Will you Survive the Coming Storm??

Holly, you make very valid points in your post ~ and your points are ageless!!  Advice like this isn't just for the situation we're in now, it was prudent in the 30's, 40's, 80's, too!  Never will we be in a "perfect" era.  But as you say, just steady your boat and get ready for "come what may..."

The shadow inventory is easy to determine for a local area.  The number of foreclosures - the number of new REO listings. 

Holly, great post as it touches on points relevant to many markets across the country (not all). In Southern California the "perfect storm" is staring us in the face and many agents won't see it coming.

For the last 18 months we have been in a market where the buyers outnumbered the houses available. As a result, we experienced multiple offers on every listing and prices (according to some data) actually increasing a little.

Here's some figures for Joetta. Bof A has 600,000 homes on which they have already foreclosed but haven't put on the market. 35% of those are in SoCal. They have another 1.2 million loans that are seriously delinquent (90 days or more). BofA is going to have to do something eventually, either modify, approve a short sale, or foreclose and take to market.

If they do either of the last two, the whole dynamic of our market will change. Listings will outnumber buyers, prices will decline further, and listing agents will have to become "master marketers" to get their properties seen and heard through all the noise.

In our bi-weekly "social media support group" we talk about no such thing as good or bad news. There's only news and how you react makes it good or bad.

I don't know if I "buy" the shadow inventory thing. I spent a couple of months in Orange County tracking the homes that were foreclosed after trying a short sale, and sure enough...they showed up either as REOs or sold at auction and then many of those showed up as flippers. So...not sure. We'll see.

Hi Holly!  I enjoyed your post!  and you have laid down some very valid points!  Thanks for sharing!

I would have to agree with Christine, Mitchell, and Joetta.  Too much gloom and doom and a lot of unsubstantiated fear.  Five years ago when my lender tried to convince me to take out the money from my equity because I wanted a pool, I said "no".  The pool was a "want" and not a "need" and I told them that half or more of that equity was going to vanish in the next 2 or 3 years.  They looked at me as if I had been dropped on my head.  Home values hadn't fallen nationwide since the great depression.  So I passed on the pool but I am not upside down.  I still like to remind my banker of that and the look they gave me at the time.

Yes there are problems and they will persist but we are largely past the worst.  There is no tidal wave of properties about to be dumped on the market.  I have been hearing it for the past 2 1/2 years, and it is always "next year."  How about never? And I am in one of the worst hit states in the country.  In many ways the market has over corrected we have gone from a bubble to a crater.

History and human nature are not so difficult and are better predictors.  We don't go from extreme exuberance to normal, we over react in the opposite direction an become extremely cautious. Hence the crater that I see in my market.  No one has suspended the laws of supply and demand. Excess supply brings down prices the same as a drop in demand.  The opposite is also true.  We behaved on a macro level  in the 1920's much like we did between 1995 and 2006.  And our industry is experiencing issues much like it did during the depression.

Gloom and Doom is no more helpful than Pollyanna and we have been at both points in the past 10 years.  I like a line from Billy Joel...the good ole days weren't all that good, and tomorrow's not as bad as it seems."

Hi Holly,

From a personal standpoint, as a newer agent, I have to say I don't buy all the sturm und drang. I had 3.5 miserable years trying to get established in what everyone else was describing as the boom of the century.  Yet in 2009 - during the "crisis" my income tripled from the previous years. Somehow, I started "sticking." It could be that the panic caused established agents to pull  a lot of their marketing - allowing mine to stand out.  It could be because my blogs started getting more readers and traction. It could also be that  the print media that I use to support my blogs stood out because everyone else stopped doing it.   I do see other agents foundering - and I certainly need more business than I'm getting - but I also see myself headed in the right direction.

Yes, there are serious issues in this market and parts of my market may have another leg down to go.  But affordability is much better than it was - and I don't see that improving - so buyers should be off the fence.  We are starting to see signs that employment is slowly picking in up in our area .  Yes, the banks have behaved dispicably, but that is nothing new.  The primary issue that I see impacting our market is the effect of rising interest rates.  The tax credit may have pushed a few entry level buyers off the fence - but in our area with prices being what they are - it was a nice perk - not a decision maker.  The shadow inventory is a question mark.  I don't know how many homes will come on the market that are from the areas I cover.  Westchester has had its pockets for foreclosures concentrated in a few areas - that may expand somewhat and I have listings where money will need to be brought to the table.

From the agent's standpoint - a moving market is what is needed.  It doesn't necessarily have to be an appreciating market.  Some areas will stagnate - other areas willl have activity as people who didn't want to move either have to or see it as a better financial move.  It was the stand-off of late 2008-2009 that was so deadly for many.

Debt Debt Debt

Even here in Canada consumers have taken on too much debt (see Bank of Canada homepage)   http://www.bank-banque-canada.ca/en/index.html .

An article I read on the above indicated that this is the first time in Canada that consumer debt has risen

significantly during a recession and that they would take corrective action to limit said debt levels .

I believe there is a sizable element out there who will become cannon fodder in the name of a managed economy if debt continue and interest rates go up .plus as mentioned above what happens when the baby boomers downsize and stop spending or at least stop buying real estate as investments and homes?

Unfortunately our governments best answer is more immagration and reliance on oil revenus .

Thanks for the figures Greg, but I'd still like to know where they come from. Sorry - I've just known too many people believe too many things that were complete fabrications, that got picked up and passed around by 'reliable sources, until 'everyone' believed them.

Regarding Shadow Inventory: I think that could mean many things, but for my own market (Atlanta), there are homes & homes & homes...sitting boarded up, vacant, foreclosed on over 24 months ago, have never been listed & allowed to fall into dis-repair.  Those homes will come into to play eventually.

Figures, I don't need figures, I HAVE EYES!  I can see hundreds of homes in this condition driving down Interstate 75 through the city of Atlanta.

It will get worse before it gets better.  Long term I believe this country will come out of things better than ever.

Thank you Obama!!!!

South Carolina has had a lot of positive economic news lately; espcially down here in Charleston.  It will take time, but the positive swing in the Lowcountry will spread to the rest of the state.  Unfortunately, those ARMs are coming quick and will cause some problems. 

Interesting post, Holly.

Boulder City Steve

Wow, Holly, finally a REALISTIC REALTOR!  I think many of us are seeing better days right now; however, I think it's just the calm before the storm.  The shadow inventory is what has me battening down the hatches to get ready for the next wave!

PS.  To see the Shadow Inventory that some of you do not believe in, just go on RealtyTrac and see all the REOs that you can't access for your interested clients.

I actually did a post on this on my real estate blog about this very thing.  I hope people in this industry are aware that the next wave is coming and its far worse for foreclosures than the first wave.  The beginning is actually in 2010 and its bad through 2012.

Like with everything, we'll all find a way to get through!

On top of all of this is "the Magical Jobless Recovery " !!!!!!!!!!! Where are the new middle class jobs($14-$30 per hr. !!!)

Nice job Holly ... it does all sound like doom and gloom, but very true.  About 5-6yrs ago, the 2/1 and 3/1 ARMs were the hot product.  Now, those are almost gone (3yr is still here, but low demand), and the 5/1 has become the new standard in the ARM category.  There will be a lot of those coming to a reset in next 2-3yrs and that will potentially hurt many people, as we all know rates are going up.

Shadow inventory?  Sure, I believe it ... although I don't think it's being intentionally withheld.  Banks were unprepared for the volume and it takes time to process them for resale, etc.