale pillaging of home values, the U.S. housing market will not be recovering anytime soon.

At this point, with so many homes having gone into foreclosure that are just sitting there waiting for someone to get off the dime, I just don’t see how this won’t affect the entire U.S. economy negatively and for the long term.

The Sacramento Real Estate Market

Locally, the state of California is nearly bankrupt due to a loss in tax revenues, among other issues, from this mess and it doesn’t look like it’s going to get better for the next few years.

Right now, the homes under $150K are appreciating as well as pockets of homes, depending on the area, priced below $300K because there are very few homes to choose from.

With the inventory low, there are multiple offers everywhere and, due to the first time home buyer tax credit expiration date looming, buyers are feverishly trying to get something accepted.

The problem is that the seller’s of these homes are not moving up.  The seller’s are the banks or folks who have had to sell short and cannot buy for a few more years while they repair their credit.  Bank owned and short sales make up the majority of sales at this time.

What this is causing is that the middle priced homes, $300K and up, are selling more slowly and the values are continuing to come down.  I believe that it will be for a few more years before the values in this price range and higher begin to appreciate again as the first time home buyers begin to cash in their equity and move up.

In my eyes, as long as the “shadow inventory” of 7 million homes, and rising, is still out there, no real housing recovery can happen.

This is a false bottom, I believe, that is lulling the powers that be into a sense of security that doesn’t exist.

This is probably as pessimistic an opinion as I’ve had regarding our market.  What do you think?  I’m I full of it here?  Let me know your thoughts.

Thanks for visiting!

My friend from Arkansas, Ben Roberts, has a follow up article to mine.  Check out a different perspective on his site, ExitRealEstate540.com.  It’s helpful to gain insight from other markets across the country.

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Tags: shadow inventory

This entry was posted on Friday, October 2nd, 2009 at 9:40 am and is filed under Real Estate Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Ben Roberts | EXITrealestate540.com said at October 2nd, 2009 at 10:16 am

   Hey Rob,

   I certainly don’t think you are full of it. I do think that while this will affect the economy negatively, it’s not as bad in some areas as it is in your’s. We have had our fair share of foreclosures in Arkansas and I’m sure that we’ll get our fair share of the ‘shadow inventory’ to come. I don’t think it will be as bad as it is in the major population centers though. I think we will simply see a continued depression of prices but no real depreciation of home values locally. I guess all we can say to each other is… good luck. Maybe, as an industry, bloggers and industry leaders can help stave off the worst of it by helping homeowners, buyers, and sellers be prepared and providing solutions.

2. 1.35 Years of New Foreclosure Inventory Coming on the Market? How Will It Affect Northwest Arkansas? | Exit Real Estate 540 said at October 2nd, 2009 at 12:54 pm

   [...] released data explaining that 7 million more foreclosure were sitting in bank inventory.  Then, Rob Saxe wrote a bit pessimistic (not that I can blame him) article about the same.  Now, Check out my 2 minute [...]

3. John McMillen said at October 2nd, 2009 at 10:29 pm

   Hi, Rob. Great post! I don’t want to agree with you, but I do. As much as we all hope the real estate market is healing, I believe the 2nd wave is going to “tip” us over. Crazy thing is…I wrote a blog advocating just the opposite only a few weeks ago. What a crazy market it is!

   http://clovisexperts.com/2009/09/22/why-its-the-best-time-to-buy-a-home-in-the-past-20-years/

4. robsaxe said at October 3rd, 2009 at 10:08 am

   John,
   That’s a great point. From week to week, no one seems to really have a clue as to which direction this is going to go. It makes it incredibly difficult to give market advice other than just what’s happening right now in this moment and it could be different and most likely will be different next week! Right now it’s a great time to buy if you’re in the position to do so…next week it may be a bad decision!
   Thanks for the insightful comment.

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