Housing inventory creeps out of the “shadows” as banks continue to control market and prices
If the headlines are to be believed then the nation is starting to ease its way out of the housing crisis. Demand for homes is on the rise and there have even been reports of bidding wars breaking out. I know someone who put their home on the market on a Friday afternoon, had nine offers, and was signing a contract by Monday morning for full asking price – cash.
That demand has been caused, in part, by so-called shadow inventory — homes that are owned by banks or facing foreclosure, but not yet on the market. In January, shadow inventory totaled about 2.2 million nationwide, according to real estate data firm CoreLogic Inc. Nearly half of that inventory was in Florida, New York, California, Illinois and New Jersey.
But that’s actually down 28 percent from its peak of 3 million units in 2010, which means that these homes are starting to creep out of the shadows. Good news for banks, but bad news for those who have been working to stave off foreclosure as they are being pushed out of their homes.
RealtyTrac recently reported that Florida continues to lead the nation in the number of foreclosures (85,671 in the first quarter).
Despite earlier fears that banks would open the gates and thousands of foreclosures would flood the market and stall any real housing recovery, in reality banks have maintained self-control, holding off on putting foreclosures on the market, and with good reason. No silly, it’s not out of the goodness of their hearts. For banks it’s all about supply and demand. As usual, it’s the banks that that continue to have the upper hand.
Their challenge brings to mind that scene from “I Love Lucy” when Lucy and Ethel are working in a candy factory and the conveyor belt goes faster and faster and the candy keeps coming out and they can’t keep up so they start shoving candy down their shirts and under their hats? If banks push out foreclosures like candy on a too-fast conveyor belt, the market won’t be able to keep up and that’s a recipe for disaster.
So what’s a banker to do?
It’s one of those rob Peter to pay Paul kind of things. For banks to make money they need to make loans, and to do that they need to get inventory out there. Housing inventory right now is tight all over the country. At the current sales pace it would take just a little more than four months to sell it all off.
That’s great news for those looking to sell a home – be it a homeowner, or a bank. On the flip side, with so few homes available and prices being driven up we might be on the way to another bubble and let’s not forget that eventually that bubble will burst. Are we ready for that to happen again?