The long road to a housing recovery – 279,000 California homes in shadow inventory. 2.1 million versus 4.85 million homes nationwide in the shadow inventory pipeline. Only 8,000 bank owned homes show up on the SoCal MLS yet statewide banks own 90,000 homes.
The housing market has very little chance of maintaining a sustainable recovery until it clears out the immense amount of shadow inventory. This inventory cannot move without solid employment growth. The water cannot flow freely until we unclog the filth plugging the drain. Banks have done a poor job in every respect including fostering an open market clearing function for real estate. Banks are almost like rent seeking slumlords that have added very little value to our economy and steal from their taxpayer host. In the past, banks would make a sizeable portion of their income putting together deals on growing and expanding companies and institutions. They were dealmakers and had the important role of allocating capital to the best industries in the economy. That is no longer the case. Just to put this into context, Goldman Sachs this year in one of their quarters made 63 percent of their profits trading. In other words banks are too busy churning volume on the stock market casino to concern themselves with the massive backlog of real estate or figuring out which industry will create jobs. For example, CoreLogic estimates 2.1 million properties in the shadow inventory pipeline. But this doesn’t highlight the entire picture. The shadow inventory is defined differently by a few sources but there is general agreement overall.  Let us try to run the numbers.
First, here is the actual chart of shadow inventory on the latest and freshest data:
Source:Â CoreLogic, Calculated Risk
You can see that shadow inventory still remains dreadfully close to peak levels. We’ll go ahead and use CoreLogic’s definition of shadow inventory as well:
“(Calculated Risk) CoreLogic estimates shadow inventory, sometimes called pending supply, by calculating the number of properties that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders and that are not currently listed on multiple listing services (MLSs). Shadow inventory is typically not included in the official metrics of unsold inventory.â€
As Calculated Risk highlights, much of the condo inventory of Nevada and Florida doesn’t show up in this figure. So 2.1 million is the baseline number. How much of this is in California? What percent of the entire nationwide shadow inventory is made up by the one state of California? We can easily figure that out:
Current statewide MLS (non-distressed): Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 173,415
Current statewide distressed properties (NOD, auctions, REOs):Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 294,155
It is hard to actually break down the figures but most foreclosures don’t show up on the MLS. For example, for the entire county of Orange only 754 homes show up on the MLS as foreclosures!
SoCal Counties – REO MLS listed
Orange:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 754
Los Angeles:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,588
Riverside:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2,297
San Bernardino:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,100
San Diego:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,588
Ventura:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 754
Total SoCal:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 8,081
At the lower end, we can say confidently that 205,000 homes are part of the shadow inventory figure for California because these are the NODs and homes scheduled for auction. California currently has approximately 90,000 official bank owned homes. Southern California has over 50 percent of the people yet only lists 8,081 MLS foreclosures. Let us assume Northern California has a similar makeup. That means approximately 16,000 foreclosures show up on the MLS. What about the other 74,000 properties? If we add that in:
205,000 + 74,000 = 279,000 shadow inventory for California
California is 13 percent of the entire shadow inventory pool which sounds about right. Including shadow inventory on a nationwide basis this pushes up the entire inventory on the market up dramatically:
Source:Â CoreLogic
What we can gather from the above is that the bulk (over 80 percent of REOs) are not on the MLS. This doesn’t even include the bigger NOD and scheduled for auction pipeline. And we are being generous here going with the CoreLogic figures. How many people have stopped paying their mortgage and have no NOD on file? With the California economy deep in a hole the housing market is going to face a troubling 2011.
We should use data from another source to see how many people are actually having trouble paying their mortgages or have stopped:
Source:Â Lender Processing Services
According to the above, 7.04 million loans are delinquent or in the foreclosure process. The bulk haven’t even come online:
• 2.72 million loans less than 90 days delinquent.
• 2.24 million loans 90+ days delinquent.
• 2.09 million loans in foreclosure process.
Source:Â Calculated Risk
Now this is a fascinating disconnect with the shadow inventory data with current definitions. I would argue given the pathetically low cure rates that loans delinquent below 90 days should also be considered part of the shadow inventory. By only adding this one metric, the shadow inventory goes from 2.1 million up to over 4.8 million. In addition, I’m not sure how CoreLogic is measuring the MLS foreclosure data because as we have demonstrated for California, less than 20 percent of REOs even make it to the MLS. This is a big difference here.
In the end, the housing market won’t improve until we clear out this enormous backlog. What is the ultimate goal about propping up home prices? Wouldn’t it be better for the overall nation to dedicate less disposable income to housing and shift this spending on to other goods? Right now (and for the past two decades) the main winners are the banks because they have redistributed wealth from taxpayers so they can continue to gamble in the stock market. Here is a startling fact about the financial sector:
The above tells you really where we stand in this country. The housing market has bored the bankers and now that they have stolen taxpayer money, they are now gambling in other sectors and the profits clearly show this. The profits certainly aren’t coming from adding jobs for Americans or boosting household wages. The banking sector has created more destruction than actual added value over the last two decades. The shadow inventory is just a sad state of where things are and signify long-term drags on housing values moving forward.
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48 Responses to “The long road to a housing recovery – 279,000 California homes in shadow inventory. 2.1 million versus 4.85 million homes nationwide in the shadow inventory pipeline. Only 8,000 bank owned homes show up on the SoCal MLS yet statewide banks own 90,000 homes.”
• The average number of days delinquent for loans in foreclosure is a record 492 days
• Over 4.3 million loans are 90 days or more delinquent or in foreclosure
• Foreclosure sales plummeted by 35% in October (as a result of the widespread moratoria)
• Nearly 20% of loans that have been delinquent more than two years are still not in foreclosure
Doc, I think it’s time to revise your “bottom” forecast for closer to 2020.
http://www.calculatedriskblog.com/2010/11/lps-over-43-million-loans-90-days-or-in_23.html
There was a story at The Market Ticker about how one condo association in Florida SUED the bank that held the mortgage (Citibank) on one of its condo owners. The owner was way behind on condo fees (in addition to not having paid his mortgage for over a year).
Watch for this to happen more and more with delinquent condos. Here’s the link:
http://market-ticker.org/akcs-www?post=173188
Sorry, I should have added that the condo association sued Citibank to force Citibank to foreclose.
Hey! My RE agent didn’t know what i was talking about when I asked about how shadow inventory will affect prices? They just told me now is a good time to buy!!
RE’s don’t care about the shaddow inventory. They just want you to buy now. They are not going to tell you that most of those in the shaddow inventory are now going almost 2 or 2 1/2 years without paying their mortgage, and still are allowed to live in the homes. I know several people in California that are doing just that. Until they get kicked out and their homes become available for sale to the normal public, I’m not going to buy. It’s completely unfair.
I agree-these agaents will tell you anything to make their fees!
Cheap entertainment for me is to go to Open Houses and listen to the realtors lie. Among the gems are “it is a sellers market,” “prices are stabilizing,” “now is a great time to buy” and “inventory is declining.” I would say 5% of the realtors have actually told they expect things to get a lot worse. For that I tip my hat.
Most realtors seem to have a high school education and a one week class in real estate. Well they did pass a test. They are not financial planners and their job is similar to a mall sales clerk. They used to seem like experts when the MLS data was hidden, now that MLS data is easy to get via the internet they don’t seem all that gifted.
So I cut them some slack and expect nothing but fluff out of there mouth. “Oh can’t you just see yourself cooking in this kitchen?”; “Do you like fireplaces? This house has one.”; “Isn’t that a charming … bla bla bla……….”
hey, that’s what my pretty-smart realtor told me too..! “blink, blink,
what? – i have no idea what is going on with any kind of shadow inventory – oh, i guess there must be some, but, now is a good time to buy, etc” …. and this was over a year ago!
Who owns the banks?…stockholders. Who are the stockholders?…all of us. That’s the beauty of capitalism, you and me and all but the sea can buy into these “evil, money making” banks.
The same is true with real estate. We all own it…be it individually, through (dare I say) a bank or in a trust which can be any entity.
True concern is when government encroaches on these principles through all the “isms” invented in the last hundred years.
8% of all the wealth in this country is owned by less than .1% of the population. I’m not sure it’s “us” that owns the banks and it is certainly not “us” who control the banks.
On the inside of corporations, financial plans include bonuses for all, and an extra penny per share earnings, for the shareholder — to show “an increase”.
I think you’re a really smart cookie, Doc, but please, please stop using the word “recovery.” Restoring the market to an anomaly isn’t a recovery; it’s another unsustainable bubble.
You got it right above when you said this:
What is the ultimate goal about propping up home prices? Wouldn’t it be better for the overall nation to dedicate less disposable income to housing and shift this spending on to other goods?
The answer to the second question is a resounding yes. (Of course the way things are going, those other goods amount mostly to health insurance policies, but that’s another issue.)
Of course if the mortgage interest deduction is eliminated or reduced, prices will drop a lot more, and we *will* be spending less on housing. I wonder what rents will do in a case like that.
I never really get the sense that the doc is using the term ‘recovery’ in the same sense that politicians have been. That is, when I read his articles, rather than translating the term recovery into into the concept of prices returning to bubble highs, I’ve always interpreted it as meaning allowing the seized up housing market to resume a more normal course with the vast majority of sales occurring between two individuals rather than from institutions, with prices in line with the economic fundamentals of lending and buying, and with price action that agrees with the overall cycle of the economy both in direction and scale.
DHB is speaking as a clinician, not a bubblehuffer, when he uses the term “recovery.” There is no denying that the patient–the economy, the financial stability and sustainability of perhaps a majority of Americans–is mortally ill with multiple sucking chest wounds, broken bones, dehydration, and punch drunk to boot. Recovery means restoring basic functioning.
Instead, most Americans are in Round 16, flat on the canvas, and the bell is just not ringing for them even as Apollo Creed (Wall Street), Mr. T. (the Fed) AND Ivan Drago (the banks) pound away at them.
So though I disagree with you, Paula, I think you raise an excellent question:
Just what would various forms of recovery look like? Seems to me that instead of a thought out plan to restore and heal the patient, we’ve got a game of Wall Street Wack-a-Mole. Wherever any promise of bling pokes its little furry head up, everybody bolts over and begins hammering.
Recovery defined: An efficient free market, you know the ones we heard about in school, where optimal price (for the buyer) and benefit (for the seller) intersect. An honest equilibrium, if you will. It is a long lost dream that only exists in textbooks or the black market!! Did I lose anyone yet? Think weed, and stoners buying it. It is expensive only because of market interferrence (ie law enforcment/druglords, etc) Remove the free market interference, and itd be nearly free, just the cost of seeds, water and sunlight.
“Seems to me that instead of a thought out plan to restore and heal the patient, we’ve got a game of Wall Street Wack-a-Mole. Wherever any promise of bling pokes its little furry head up, everybody bolts over and begins hammering.”
…..It’s the same model TSA is using…..god we help.
If you got stabbed, fell and broke your leg, and hit your head on the curb… and now your cut is glued shut, you’re in the gurney, and your vital stats are stable… now the ambulance is taking you to the hospital… you’re in recovery!
Once again an addiction to surf attests cluelessness about the realities of agronomic and other earthly pursuits. Even where cannabis is concerned.
To wit, where the fuck do you think “seeds” come from? They just magically appear like Ventura sunshine for cheerful capitalist peasants to jam into magically appearing soil/furrows? And then the rest just magically takes care of itself?
No. Even seeds–that favorite metaphor of people who wouldn’t know which end of one from another–are the result of thousands of years of civilization, social organization, the pursuit of understanding, the accumulation of knowledge, and more labor than any Left Coast internet commentator with sandy toes is likely to whiff in a lifetime. Seeds witness to countless millions of people doing the next thing that needed to be done, when it needed to be done, rather than wallowing in bicoastal dreaming of how to rule the world and leave the icky work to others. And I can attest from experience that agronomic programs, unlike economies, actually do have a very concrete vision of where they are headed, and for what purposes.
There is no such thing as a “free” market. Nor a free lunch. Just costs that are leveed in one direction, and benefits/profits that are skimmed in another. Unless of course one is caught in an extended adolescent fantasy of walking phalluses named Galt and Roarke, and one’s imagination remains in thrall the turgid psychosexual maunderings of mean little Alicia Rosenbaum and her circle of eunuchs.
jk, I asked for concrete guidance on those vital signs, not more metaphors. This is part of the problem. Economic recovery is apparently now a form of porn, which everyone recognizes when they see it, but nobody can quite describe.
I have a very simple question. Is there such thing like a conventional loan with 5% down in the range up to 550K in this market. I am trying to find one for making a offer to a townhome in Redondo beach and all the lenders are silent when I send request about it. Is this like saying “NO!”? FHA is OK , but does not apply to townhomes. Somebody have opinion on this, please?
You’re screwed.
Why buy a townhome for over $2500 month, plus taxes, association fees etc?? I’ll rent you my condo on the esplande for $1800 month. Or lets just skip the whole lease signing thing and just send me the $600 a month directly if you are only interested in hemmoraging money.
And I just read that the unemployment statistics are even worse than U-6 because if someone has stopped looking for work for over one year, they disappear. If your unemployment/underemployment goes past your retirement age, even if you cannot afford to retire and want to work, you don’t count. Their suggestion is that if you count the poverty rate, you throw out most of the shadow unemployment. Maybe the shadow unemployed can live in the shadow inventory? Maybe it’s better in the shadows–we might not be able to handle the truth…
The shadow unemployed ARE living in the shadow housing! It’s called squatting and it’s going viral!
They cured oversupply in the depression by spilling milk and killing livestock. Maybe we can just bulldoze the oversupply ???
It’s the land that is expensive in CA, so that won’t work. Unless you dig a huge hole.
We’re all just waiting for The Big One when half the state falls into the ocean.
Nah, that would just be a basement waiting to happen. Rare in SoCal but they do exist.
This is the number one reason why I am still going to sit out of the housing market. There is a huge amount of shadow inventory and delinquent “home owners” are not being kicked out.
I am shocked how in good/desirable neighborhoods in Chicago prices have come down to that I wanted (180K to 250K) but with the huge amount of shadow inventory, delinquent home debtors, persistent high unemployment rate, etc…. I am going to keep renting ($670 per month one bedroom apartment).
If you’re renting a place for 670 a month that you’re happy with why on earth would you consider spending 180k?
I’d think that HOA’s and taxes would be at least 500 a month on your current place (if it was a condo). What’s it worth to save $170 a month? $40,000 perhaps?
EconE I am just looking at houses for sale, bank owned, short sales, etc… to get a feel of where we are. I am still not going to buy. I think we are still in the bottom of the fourth inning of this real estate crash. I am happy renting.
I will add nothing. This says it ALL:
The housing market has bored the bankers and now that they have stolen taxpayer money, they are now gambling in other sectors and the profits clearly show this. The profits certainly aren’t coming from adding jobs for Americans or boosting household wages. The banking sector has created more destruction than actual added value over the last two decades.
I don’t get the general logic. Everyone was saying it was the banks that sold off the mortgages to Fannie and Freddie and rid there books of these toxic home. Yet, now somehow all of the banks are holding the shadow inventory?
Which is it? Did the banks unload the mortgages or are they holding them?
You don’t seem to have a deep understanding of things do you Sean? Since the crisis in 2007 hit, Fannie Mae and Freddie Mac have kept the mortgage market alive by securitizing mortgage debt issued by banks. They have backed over 90 percent of all mortgage debt. The bad mortgages never moved off the books of private banks. So yes, banks were selling off mortgages to the GSEs and making FHA loans but this was new mortgages to the pipeline. The bad debt remains just like the above charts show.
You clearly don’t get the general logic but that is okay, many Americans don’t.
No offense intended Mike but your answer sounds like something Obama might say to us “Dumb Americans” when he doesn’t actually know the answer. Re-read your post.
I don’t get your “General Logic” myself.
That seemed like a pretty valid question and not really warranting all the hostility, there, Mike.
Sean, as indicated, “the banks” are not necessarily a single entity. The Fed along with Fannie and Freddie have been buying up a lot of the securities that are based on mortgage debt. During the bubble many of “the banks” didn’t own the debt for more than a few weeks, anyway, behaving more like brokerages writing the loans and then tranching them out as securities. To that end, many of those institutions (Countrywide, WaMu, Banq of America, etc.) have ceased to exist but those mortgages are still out there, usually in the possession of the GSE but in some cases (for instance, B of A, JPMorgan Chase, and GMAC) the debt is still privately held.
There is also the issue of who owns the debt vs. who services the debt. This is at the center of the robosiging scandal. In most of the improper foreclosures, there is no doubt that the debt exists and has been defaulted upon. However, due to the partitioning of the loan into many securities, the institution taking the payments and proceeding with the foreclosure might have partitioned out some of the property rights with the debt risk. At least that is how I understand it. I’m sure there are a few others around here that could explain in a more technically correct fashion. (afterall, I am a scientist and not an economist, banker, lawyer, doctor, or any of the other many trades that my internet connection qualifies me to opine about 😉
Happy Thanksgiving DHB and rest of the loyal readers……Have a safe and happy holiday …….
Thanks to everybody for all of the real estate tips. I lucked into this site after we sold our house and fortunately were turned down on an offer we made on a house. That house has dropped $50K in value since the owner said no to us over a $20K difference in June. The home is still sitting on the market.
My entire philosophy has changed due to the data presented on this site and the opinions of some pretty smart readers. I really appreciate the facts shown here as I have to admit to being one of those people that have not cared about money as much as I should. In other words, I have been stupid with money!!!!! Now, we are waiting for tenants to move from their foreclosed house and I am actually happy they are delaying because the longer they take the more my offer will go down. Plus, due to the future outlook the DR. presents I am going to project a minimum 10% drop into the offer and take advantage of the fact that I am one of the few people in the market looking for a house with no contingencies, $$$$, and strong credit.
Last year, I made an offer 10k under the asking price, which was a legit offer an an overpriced home in Boise. Gal doesn’t budge a penny. Yesterday, I see the home still vacant now priced 10k under my offer minus a year’s worth of payments.
I am thinking of making a new offer 10k under her new asking price. Just for spite. Pride an ego get expensive these days.
And remember, renter, you’re only talking about (and seeing?) that $50K.
Add the accrued costs to finance that money, and you’re talking about more like $100K probably.
Why don’t we just deed California to Mexico; are there any Ameri-cans still living in that sewer?
Well some do but many moved to join you in your sewer which I am sure is much worse than any part of Ca.. Takes sewage to know sewage, that is what my Mama use to always say.
Good quantitative Thanksgiving post on the stalled California housing recovery by Dr Housing Bubble. The numbers and graphs tell the true story. It seems like a good time to sit tight and watch. The posts by poster Compass Rose are useless and toady. The number of flippers in Huntington Beach, Encino, coastal San Diego, and the LA-South Bay is enormous, which seems to indicate that there is still a dislocation between (hidden) offered-price and market value.
Great minds think alike. Imagine you might have seen this DHB, but putting the link here becomes it dovetails so nicely with your thoughts.
http://www.zerohedge.com/article/loss-given-default-madrid-los-angeles-foreclosures-set-crest-2011-2012
oops meant to say because it dovetails…
On the same day that this article was posted, I read over at mish’s blog that Freddie Mac was increasing the minimum equity to forego PMI to 25% while increasing loan rates by a quarter of a percentage point. I seems like an interesting development, and if Fannie Mae follows suit, I’m wondering if this might be the beginning of proper correction many of us have been anticipating since the house of cards started to crumble 3-4 years ago.
Market recovery is viewed from the inventory perspective but much of the shadow inventory is in terrible physical condition and most locations are less then desirable. Market recovery will not happen until the majority of homes listed fall into a pricing pool that would be called affordable and from my rough sense that is price points from 200K to 450K. Many believe and it may happen that prices will collapse but my guess is that when pricing does fall it will be into a tight consolidated range and stays within that range for decades. Homes priced above this range will sell but be considered very expensive by most and require cash or jumbo financing.
How can prices stabilize with the Fed inflating our currency?
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