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Is the lack of inventory an indicator that we've hit the bottem?

By Kathy Fettke

Services for Real Estate Pros with RealWealthNetwork.com

December 01, 2009 08:34 AM

A caller challenged me on the radio last weekend saying that inventory was so tight that we certainly must have hit the bottom of the real estate plunge. While lack of inventory is normally a good indicator of a seller's market, there's nothing "normal" about this cycle.

We know that foreclosure activity is setting new records. In fact, it's up 23% from last year at this time. So how could we have a lack of inventory?

Some people blame it on government regulation that's forcing banks to slow down on foreclosures. Others say it's due to loan modifications. Many believe banks simply don't want to flood the market with inventory that would further depress prices.

While there's truth to all of this, most likely the reason is more simple and self-serving. When a bank forecloses, it must "book the loss." But if it doesn't foreclose, creative accountants can put a price on a mortgage asset for more than it's true market value. As a result, banks are showing profits (doesn't that seem surprising) and profits mean bonuses.

The government will likely not crack down on creative accounting if it shows our creditor nations that we've fixed the economy and are bouncing back.

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Ron Trzcinski, 410-935-5844

410-935-5844 Office - Cockeysville, MD

Kathy,

You have stated part of the reason why the stock markets appear to be recovering, while our economy is not producing any more than it was producing.

Dec 01, 2009 08:40 AM

Marcy Eastham

Town & Country Realty Corvallis Oregon - Corvallis, OR

I think there is a perception of lack of inventory because people are expecting to see more listings. Fact is, people are buying houses (at least here) and the type and range of properties hasn't grown as much as some were expecting. Nor, have prices dropped as much as some had hoped.

As with politics, all real estate is local. National press has given some the impression that there is a glut of properties on the market. Not here!

By the way, I asked a prominent local banker about the "hidden foreclosure" market of bank inventories and he looked at me like I had three heads. Those, too, may be market specific.

Dec 01, 2009 08:48 AM

Kathy Fettke

RealWealthNetwork.com - Walnut Creek, CA

Marcy, you make a really good point. Real estate is always area specific. Here in California, we have a multiple-offer situation where inventory is low and people are offering well over asking price. Yet... we know that foreclosures are up 23% from last year. We also know that Option Arm's are resetting, and 58% are in CA where most loans are way underwater. It makes no sense that there would be a lack of inventory, until I finally learned that the reason is that banks are just not foreclosing in high-foreclosure areas.

In healthier markets, like Dallas, it's a totally different story. Values have actually increased over the past year. That's why so many investors are flocking there for the security. We just did a webinar on the topic. Check it out!

Dec 01, 2009 09:38 AM

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Kathy Fettke

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