In an interesting article in the Chronicle this morning, Carolyn Said points out that there is now a looming inventory of unsold inventory in foreclosed homes:
A vast “shadow inventory” of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.
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“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”(SF Chronicle 4/8/09)
In recent months we’ve seen some upswing in the absolute number of houses being sold, but the mean and median prices have continue to fall? Why, people are just snapping up homes at firesale foreclosure prices. Banks cannot afford to hold onto these homes, they need the cash now. They price them accordingly. This makes it difficult for anybody else to sell a home, and non-foreclosures are just sitting on the market. Take a gander at some of the housing sites, say Redfin, and do a search. You’ll find that the homes have either been sitting on the market for months, or they are foreclosures or short sales (the bank lets the owners sell the houses without the foreclosure process).
As more of this “shadow inventory” gets put on the market, prices will face increasing downward stress. This means, among other things, continued downward slides in property taxes as some newer owners may look to get the values readjusted. Oh, and the general overall impact on the economy ain’t such a good thing either.
But, if you are looking for a house and can get a mortgage, it’s a great time to buy.
There have been some silly stories in the Orange County Register about hitting a bottom, because there is actually a rather bizarre imbalance between supply and demand. Banks can’t process foreclosures. There are formal and informal moritoria on foreclosures. Many homeowners who can’t make their payments are hoping for some miracle from the new federal programs, and fending off the inevitable for another few months.
For anyone who thinks we have hit a bottom, look at Riverside County, where the February unemployment rate was over 12% and half the homes with mortgages are now underwater.
There are always people in the market for homes, and some of them are snapping up REO’s, but the gap between median income and median home price is still extraordinary.
Prices will revert to the mean.
less than $75k here in CA and you are a first time buyer purchasing new construction you can get $10,000 in state tax credit and $8,000 in Federal tax credit.
That’s $18,000 in straight savings off your taxes that you would otherwise pay in taxes. Not to mention that the homes are a heck of a lot cheaper than they used to be.