Excess Housing Inventory- What Does it Mean?

By
Mortgage and Lending with American Capital Corporation

In Morgan Stanley's new finance report, Housing Market Insights, the investment bank estimates that at the rate of current home sales, it would take 47 months for us to clear the "shadow inventory" of houses. What exactly is the shadow inventory? Morgan Stanley's method of calculating the shadow inventory includes all loans 90 days or more behind on their payments, most loans that are 30-60 days behind, and properties that are already foreclosure. In short, unless they go through a successful loan modification or short sale, there is a strong possibility of the house going into foreclosure and ending up on the market at auction. Morgan Stanley estimates there are approximately 8 million homes in the shadow inventory at this time.

Of course when these homes end up on the market, they inflate an already large supply of homes on the market which can drive down home prices further. Your basic economic sense should tell you that lower prices should lead to more homes being purchased, right? Unfortunately, this isn't necessary the case for us at this time. Banks have made it difficult to get credit for a home purchase unless the borrowers have stellar credit, which is hard to come by these days. Additionally, with unemployment still a giant albatross around our necks, people are less willing and less able to make big investments and instead are buckling down and playing it safe.

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Location:
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Groups:
Mortgages
Orange County Real Estate
CALIFORNIA DREAMING
South Bay Realtors
40 Somethings
Tags:
housing market
unemployment
foreclosure
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loan modification
morgan stanley
shadow inventory

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Rainmaker
5,273,557
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

Cynthia.....it will be many years before the dust settles....unemployment is the major problem and there is no light at the end of that tunnel.

May 25, 2010 10:08 AM #1
Rainmaker
449,271
Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

Christine, it sounds like we're in a catch22 situation. The banks are tightening their lending criteria, all the while the market is swelling with inventory. Somehow we have to figure out a way to get more people employed, I think that will be the key.

May 26, 2010 02:18 AM #2
Rainmaker
138,471
Kelly Turbeville
Keller Williams - Lake Forest, CA
Turning Real Estate Dreams into Reality

So why aren't they helping more homeowners to keep their homes?  Boggles the mind!

May 27, 2010 06:50 PM #3
Rainer
89,891
Christine Hynes
American Capital Corporation - Laguna Beach, CA
Orange County Senior Loan Consultant

Barbara - yes, i too agree many, many years and employment will be a factor as well as lending guidelines and how tough or lenient they are.

May 28, 2010 05:12 AM #4
Rainer
89,891
Christine Hynes
American Capital Corporation - Laguna Beach, CA
Orange County Senior Loan Consultant

Yes Malcolm, criteria continues to tighten and will continue to do so.  Hopefully rates will stay where they are as they can't drop that much lower, or can they?  I know around her in southern california i have many agents i work with that have the buyers but not the inventory depending on the price range.

May 28, 2010 05:13 AM #5
Rainer
89,891
Christine Hynes
American Capital Corporation - Laguna Beach, CA
Orange County Senior Loan Consultant

Kelly - i think the banks want to keep payments coming in and with the new HAMP program, if the homeowner doesn't make the trial payments they won't get a modification.  So what banks are doing is dragging this out, these requirements to make trail payments 6 to 9 months and they were setup by HAMP for only three months.  So, the banks continue to get their money or most of it and keep the asset on their books at a higher number.  So, basically i think and my opinion only is that the banks are only doing what ever they can do to keep money coming in to make money and they are not their to help the homeowner they are only their to make money and profits.

May 28, 2010 05:17 AM #6
Rainmaker
138,471
Kelly Turbeville
Keller Williams - Lake Forest, CA
Turning Real Estate Dreams into Reality

Christine - totally agree, we all now the benefit is for the bank, but so sad!

 

Jun 03, 2010 06:23 AM #7
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Rainer
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Christine Hynes

Orange County Senior Loan Consultant
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