The Center for Regional Studies has finally published their May and June sales reports, as well as quarterly summaries of foreclosure activity and REO sales. Great reading, as always. There is a lot of important data on their site if you believe that they are analyzing objective data. I do.
I’ve pulled the Foreclosures vs. Foreclosed Home Sales information for the last 4 quarters fully expecting to see a huge shadow inventory of REOs hanging out there. Well shut my mouth, they are showing a positive absorption of 43 REOs over the past year:
Q3 2008 709 FC 453 Sales of REOs
Q4 2008 705 FC 563 Sales of REOs
Q1 2009 696 FC 624 Sales of REOs
Q2 2009 660 FC 954 Sales of REOs
Total 2551 FC 2594 Sales of REOs
Granted, they are not picking up the significant increase in REOs in July as of yet. I have some questions about CRS’s methodology vs. Guy’s MLS data digging (347 vs. 240 REO sales in June). But it seems that the bank REOs are efficiently passing into the sales stream and being sold off.
So if there is shadow inventory in our market, it doesn’t look like it is in the homes that the banks have actually foreclosed upon. I strongly believe that there is a significant (OK, HUGE – at least 1000) amount of homes being delayed in the foreclosure process, and this is where the shadow inventory actually resides (see 2165 Erminia for an example). The vast majority of Trustee’s Sales are canceled or delayed these days, to the point where the Investors Club gets frustrated by their lack of ability to spend the funds they have lined up.
So we all sense that the shadow inventory is out here, but no one has identified a way to actually quantify its extent. Any suggestions on how to get at the number? I quite unfortunately have the time to do the digging.
donna
Could the washoe county tax assessor’s list of delinquencies give a partial clue as to bank owned properties? Forgive my naivety, but do the banks keep current the taxes? If not, you could reasonably assume that a certain percentage of delinquencies are due to foreclosure and/or future foreclosures.
And, I have a question. If foreclosures are up, and the number of vacant homes is also up…and the number of apartment rentals in down 11% according to RGJ, where are all of those people living now? Hope it isn’t space ships, I hate it when they do that! 🙂
Martin
“The vast majority of Trustee’s Sales are cancelled or delayed these days….”
Why is that? Many readers here have commented on the HUGE discrepancy between the number of NODs that have been recorded in the past several months and the number that actually end up going TD.
Also, what accounts for the discrepancy between Guy’s number of REOs sold and the CRS’s number? They are off by 100 just for June. If they are off by 100 a month for each of the past 4 quarters, that’s a difference of 1200 houses. That is a serious discrepancy. And all it does is create confusion and uncertainty.
Maybe the larger question: why does there always seem to be these large discrepancies in the numbers reported by different sources? This is not a matter of nitpicking. Either Guy is wrong, or the CRS is wrong. I’m not suggesting anything nefarious, but c’mon, who are we supposed to believe?
Eli
“who are we supposed to believe?”
That is soooo true. It seems that everybody has a different number on everything. Guy has a number, and the RGJ has a number, and the CRS has a number, and the realtors have a number, and the numbers are the same hardly ever.
I have always thought that the veil of confusion regarding the true state of the market is not so unintentional. There are actors who benefit from the the shadowy darkness, and the lack of light and transparency. And no, I’m not a big conspiracy theorist. I just don’t buy the notion that this housing data collection business is so overwhelmingly difficult that it is inevitable than a bunch of highly competent human beings are bound to come up with their own set of numbers.
Prospector
Donna asked, “…where are all of those people living now?”
I think they primarily have moved on in search of jobs. Second to that, they likely have left seeking cheaper shelter in places like Arkansas or South Carolina; or milder weather (no reason to endure a harsh climate and shovel snow in the wind if you don’t have an employment reason to be in Reno).
In some ways it may be like Virginia City when the mines played out. People just packed-up and moved on.
Sully
Interesting article on the mortgage meltdown:
http://www.realtytrac.com/news/Press/newsletter-articles.asp?a=b&ItemId=6781&accnt=216851
gobagheera
In addition to people packing up and leaving, a lot of the homes during the boom were bought as investments. When the bubble popped, people either foreclosed or tried renting them out, thus increasing the foreclosure rate and the rental vacancy rate.
reno newbie
10300 rainmaker up in arrowcreek shadow inventory? was owned by reno realtor, listed around 1.3 then disappeared
DownButNot Out
Sully – Interesting article. It’s obvious that if you don’t have any skin in the game, walking away from the loan is not only attractive, it makes financial sense (if not ethical sense). It’s been said here before, buyers should have to have a minimum of 30% down payment, which would reduce foreclosures dramatically while stabilizing these runaway markets like we saw. After all,few could continue to buy investment homes just on the speculation, but rather must have a well run, properly capitalized rental program to get in on multiple homes.
Fewer second homes bought, fewer built, stabilized markets – hmmm novel idea I guess.
KB
It is just me or does the math not work on the number of FCs in the post. 709+705+696+660=2770
inclinejj
Banks think they are going to control the market..Remember this classic line, we are in the lending business not the property selling business..The banks have no fricken clue..They are seeing people stop paying in droves, look at the nod’s filed, look at the reo list and say holy chit..
With the Keeping People in Homes program lenders are just cancelling sales at will..Just picking them at random and cancelling the sale..They can repost the property and resell in 21 days.
This is going to prolong the slump and make it last longer..I know a couple properties that have been foreclosed on over 8 months ago and they are sitting vacant.Strange.
Walking away is easy when you bought the house for no money down and have no skin in the game. Plus you bought the house to go up 100k in a year or 2 and planned on making easy money..
When you buy a house to be the family home there is emotion involved..
For me its just “bricks & sticks” unless it is a family home..
And no I didn’t walk away from paying on the notes..I was lucky to have paid them down during the boom!
3niner
To donna,
I’ve heard comments to the effect that population has dropped, in this area, in the last couple of years. I’ve also heard it suggested that a significant share of the drop is shadow population (illegal aliens). This would make some sense, since construction work has largely gone away, and illegal aliens can often just pick up and leave.
I’ve also heard it suggested that many who have lost homes, have been too broke to rent, and have moved back in with Mommy (or other relatives).
I don’t have any way to verify any of this, but it sounds logical.
CommercialLender
3Niner,
I do a lot of apartment financing, and I can verify I’ve heard the same from my clients:
– tenants doubling up with roommates (interestingly 1brs are harder to rent today than 2brs),
– moving back to “places south”,
– a few buying houses on lowball offers, cheap rates and tax incentives,
– moving back in with family
Class A and B+ seem to be holding up OK, albeit thru offering concessions and lowering rents, but class C/B- seem to be hit harder today in terms of occupancy. This might be due to the job losses and illegals more than buying homes, but some of it is also ‘move up’ renters moving up from class C to ~ B+ for similar or even lower rents, when concessions are added in. I saw similar things in 2001-2003 in the Silicon Valley with those in Fremont moving to Mountain View for the same rents, but less commute.
Free Falling
Mike,
Here is a link to a blog calculating the maximum “shadow inventory” in California at one month. The logic seems reasonable.
http://www.foreclosuretruth.com/blog/sean/reo-inventory-hidden-shadows
My subjective measure of shadow inventory is the number of homes with brown grass, lock boxes, and no For Sale sign. The number is WAY down from what I can see in the Northwest.
Of more significance is the pipeline of homes that have not yet been foreclosed. I have seen estimates ranging from 8 – 15 months. Folks I know stopped payments on a Vegas condo last November and it finally went to auction last week, nine months from the first missed payment.
However, back in Reno, dead grass is the best indicator of vacant homes soon to go to foreclosure. Once again, the dead grass barometer is way down. So the pipeline of homes moving to foreclosure is predominantly owner occupied.
While some of these delinquent owner occupiers are living rent free as long as they can, others are presumably calling 1-800 LOAN MODS in an attempt to stay in their homes. With only 300,000 loan modifications nationally and few Nevadans qualifying due to the negative equity here, most of these homes will eventually end up going to auction.
I don’t believe there is any deliberate attempt by the banks to withhold inventory. I think they are simply swamped with delinquent loans and the new mandatory mediation provision will further extend the time required to complete a foreclosure.