Shadow Inventory
Definition of ‘Shadow Inventory’
A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell (for owners) and when a local market can expect full recovery. Also, shadow inventory typically causes reported data on housing inventory to understate the actual number of inventory in the market.
Investopedia explains ‘Shadow Inventory’
With the unprecedented number of foreclosures stemming from the subprime mortgage meltdown of 2007-2008 and the overall housing market collapse during that crisis, lenders were left with significant real estate holdings. Many lenders were slow to put their inventory up for sale for fear of flooding the market and further driving down prices, which would in turn lower their potential ROI.
The utterance of the term “shadow inventory” can conjure up fear, uncertainty and mystery about the future of the housing market.
First coined to describe the volume of lender-repossessed properties that haven’t yet reached the market as REOs (bank-owned listings), the term has been expanded by some to include homes in a foreclosure process and even those with delinquent loans that haven’t yet entered the foreclosure process.
These various definitions have added to the confusion about its potential threat to the housing market and economy as a whole.
One of the great economic success stories of 2012 was that the housing market finally found a bottom, and even began to show signs of a nascent recovery. But even as positive data on the real estate market began to trickle in early last year, not everyone was convinced. The main reason for skepticism were millions of homes that had not yet hit the market, but probably would soon — either because they were already inforeclosure or because the homeowners were so far behind on payments that foreclosures were imminent. These properties, which last year were estimated to range anywhere from 3 million to 10 million in number, were dubbed the “shadow inventory” of homes.
The reason the shadow inventory was thought to be bad news for the housing market was that when these homes finally did go up for sale, they would overwhelm the demand for housing, which had slowed in recent years due to the poor economy and sluggish population growth. But a recent report from analytics firm CoreLogic says that the shadow inventory as of October 2012 has fallen to 2.3 million, a 12.3% drop year-over-year. In other words, this catalog of homes has been reduced significantly without the detrimental effect on nationwide home prices that some had feared. So what happened, and why has the dreaded shadow inventory not yet sunk the convalescent U.S. housing market? I asked Sam Khater, Deputy Chief Economist at CoreLogic, and he outlined three key reasons:
Investors Got in on the Game
The housing recovery was prevented for so long in part because of tight credit standards and because so many homeowners owed more on their mortgages than their homes were worth. This left many homeowners unable to take advantage of increasingly cheap prices. But by 2012, home prices had fell so far that it became lucrative for investors — either investment vehicles like real estate investment trusts or individual investors looking to earn extra income as landlords — to snap up real estate at historically low prices. Khater says the speed and enthusiasm with which investors bought these properties was a bit of a surprise, and one of the main reasons why the market was able to work off a significant chunk of shadow inventory without it depressing home prices.
Lenders Ramped Up Principal Forgiveness
When a homeowner cannot repay his mortgage, mortgage lenders often end up losing a lot of money even after they repossesses and resell the home. Homes sold after foreclosure sell for a deep discount, and going through foreclosure proceedings is very costly for banks as they must continue to pay taxes and upkeep costs while the process unfolds. So modifying a delinquent loan so the borrowers can remain in the home, even if it means forgiving principal, can sometimes make sense for all parties involved.
The problem is that the securitization of home loans, whereby loans are pooled and sliced up into different payment “tranches,” or bundles, made it so that there wasn’t one specific investor who could decide to modify a loan. And the fight over who would bear the losses when a mortgage was modified prevented much modification from happening at all.
Beginning with the $25 billion mortgage settlement between the nation’s largest mortgage servicers and states attorneys general, however, the tide began to shift a bit. Banks have been forced, because of the terms of that settlement, to engage in principal-reducing mortgage modifications, which have helped keep homeowners out of foreclosure and, thereby, their homes off the market. According to a recent report from the OCC the share of loan modifications made by servicers in the third quarter of 2012 that include principal reduction have risen 110.6% when compared to the similar period in 2011.
Many Homeowners Remain Underwater
Even with the improving housing market, many homeowners remain underwater. Paradoxically, this has buttressed the housing market of late, as it keeps these homeowners from putting their property on the market. These homeowners being locked out of the market, combined with avid interest from investors in cheap residential real estate, has led to the amount of homes for sale being historically very low. And when supply is restrained, prices go up. As prices rise, more homeowners will get out from their underwater mortgages. “This dynamic will unlock some borrowers, but it won’t lead to a flood of new homes on the market,” Khater says. “It’ll be more of a slight opening of the spigot.”
All this goes to show that predicting the movement of large, complex markets like housing can be difficult even for experts who make a living doing just that. A year ago, many smart people took a look at the inventory waiting on the sidelines, and couldn’t imagine the market being able to absorb it. The fact that lenders are more aggressively modifying mortgages and a new investor class has stepped up to take advantage of cheap prices shows that even the savviest of analysts can be caught off guard by new trends.
The number of homes in “shadow inventory” dropped from 2.6 million in October 2011 to 2.3 million in October 2012, according to a new report from CoreLogic.
Shadow inventory refers to the supply of homes that are in foreclosure or have seriously delinquent mortgages but are not yet on the market.
Many housing experts once predicted that the shadow inventory would cause overall inventories to skyrocket and place downward pressure on home prices. Yet an increase in short sales and loan modifications have helped to lessen the impact, analysts say.
“The size of the shadow inventory continues to shrink from peak levels in terms of numbers of units and the dollars they represent,” says Anand Nallathambi, president of CoreLogic. “We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold.”
A new report from CoreLogic shows that the shadow inventory of homes fell 12.3 percent in October from a year ago.
Also known as pending supply, shadow inventory represents the houses that are intended for sale but aren’t yet on the market.
There are 2.3 million units in the shadows, which represent a seven month supply.
“The size of the shadow inventory continues to shrink from peak levels in terms of numbers of units and the dollars they represent,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold.”
Here are some key points from the report.
- As of October 2012, shadow inventory fell to 2.3 million units, or seven months’ supply, and represented 85 percent of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.
- Of the 2.3 million properties currently in the shadow inventory (Figures 1 and 2), 1.04 million units are seriously delinquent (3.3 months’ supply), 903,000 are in some stage of foreclosure (2.8 months’ supply) and 354,000 are already in REO (1.1 months’ supply).
- As of October 2012, the dollar volume of shadow inventory was $376 billion, down from $399 billion a year ago.
- Over the three months ending in October 2012, serious delinquencies, which are the main driver of the shadow inventory, declined the most in Arizona (13.3 percent), California (9.7 percent), Michigan (6.8 percent), Colorado (6.8 percent) and Wyoming (5.9 percent).
- As of October 2012, Florida, California, Illinois, New York and New Jersey make up 45 percent of the 2.7 million properties that are seriously delinquent, in foreclosure or in REO. In October 2011, these same states made up 51.3 percent of all the distressed mortgages that were at least 90 days delinquent, in foreclosure or REO.
What Is The Best Time to List Your Home?
So you’ve decided to sell your home. You may be asking yourself – is this a good time to list my house? What is the best time to list a home?
Most homeowners want to list their home as soon as possible. They’ve been thinking about it for some time, and now that the decision has been made, they want to put it on the MLS as soon as possible.
Unfortunately, that is not very realistic. The REALTOR® has work to do to gather information and enter it into the MLS. The home must be cleaned and repairs made. Pictures and virtual tours must be taken, signs put up, and a lockbox installed. The home should not go onto the MLS until it is entirely ready to be sold.
So, once all of that is complete, what is the best day of the week to list the home? The best answer is as soon as possible after midnight on Thursday morning. This is because your house is now available for all the Realtors planning their weekend showings, and the house will show 0 days on the market on Thursday, 1 day on the market on Friday, and 2 days on the market on Saturday (and Saturday is the most important day of the real estate week).
The fewer the days on the market, the greater you have of selling your home quickly and attract a full price offer.
Now let’s look at the best season to sell. Opinions vary widely on this. A lot of people think that selling to coincide with the school year is best – so late spring and summer. There are surely more buyers out in warm weather, but there are also usually, double the active listings. In the off months, there are fewer listings and the buyers who are out there are more serious about buying – not just out looking. This means there is less competition and homes that sell in winter sell 1.4% closer to their original listing price.
Research shows that the tail end of winter is an excellent time to list, with March being the best month. Listing your home in March results in it being on the market for the shortest amount of time, with homes listed in October taking the longest time to sell.
In Bucks County, confidence is high and inventory is low right now. Combine that with historically low interest rates, and the result is high buyer activity. Buyers who have been sitting on the fence waiting are now jumping into the market, making this a perfect time to list your home.
A recent listing of mine in Yardley Hunt, sold within days of going on the market for virtually the asking price, and another in Yardley Estates, sold well over the asking price with multiple offers.
As March is rapidly approaching, and you have been considering selling your home, it’s time to make a move. Your window of opportunity to sell your home quickly and for top dollar is almost upon us.
Feel free to contact me if you are looking for a new home in 2013.
There are a lot of great homes in Yardley, Newtown and all of Bucks County.
Continue Reading > Add a Comment |Lovingly Maintained Tudor Style Home – Yardley, PA
Introducing 1084 Randolph Drive
Welcome home to this lovingly maintained and updated, expansive, tudor style home in Yardley Hunt. Enter through the 2 story entry foyer. Custom tile floor with accents in kitchen & foyer. Gleaming hardwood floors in living room, family room & dining room. Beautiful, gourmet kitchen with granite counters and loads of cabinet space. Spacious family room with fireplace, built-ins, with bar plus storage.
Step outside from family room, to custom deck, overlooking the wonderful back yard. Owners suite includes a sitting room with fireplace, 2 walk-in closets, remodeled, sumptuous bath with fully tiled walk-in shower & dressing area. Finished basement with pool table, and cedar closet. Loads of upgrades; replaced heater, central air, windows, roof (2005).
200 amp electric service. Designer window treatments, alarm system. Outside lighting. Custom high hat lighting in kitchen, dining room & family room. Wonderful location, close to Township facilities, shopping, Bucks County attractions, and commuting arteries.
1084 Randolph Drive
Yardley, PA 19067
4 Bedrooms
2 Bathrooms
1 Partial Bathroom
Interior: 2,846 sqft
Lot: 0.38 acre(s)
Click images below to see larger photos of this home.
Continue Reading > Add a Comment |
Home Improvements in Bucks County – Is it Finally Time to Invest?
Have you postponed home improvements on your Bucks County home the past few years, uncertain if it would have any effect on its resale value? If you have been waiting to put on that new roof or spruce up the kitchen cabinets, then 2012 may be a great time to finally invest in your home again.
Consumer confidence in the housing market is on the rise, and more and more homeowners are willing to invest in home improvements. Harvard University’s Joint Center for Housing Studies has reported that remodeling and home improvement projects in the U.S. are set to increase through the rest of 2012 and into 2013. The Center states that lower financing costs and improving home sales have given consumers the incentive they need to remodel their homes with a good expectation of a return on investment.
As the market continues to recover, this year still may not be the best time to consider major renovations, such as a complete gourmet kitchen remodel or finishing off an entire basement. Some good choices could be more moderate improvements, including new windows, siding, roof, HVAC, or flooring. A new deck added to your home could even bring a good return on investment in this market, without a major outlay of funds.
The best idea would be to make home improvements comparable to other properties in your neighborhood, especially if you are thinking of selling soon. If no one in your neighborhood has a state-of-the-art kitchen, then you may not be able to recoup as much of your investment in the resale of your home if you make a major kitchen renovation right now. However, it may be an advantage to have the newest roof on the block when it comes to attracting buyers.
Contact me if you’d like to discuss the current real estate market in Yardley, Newtown or anywhere in Bucks County.
Continue Reading > Add a Comment |6 Marian Circle – Chalfont, PA – Stunning 4-Bedroom Home Close to North Branch Park
6 Marian Circle, Chalfont, PA
This is a must-see 4 bedroom home in Chalfont. Situated on a spectacular, professionally landscaped 1/2 acre lot, it features a 2 story entry foyer, beautiful hardwoods and a gourmet kitchen with granite counters, stainless appliances & a 5 burner gas stove.
Enjoy the open floor plan with a fireplace in the family room that overlooks a backyard with a Koi Pond, fountain and fenced yard. Huge 1st floor, study/den bonus room.
The 4 bedrooms upstairs include a huge master suite with sitting area, large walk in closet and sumptuous master bath with double vanity sink, jacuzzi & tiled shower. 3 plus car garage, with full floor attic above for storage.
Outside offers a large deck off the kitchen that features a powered awning for shade. Lots of large windows for natural lighting. Watch the video tour to see all the amenities of your new home!
6 Marian Circle
Chalfont, PA 18914
* 4 bedroom
* 3 bath
* 3504 Sq. Ft.
* .54 acres
$535,000
MLS# 6069432
Continue Reading > Add a Comment |
Yardley housing market update
Let’s look at the real estate market in Yardley, and see where we are, through September. This review also covers real estate in Lower Makefield Township. As I mention in virtually every real estate post for Yardley, or anywhere in Bucks County, real estate is a very local business. Please remember that, when you read the national press.
I am also including with this post an appreciation (or depreciation) chart for Lower Makefield Township housing, starting with the year 2000. If you follow the numbers, you will see that our area has lost about 15% of value since the height of the market. The real estate market in virtually all of Bucks County has held up considerably better than many other parts of the country.
Real Estate Update for Yardley/Lower Makefield Township.
Inventory:
- Houses for sale at the end of September 2011 246
- Houses for sale at the end of August 2011 254
- Houses for sale at the end of September 2010 214
Inventory is up by about 15% from last year at the same time.
Pricing:
- Average price of a home on the market September 2011 $475,000
- Average price of a home on the market September 2010 $521,000
Based on average pricing, the asking price of a house on the market in Lower Makefield Township, is down by almost 9%. Could sellers be getting a bit more realistic?
Units Sold:
- The number of homes sold, year to date in Lower Makefield Township, through September 2011 was 222
- The number of homes sold, year to date in Lower Makefield Township, through September 2010 was 253
Buyers are getting approximately 8% off of the original asking price, on average. This is very slightly higher than last year at the same time. Most importantly, there is an 11-month supply of houses on the market in Yardley, and the average days on the market has increased, as well. All of these factors show that the market is still weighted in favor of buyers.
One statistic that was interesting to note, though, is the number of pending real estate transactions for all of Bucks County, was up by more than 18% at the end of September, compared with the same time last year. That is the best forward-looking trend line. A pending sale means that the seller has accepted an offer, but the house has not yet gone to closing. I would expect to see this reflected in the number of houses in Bucks County that go to closing over the next few months.
Again, please keep in mind that houses are bought and sold every day of the week. There are buyers looking, and if you are considering buying, there are absolutely great opportunities in the market right now. You can reach me at 215-519-1399 to get any additional information.
Housing appreciation schedule for Lower Makefield Township
Continue Reading > Add a Comment |
Is It Time for Solar in Yardley?
Have you seen solar panels around Yardley? They’re on roofs, and even in fields! Solar panels are becoming part of America’s energy-saving culture, by converting the sun’s radiation into electricity. And while solar power still accounts for less than one-half of one percent of the electricity produced in the state, today there are 30 times more solar panels installed right here in Pennsylvania than there were just three short years ago!
Part of the tremendous growth seen in solar installations is due to a rebate program run by the state, the PA Sunshine Program, that started in the summer of 2009. The program’s goal was to stimulate the solar industry in the state, and give it the jump start needed to reach a critical mass. Although this program is being phased out now, it was very successful in accomplishing its goals.
As the industry has grown, the price of solar panels and the cost of installation have both plummeted – an average installation costs less than half of what it did two years ago. The lower cost more than makes up for the loss of the rebate. The return on investment by an average homeowner is in the 12% range – and is mostly free from income tax.
In June of 2004, my friend Mark Bortman moved his family from Bucks County to Costa Rica for a year. There, he apprenticed with a pioneer in the solar industry and learned the
business from the ground up. When he returned in 2005, he founded Exact Solar. Today, Exact is the only company in the Bucks County area with extensive experience designing and installing all three major types of solar energy systems: solar water heating, solar electricity and solar pool heating.
One of the keys to Exact Solar’s success is Mark’s hands-on approach. “We offer a personal level of customer service,” says Mark. “I give my cell phone number to my clients at the very first meeting, so I’m easily accessible.”
In addition, Mark is involved in every project to ensure the job is done right. He makes sure all permit paperwork is filed quickly and correctly, and he works on-site during every installation alongside his installers.
To start saving money while helping to make your planet a cleaner place to live, call Mark with Exact Solar for a free consultation at 267-825-0918. For more information, visit www.exactsolar.com.
Continue Reading > Add a Comment |Existing Home Sales Jump; Housing Market Shows Spark. How about Bucks County?
Existing home sales jumped 10 percent in September, the biggest monthly jump on record and a signal that the housing market may be returning to a normal sales pattern post-$8,000 federal tax credit.
In my previous post, I noted that the real estate market in Bucks County, has actually seen more closings year to date, this year, than last year. We are also in the process of looking at individual local Bucks County real estate markets. We looked at Lower Makefield/Yardley in the last post.
Please keep in mind, that the 10% jump referred to, in September, is a national statistic. I can’t emphasize enough, how local real estate is. Although these national statistics are worth reviewing, every market is different. Bucks County has held up much better, through the real estate downturn, than many other parts of the country. However, even within Bucks County, you will see different trends, when looking at specific markets, and even specific neighborhoods within those markets.
In my next post, I will review current trends in the real estate market in Upper Makefield Township.
Existing Home Sales counts home resales (i.e. not new construction) and 80 percent of home resales close within 45-60 days. It’s no surprise, therefore, September’s data is strong.
Throughout the July and August, mortgage rates were in free-fall, pushing home affordability to near-record levels. Concurrently, the number of homes available for sale climbed to multi-year highs.
“Deals” were in ample supply this summer and eager Newtown home buyers snatched them up.
Some of these deals included “distressed properties”, a categorization that includes homes in various stages of foreclosure or short sale, accounted for 35 percent of all sales, an uptick of 1 percent from August.
According to the National Association of Realtors®, home resales split as follows:
- First-time buyers : 32 percent of all buyers
- Repeat home buyers : 50 percent of all buyers
- Investors : 18 percent of all buyers
By contrast, in November 2009, first-timers accounted for more than half of all resales.
For Yardley Hunt home buyers, September’s Existing Home Sales report foreshadows a more competitive housing market through the New Year. In addition to rising sales volume, home supplies are down by nearly 2 months from July.
At the current pace of sales, the complete housing stock would be depleted in 10.7 months.
Continue Reading > Add a Comment |Chat With Marty