WHAT DO THEY MEAN SHADOW INVENTORY?

by braddhesi

If we look at SHADOW INVENTORY for Southern California we will find over 160,000 properties! These are homes that either have a notice of default filed (missed at least 3 mortgage payments), are scheduled for auction (the next step from NOD), and are bank owned.

What incentive do you have if the value of the home is now down say 40 or even 50 percent? Most people still wouldn’t be able to afford the payment which is even a bigger issue in a weak economy.

At the peak of the bubble, we were selling over 350,000 homes a year in Southern California. Last year, a supposedly banner year where over 40 percent of home sales were foreclosure re-sales we sold under 250,000. This is a drop of nearly 30 percent from the peak sale year.

Even with lower prices, we are nowhere close to peak home sales of the bubble years and prices for the region are down over 40 percent.

For distress listings, we are including short sales and foreclosures (the bulk is short sales). About 30 percent of all homes listed on the MLS in Southern California fall in the above categories. For example, 5,200+ homes are listed as foreclosures. Yet bank owned homes are at 28,000! That is only one part of what isn’t showing up. Scheduled auctions? Over 84,000 homes in Southern California are scheduled for auction. More homes are scheduled for auction than the entire MLS data. How many homes have a notice of default filed and are still not to the auction stage? Over 50,000. The bottom line is the market is saturated with distressed homes but just because it doesn’t appear in the MLS doesn’t mean it is doing well.

Some have questioned the double counting of the data. Well, if we remove the 19,200 homes on the MLS listed as distressed, that still leaves us with over 140,000 homes in the SHADOW INVENTORY DATA. Plus, how many other homes have people that have stopped paying and have no notice of default filed? From doing research I have come up with the figures of people living three, six, and even twelve months with no payment and no notice of default.

Southern California has an enormous amount of distressed real estate. Our economy is in tough shape. 64,000 homes on the MLS versus 160,000 + homes in the SHADOW INVENTORY. Over 90 percent of these distressed homes do not cure so that means these will be additional inventory at a certain point in time. Unless incomes double over night, we can expect housing to be in for a long year.

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