How many foreclosures are out there? As far as I can tell "Only the Shadow Knows".
The new buzz is there is a large shadow inventory of foreclosures yet to hit the housing market.
Keeping this inventory of homes off market helps to stabalize prices of homes in the short term.
Imagine all these homes coming on the market at one time. There would not be enough buyers to absorb the number of homes for sale and this would cause home prices to tumble.
But lets say we hold onto the homes and keep them off market.
The result would be a steady flow of homes for sale and a more steady market and this would be good for the real estate market.
Why because the ratio between home buyers and homes for sale is an important number. This is called the Absorbtion Rate.
If there are more homes for sale than buyers this is called a buyers market. In a buyers market home prices will be lower.
If there are more buyers than homes this is called a sellers market. In a sellers market home prices will be higher.
So the logical thing for banks to do right now is to keep homes off the market until there are fewer homes than buyers. By keeping homes off the market banks feel the homes will be worth more.
In math we were taught the theory of "two negatives equal a positive".
I am not sure this is the right position for the bank because we are talking about money here and the value of money does not remain stable over time.
We can see that now in the stock market and in the Euro Zone, and Greece. What was worth a dollar today may not be worth that in the future. So if the bank holds on to a bad asset too long it might be actually worth less. This is a gamble the banks are taking.
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