Call me a cynic, but I am refusing in the belief of "Shadow Inventory". I don't believe there will be inventory "dumped" on the market, and if it does get dumped, we still need 14000 units to turn it into a stable market!
As you can see from the graph above, total inventory levels have remained quite stable in the last two years (when it is all added up!) Quite a bit of the inventory is swallowed up by the under contract (contingent or pending) category which has a lot to do with short sales clogging up the system! Now we are seeing short sales close at a higher frequency (went from hovering around 200 units a month for a year to last month, 6 units shy of 800 units!)
So there are reasons why the shadow inventory is out there (and this is a repeat of what I have been saying all year long so forgive me if you have heard me say this ad nauseum. These are the variables which may "prevent" foreclosures:
- Bankruptcy: Filing bankruptcy will stall the process of foreclosure.
- Short Sales: Foreclosure (trustee) Sale dates being pushed back by sellers, agents, servicing negotiators, you get the picture.
- Loan Modifications & Workouts: Many people are genuinely trying to work out issues with their loans to save it.
Other Variables that are hindering the "inventory" from coming online quickly:
Third parties are purchasing at the trustee sales so stuff isn't going "back to the bank" it is going to an all cash investor or purchaser. When this happens many things can happen: they can "flip", they can rent it out or they can be owner occupied. So the inventory is "lost" if they choose the latter two. We are seeing a LARGE increase in "corporate owned flips" in the Las Vegas Valley. Fannie loosening up on flip guidelines for FHA in just the last week will make this an even hotter commodity now that "trustee flips" will give them a 30% larger market share (by adding FHA buyers to the mix.)
Inventory gets lost with servicer or lienholder. Have this issue on a BPO currently. The servicer did not know that the property went to a trustee sale.
Rentbacks: Some lienholders are renting the properties back in cases where a tenant may have a valid lease in place.
I firmly believe that banks want this crap these non-performing assets off their books as soon as it gets on the books.
This will be a new monthly market report for the naysayers. If I am wrong we will see a spike. I will dub thee "Las Vegas Inventory Watch"
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