The monster lurking in the shadow inventory – 12 million Americans underwater with nearly 6 million delinquent or in foreclosure with their mortgages. The hidden benefit of not paying your mortgage.

Shadow inventory coming online in 2012 is going to have the biggest impact on the housing market.  With a weak jobs report that shows a labor force that declined by 164,000 you realize that demographic trends are now in full play here.  With banks now moving on delinquent properties the supply will be moving higher while traditional inventory remains low.  This is happening.  We noted that in Southern California, over 50 percent of all MLS inventory is now composed of short sales showing that banks are now willing to sell homes for less than the original mortgage balance.  One of the more interesting trends is the aggressive pricing we are seeing on some of these listings.  Of those in actual foreclosures, nearly half have made no mortgage payment in two years.  Now that banks are moving on these properties that hidden stimulus will be pulled away.  Think about not paying rent or a mortgage for two full years.  Let us take a look at the current state of the shadow inventory.

 Distressed inventory pipeline

Over 5,800,000+ homes are either delinquent or in the foreclosure process:
shadow inventory 2012 chart

You need to remember that the first two columns rarely show up on the MLS.  These homes have yet to even hit the foreclosure process so do not show up as inventory.  These are simply home owner’s not making payments on their home for a variety of reasons.  Cure rates have been pathetic so most of these will end up as foreclosures.  Then you move to the loans in foreclosure category and many are not on the MLS as well.  You have the three stages of foreclosure:

-Notice of default is filed (at least three missed mortgage payments)

-NTS (scheduled for auction)

-REO (bank owned)

Even when a property becomes bank owned, it may take months (a year) to get it on the MLS.  In total over 5,800,000 properties are delinquent or in some stage of foreclosure.  When the existing inventory is looked at only a small part of the picture is shown:
Shadow Inventory

Existing inventory has trended lower since 2007 and many analysts simply look at this as if this was the only measure of housing inventory.  This only reflects roughly 2 million properties while another 7 million properties are either:

-90+ days delinquent

-In the foreclosure process

-Bank-owned real estate

-Current but underwater

So what you have is a giant pool that isn’t viewable to the public but is slowly leaking into the blue category.  That is, the existing category has room to grow simply because the other pipelines are so enormous and one option is to get out ahead of the curve by allowing short sales.  With home prices making post bubble lows and household incomes stagnant for well over a decade, there is little reason to see pressure for higher prices.  As we noted with a shrinking labor force because of lower paying jobs or people dropping out of the labor force where will pressure for higher prices come from?  Mortgage rates are artificially low thanks to the Federal Reserve and with low down payment loans like FHA insured loan products the leverage capacity is at a maximum for buyers to stretch into a property.  Rates are unlikely to go lower and we know FHA loans will get more expensive in the upcoming months because default rates are soaring.  What a shocker that allowing people with almost no down payment to buy expensive homes is causing further issues.

A mini stimulus will also be lost as more of those living in their homes payment free will lose that advantage:

“Vigeland: So first of all, can you give us a sense of how prevalent this is? What are the numbers of people who are squatting in their own homes?

Feroli: Well, right now you’re looking at about 8 percent mortgages outstanding are past due and there are about 44 million mortgages out there. So you’re talking about a pretty significant number of people who right now are not paying their mortgage.

Vigeland: Wow. So how did you come up with the estimate of a $50 billion impact here?

Feroli: Right. So there’s about $10 trillion in mortgage debt owed by the household sector. So you’re looking at about $800 billion in mortgages, which are past due — average interest rate of about 6 percent or a little above. Most of those mortgages, of course, are in the early stage when it’s mostly interest that you’re paying. So 6 percent on a little over $800 billion comes out to about $50 billion per year that are free for other purposes.”

$50 billion is nothing to sneeze at.  As more short sales pop up on MLS searches every day it looks like this trend will be coming to an end.

Underwater nation

Take a look at how many Americans are underwater on their mortgages:
homes with negative equity

Approximately 12 million Americans who “own” their home owe more on the property than what the property is worth today.  So as more properties enter the pipeline there is little reason to believe the demand curve will shift up.  For the short-term, we will likely see a move for the supply side:

supply and demand housing

This is exactly what is happening and why home prices continue to fall.  For example, the mid-tier market in Southern California has seen home prices fall by 8 percent in the last 24 months.  Why?  This is partly due to more short sales hitting the market and a large demand for lower priced properties based on stagnant household incomes.  So as more of these homes leak into the inventory why should we expect some sort of reversal of the trend?

It seems like many in the press are acknowledging this second test for the housing market.  Now what can mitigate this from happening?  If we see strong job gains in good paying fields and household incomes rising then there is reason to argue for higher home prices.  Simply to argue that home prices will go up because “inflation” will pick up is missing the point.  We are seeing global goods like fuel and food going up because these can be shipped anywhere and thanks to the Fed, the dollar is getting hit.  With housing however, it is a local good so therefore local household incomes do matter and this is what we are seeing.  A place like Las Vegas with a large number of low paying service sector work is now seeing homes sell way below $100,000.  This makes sense given their local demographics.  Here in California every segment of the market has seen major price declines.

As more shadow inventory hits the market the supply curve is likely to increase even though some analysts might only narrowly focus on the existing MLS inventory that only highlights a small part of the total picture.  This is missing the next trend like arguing Alt-A and subprime loans were a good thing just because defaults initially were extremely low.  The demand side can shift but only if incomes go up and employment really picks up.  Also, many younger Americans are saddled with high levels of student debt and are making less money.  So who will many of these older home owners sell homes to?  Certainly not at price levels they would hope to get.  Yet banks control a large part of the inventory and short sales and foreclosure sales will dominate in many markets because prices are more set to what the market will support.  After half a decade and with housing making nominal lows it looks like some are finally getting it that those nostalgic high prices are unlikely to ever come back again.

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114 Responses to “The monster lurking in the shadow inventory – 12 million Americans underwater with nearly 6 million delinquent or in foreclosure with their mortgages. The hidden benefit of not paying your mortgage.”

  • Mark to market would drop prices 30% overnight. Obummer and posse will never let this happen. Some scheme (or many schemes) will probably result in slow deflation for years to come.

    I don’t understand. If Bush would have just let the banks fail, we would be in full recovery already. See Iceland and Argentina for examples. Failures? See Europe and Japan for examples.

    • Papa, please come up with an equally disparaging moniker for Bush as you do for Obama. You know, fair and balanced?

      • Yes! Thank you! Especially since we are still suffering from the damage of the Shrub.

      • Why? Bush is already bad enough.

      • That’s funny, I agree Bush was a shrub, but in fact Obomba (he bombed Libya like Bush bombed Iraq) has spent more money than Bush and all the other Presidents/Congresses combined back to the original G.W.

    • I live in Argentina most of the year. The economy is in free fall: Inflation is around 25/30%; The peso is steadily losing gournd against reserve currencies; The government’s fiscal deficit is increasing 25% a year; the Central Bank has just announced that its (small) reserves can be used by the Executive Branch to do whatever it wants; the peso is no longer backed by anything; the debt of the country hovers $140 billion; etc etc.

      • Well, you know what they say, Chileans save money, and Argentines spend it. A recovery in Argentina derailed by insane spending. Some people never learn.

      • Again? Doesn’t this happen like at least once a decade in Argentina?

    • Thumbs up wish everyone understood this.

    • thenumbersneverlie

      When will everyone learn, Washington (both parties) are the collective enemy. They have declared war on all of us. Keep pointing the fingers people, while the Republicrats continue to destroy America.

  • Frustrated observer

    I agree with everything you’re stating. However an unintended result of all these underwater home owners not being able to sell and banks either not foreclosing in a timely manner or holding on to foreclosed properties and not putting them on the market has been a shortage of active listings especially in attractive areas.
    We are talking about areas where the median selling house prices are already over 6-8 times the median incomes, even after the crash. Like Danville and Marin County in San Francisco Bay area.
    I have been watching these markets for a long time (over 7 years) and finally decided to try to buy.
    what I’m seeing is mind boggling multiple offers on pedestrian homes. The buyers are forgoing appraisals and bid over asking prices. There just aren’t enough attractive properties compared to buyers (some of them with over 50% cash down payments). I have never seen anything like it, houses are on the market for less than half a week at times and end up with multiple offers over asking ( we’re talking about houses in$ 800-$900,00 price range). I’m not sure where all this money is coming from.
    Even stale bank owned properties in bad condition are non negotiable, the banks would rather let the properties in these areas sit empty and rot , rather than sell them at a price that would account for cost of everything that needs to be fixed. I’ve seen Alamo bank owned properties full of dry rot at asking prices over a million where banks would not negotiate the price.
    It’s a sorry state of affairs, while over 500 properties are in some stage of foreclosure between Walnut Creek and Danville alone people are snapping up expensive properties like candy.Not even during bubble years did I ever see such frenzy.
    It’s sad that prices are not allowed to come down to real levels. I worry for the next generation. If this madness is not stopped would they ever be able to buy a house in a decent area.

    • Trustee Sale Troll

      I have seen the same thing starting to happen. The inventory is just drying up. Sure, there is a great big pipeline, but if it is not for sale you cannot buy it. There are many potential buyers who have sat on the sidelines and now they want to buy, and they cannot because there are no listings. I listed a house for 10% over the last comp and in one hour had a full price 20% offer. We have been selling houses at or above asking price almost instantly. It is crazy, maybe all the defaulters from three years ago can now qualify for a loan again…

    • This recession has really been the tale of two economies. The best of times for some and the worst of times for the rest. The pool of buyers obviously comes from the “best” economy.

      Moreover, looking at any graph here, and most anywhere, it seems quite clear that the worst is behind us and things are picking up again. It may take quite some time to unravel it all and return to “normal” — my favorite plot is the first one on this page:

      but the trend is obvious and has been there for some time.

      • The worst is hardly “behind us” with Bernanke now stating quietly “if” the economy does not pick up, another round of QE will ensue…and that’s just plain counterfeiting. Buying their own debt with money they create, and charging interest on it, will never solve anything, except insolvency.

        I don’t care what charts you are looking at, debt is rising, jobs are not being created with decent income, and that can they keep kicking down the road with money printing is going to eventually be crushed into oblivion.

    • Really, a shortage?? You mean like people waiting in lines, and sleeping in their cars, with a trunk full of cash? I havn’t been up there in SF lately, but down here in LA they are all over, they carry a shotgun to guard their money, while they sleep in parks, under bus benches, I mean everywhere!! Its crazy!1 When a $750K place hits the MLS, there are at least 100 folks on the front lawn, rabidly anticipating the bidding war that ensues. You better snatch-up whatever you can find, they arent making any more land!

      • Your sarcasm notwithstanding it’s pretty close to true. A 399k 3/2 REO went up in Burbank and there was a line of people going through. Multiple all cash offers. I kid you not, this is the market! I couldn’t see the property because there were so many people in the house it was like someone brought a keg. All we needed was the garage band!

      • The mini-heart attack was in 2008. The big one is coming late this year in 2012.

    • Lord Blankfein

      Frustrated Observer, I’m not very familiar with bay area real estate, but it sounds like the areas you are interested in (Danville, Marin County) always have been and always will be highly sought after. There are plenty of areas like that in LA/OC too that will always command a big premium (Malibu, Manhattan Beach, Newport Beach, etc). Like you are saying, shitboxes that go for 800K plus!

      I have come to the conclusion that some of these areas will never be available to your average upper/middle class buyer. You either need to be making serious money or come from a rich family to buy in these areas. Take a look a rung or two lower on the housing ladder. I’m sure there will be some drawbacks to the area, but it certainly sounds better to pay 500K vs 800K for a similar shitbox.

      • This is what’s really happening in the US now. The areas that are relatively safe, with good schools etc.. are for the “haves” and the everything else is turning into the areas for the “have nots’. My local hood used to be pretty nice, but now there’s lots of section 8 and others that have dragged it down…while the more desirable areas still have people clambering to get into them because the once marginal areas have now degraded. Am I the only person seeing this????

    • Big and Long Pix

      Dont worry about the next generation! In global economy, we cannot sell a product made in a high living cost area because it’s final price is too high. Most of the things we buy can be made in many parts of the world at a much lower cost. The thinking that we would have a better economy by inflating house price is way out of date with today global competition pressure. We are no longer the only consumers and producers in town. The stable jobs with decent pay (relative to living cost) won’t come back until the house price come back to reality that allows our labor be globally competitive. No bank or gov can change that equation, well unless all products’ producing costs are subsidized – that won’t happen. Want it or not, house prices keep coming down much further. The next generation will be ok after this bubble is deflated.

      • CAE, I hear what you are saying about the more desirable areas staying good and the less popular areas getting filled up with riff raff and section 8 renters. That situation scares me a lot. I left for the suburbs 5 years ago because life in Los Angeles no longer resembled the United States. In fact it seemed to me to be like a third world country.
        The thing that I have noticed in my area is that some of the older or more marginal areas in my suburb are getting slightly better. A lot of the Mexican illegal aliens and riff raff got forclosed on in 2008 -2010, and better people have replaced them.
        I’m hoping this will continue to be the case. Big demographic changes can be truely scary.

      • @Greg in LA – Wow. Didn’t resemble the United States, Section 8 and riff raff, more desirable people. Where do I start? I’ve heard these same arguments before. The enemy is holding all of these fake mortgage notes not our brothers and sisters struggling to survive. Caucasian people are well on their way to being a minority in the USA. Deal. Better yet, leave.

      • @goldhorder, Thanks you’ve made my point beautifully.

    • Banks don’t let losses in reality get in the way of their fantasy paper profits.

    • The money is coming from several sources: Russian and Chinese investors who want to be landlords for upper income workers. Tech and financial services workers are the other side of the bid for those attractive Alt A properties.

    • U r so completely right on. I’ve been watching the market in Ventura county in southern California for the past few years and the only inventory for sale is the small dribble Drabble being released by the banks at a snails pace. It’s sickening how they’re trying to keep prices inflated. Multiple outrageous offers the first hour a property hits and often the sellers agent already has offers lined up before it hits the multiples do a brand new listing already shows pending. How is that legal. It’s stirring up a lot of unethical conduct amongst realtors. These bloodsuckers are watching out for themselves with their greedy intent and investors are buying EVERYTHING up so people who want and need to live in the area can’t. So what’s the answer!!!!!

  • On top of that, the education bubble. People with such large payments due on their education loans they can’t afford a house payments or their credit rating won’t let them qualify to buy. Maybe the single housing areas can be rezoned for multi-family and the larger houses split up into rental apartments.

  • I understand all of this and am worried. However, my wife is a real estate agent and shows a lot of homes in the Phoenix area (one of the harder hit areas in terms of foreclosures). We have been looking for our own home.

    There has been a dramatic change in the past 6 months. Over the past 6 months, it has really turned into a seller’s market. She shows a house (not always but often a short sale) and within 2 days has 10-15 offers on it. There are multiple competing bids and if you want the house you pay more than asking price and do away with any other contingencies.

    I think there are a lot of people who have been on the sidelines and looking to buy. The new properties are going off the market as soon as they are coming on, at least in the lower to mid price range. Prices are going up here, not down (so different from CA).


    • With desirable LA still deflating at the rate our GoodYear blimp makes fly-by’s, I’ve been looking at Phoenix investment properties as a place to take advantage of the unholy union of manipulated low rates and decimated prices. Problem is there is a hoard of Canadian oil and gold money bidding up properties for a quick flip. It’s incredible how many flips you can find 2010 to 2012. These people have no interest in being landoards. Just going to courthouse steps and laying down fraking dollars to make a quick flip. Cash is a hell of a drug.

      • Dfresh r u kidding me. Prices in LA are deflating. U r way off base. Do ur homework man. Prices are going up and multiple offers. Seriously don’t speak from what u don’t know

    • I’m working wih a fellow that lives in Tamp Bay area, and he paid $262,000 a few years back, and now the houses in his neighborhood for same house have fallen to $82,000.

      So, maybe Phoenix is creating jobs somehow, some way, (where you do not state) that allow people to save and snatch up houses, but it ain’t happening everywhere, that’s for sure.

    • Same in Dallas/Fort Worth. Market days are short, prices are increasing, yes short sales and foreclosures are in the mix. We had 43,000 homes on the market in 2007, there is about 24,000 on the market today. Inventory is decreasing, not increasing. One of the benefits of Texas being a non judicial foreclosure state.

      I am a Real Estate broker and appraiser and yes, I do know this market.

      • The PHX market is made up of tons and tons of homes under 100K – so just do the math – you have one of largest metro areas in the US and you can rent out a home for 800-1100 a month – pick it up for 70K – pay cash or put down 20% and you have excellent returns given the bank rate pays you nothing. Thats the reason homes are selling like crazy here – now move up to the 300K plus homes and that is not true – they sell but not with 5-10 offers. Also, inventory on the MLS has declined a lot in PHX so there are fewer properties. I get calls and emails from all over the country of investors looking for a condo,house, townhouse or patio home that want to pay cash – so for now it is nothing more than investors because 1st time homebuyers are getting squeezed out. Now head over to CA and the ave price of a home on the low end is at least 3 times higher than PHX.

    • I think the whole point of the article was to inform you about shadow inventory. Banks are letting juuuust enough homes onto the market and investors are buying them up (in many cases there are bidding wars, like in Phoenix)…But don’t be fooled. Eventually banks will have to deal with the massive shadow inventory and as the wave of them hits the market (someday) it will likely crash home prices to record lows (supply and demand right??). Unless of course the banks find a way to unload shadow inventory with as little harm as possible. I dont know how it can be done.

  • What would be a hedge strategy? Short REITs? Commodities? Ammo and seeds?

  • Outstanding as always! The facts assembled and the presentation help me understand the whole mess in a compact and too-factual-to-argue-with way. I still believe now that the Federal Reserve exhausted with minimal success the first two tools used to counter the foreclosure mess, and now, that they will rely on the third tool (even more inflation, somehow). The first tool is low interest loans plus (with the banks and Congress) low-down and even still no-down loans for commercial, residential, government loans (now, even to speculating home investors) This bubble like low down set of homeowner loan standards post-2007 was expected to work to save the balance sheets and wealth of banks/speculators/financiers. I will hypothesize, since I have nothing but disparate facts, that what happened in 2000-07 and through now, is that the banks/Fed did not understand their increasingly easy money and no-down payment policies were hiding or papering over remarkably fast changing demographic trends to actually reduce married households population numbers, as DrHB says. I found two very influential and well written studies of why there is a paucity of new households and equity home buyers and there won’t be as many by far: The other shocking study by the same scholars is this new one:

    I also note that DrHB is right that many loans 2000-07 were taken by homeowners to pay the out-of-control rising costs of kids college. That home bubble surplus equity is largely gone and instead, the ever-increasing straight loans by government to students (who by definition have no credit to back the loan) are meant to paper over the problem and keep pouring money into big education. The third Fed tool is monetary gross inflation, and since the population growth (almost entirely in minorities) didn’t lead to more households due to these exact trends, this didn’t much solve property value collapse except as to apartment projects (largely occupied by single adults). The Fed/government can print money, somehow they don’t get that they can’t “print” to create upper-half homebuyer-desiring married households.

    • > I still believe now that the Federal Reserve exhausted with minimal success
      > the first two tools used to counter the foreclosure mess, and now, that they
      > will rely on the third tool (even more inflation, somehow).

      Sure, “even more” inflation will help. Though, contrary to popular opinion, current inflation is relatively low:

      The real problem we face at the moment is lack of investment. There is too much money going into unproductive assets like T-bills, cash and gold, and not enough money going into building factories. Inflation won’t scare off the gold bugs, but it will do a number on anyone holding cash and bonds. Once people figure out that their “safe” cash is actually a guaranteed annualized loss of 5-10% due to inflation, that cash will be put to good use! You can be sure.

      The “real recovery” — the one that ends all public doubt as to whether there is a recovery — will happen IMO when the public sector works its way out of its problems, stops shedding jobs and starts growing again. (Hence, politicians trying to cut the public sector are actually part of the reason unemployment is so intractable.) The private sector is doing just fine, growing employment at annual rates last seen in 2006.

      That last one is for the UK. There is a similar plot showing most private sector job growth offset by state and local layoffs, out there somewhere. I couldn’t find it, alas.

      • Have you been to the grocery store lately? Have you seen the gas prices? Price of stamps, eating out, etc. We are being lied to. According to John Williams of ShadowStats, true inflation is running about 8% to 10%. Housing has been so decimated by the Banksters that inflation won’t hit it.

      • By “real recovery” I would like to know from where that is going to come? Without the FED putting trillions into the economy by simply printing money we would be in a depression right now”. The good old USA would have a standard of living equal to or less than Argentina right now if we were not the reserve currency. Well, now the bad news, we will not be the reserve currency in five years. Already countries are bypassing dollars and trading with either their own currencies or with gold. The rest of the world are simply not going to let us just print money and then have us buy, oil, metals etc basically for far as these very few areas having a bunch of morons chasing high prices, it just shows that they still have a bubble mentality. It also is typical of the Third World to have a very few areas very expensive and the rest going to hell. Lastly it is Racial. In L.A there are many places to live but all that is talked about is the evey shrinking all White areas. Funny I never see anywhere spoken here that is not lily White. That is the unspoken truth that is never discussed.

      • Frankly, listening to MSNBC anf the Telgraph as if they are credible sources is laughable.

        They are corporate speak propagandists, and that is all they are.

      • “Though, contrary to popular opinion, current inflation is relatively low:”

        According to the feds, yes. And _that_, my friend, is an opinion. It’s feds opinion but still an opinion. Truth is something else and the population knows it.

        So CPI is a direct lie and you really need only to follow two major costs to see that: Food and gas. tells us that the real inflation is above 10% and if you have a long commute, inflation to you personally is more than 20% as gas is a major cost to you.

        “Official” being 2. Is there anyone sane believing that?

  • If there’s roughly 3.6M people not paying their mortgage, this means a lot of banks would go belly-up if these homes were processed in a timely manner. Not only that, but prices would plummet. Thus, the govt allowed FASB mark-to-market rules to be suspended so that inventory could be released in drips and drabs. I see absolutely no reason why things will all of the sudden “change” and millions of homes hit the market like an avalanche. Think about it.

    • I like your observations CAE.
      I’ve been watching the bubble since 2005 and I concur that the plan between the banks and Government is to let the properties drip out in a slow and controlled way. There are variations though this controlled dripping. Right now we are in a low inventory phase closely timed to match the spring buying season. The next phase will be a higher inventory phase, which will have further price reductions.
      I am sure many of you have noticed this high and low inventory cycle for quite a few years now.
      I imagine this is what is going to happen for a very long time.
      One part of this scheme (bargin) between the banks and government which has gone unmentioned is that the banks are paying the property taxes on all of these delinquent, non-paying and foreclosed properties. If you look at the tax records of any property scheduled for trustee sale you will see that the taxes are current. Who is paying these property taxes? is it the “owner” who is in default? of course not, it is the bank that owns the mortgage. In effect the banks keep the property taxes paid as sort of a bail-out to the local governments.

      The Federal government bails out the banks, and the banks use some of the money to bail-out the local governments.

      My advice to those looking to buy properties is not to buy a property in a low inventory cycle. Wait until we are in a high inventory cycle.

      • Well said, Greg. Lots of good observations here today.

        One question about the prospect of banks renting REOs in large numbers: given how ridiculously high prop taxes rose during the bubble (they DOUBLED in Cook County during the aughts, and have not come down a drop), won’t banks be likely to put pressure on local taxing authorities to lower rates? This kind of institutional pressure could actually be a boon, so long as they don’t go for a break only for themselves (which, I know, is far more likely). Any thoughts out there?

      • Lord Blankfein

        Greg in la, excellent post. Buying in a very low inventory cycle is definitely not what you want to do. We had plenty of inventory 6 months ago, what has changed? If you need or want to buy this year, it would make sense to wait till the “slow season”…October, November, December timeframe. There is generally much less competition between buyers during that time of year. Who knows what the banks will be doing with their shadow inventory, they aren’t releasing it now so I doubt it will get any worse from that perspective.

      • Yes, let’s take advice on buying a home from Greg in LA who posts anti-immigrant, bigoted BS on this site all the time. A fool and their money…..O you know the saying.

    • That’s why the foreclosure “tsunami” that DRB was predicting a couple of years ago hasn’t materialized, all the indicators at the time be damned. Now that we’re fully in drips and drabs mode in terms of inventory, what will be the next unintended consequence be for our micro-market of “desirable” Southern California? Will DRB’s prediction of prices finally coming in line with local incomes come to be, or are we in a new phase of Manhattanization, which seems to have taken hold in S.F. already?

      • The foreclosure tsunami didn’t happen because the robbo singing scandal slowed down the foreclosure process. I saw a graph ( can’t find it again i’m afraid) that showed a huge drop in foreclosure activity in around november 2010. It declined by around 25% i believe.
        The recent agreement between the banks and the government has basically allowed the banks to ignore their robbo signing fraud, so expect that huge inventory to start flowing again.

      • Well, I’ll believe it when I see it. Even before the Robo signing debacle, there was not an avalanche of foreclosures. Suspending Mark-to-market allows accounting fraud to be legal, but any transaction that takes the property off the books of the banks will have to be recorded for the price paid. This will cause massive bank failures as there reserve ratios will likely shoot through the roof. I guess the govt could just keep suspending different accounting rules and banking laws…….

  • Banks have been slowly bleeding repo’s into the market in order to keep prices up as much as possible. Almost all banks are functionally insolvent, but are pretending they aren’t through holding at face values assets (mortgages) that are actually worth less than 30% to 50% of original value.

    Banks are trying to maintain or increase their reserve levels and balance that against the mortgages they can afford to write off on a yearly basis. Whether or not the banks will continue pull it off remains to be seen.

    My biggest worry is that something will trigger a massive mortgage write off, which will vaporize a lot of the major banks in the US. If that event happens, it will be catastrophic.

    Personally, I prefer the banks to bleed the properties back into the market over the next few years. Yeah, it’s not exactly honest, but the alternative is, more than likely, worse.

  • I just don’t see this in Denver.
    [Visible] Inventory is way down. By almost 40%.
    Closings are up by 50%.
    And, yet, so far, no surge in inventory.
    I think the shadow is a myth in Denver.

  • Where you hear about bidding wars in the Bay Area, Silicon Valley and parts of West LA, take two things into consideration. One, this a minute section of real estate. Two, it is being fed for the most part by another bubble, the tech sector. Between Google and Facebook, you have thousands of instant millionares. Just between Google, Oracle and Apple you almost have a trillion dollars in market capitalization. This is the same tech bubble of the 90’s and will eventually crash. The real market is in places like Witchita, KA where you can buy a house for 25,000 that would sell in the metropolis of Los Gatos, Ca for over a million. Apple is worth 150% more than Exxon. Which would you rather have, an Ipad or transportation that makes the world work? Or, maybe a “social network” for your spoiled brat kids? If you thing the future of the world economy is based on cheap BS facilatators (twitter) and gadgets then keep dreaming. One day soon, the world will be desparate for food, fuel and transporation. But, who the hell cares if you are a semi-literate with $200 Nikes and an Ipad. Why do you think the Chinese in are buying up farm land in South America and Africa and alreay own Australia? Yea, we are the genious of design for frivolity. I will take a good agronomist over Steven Jobs any day.

    • The tech bubble has been extended by government fiat in the form of the JOBS bill, signed into law by Obama on Thursday. This “gift” of Silicon Valley lobbyists (on which see the front section of the WSJ today) will extend the boom times in this tiny “strategically important” sector of the economy by allowing a million Groupon-style frauds to bloom over a five year period. This will be accomplished by relaxing accounting rules on startups, who shouldn’t have to be burdened by the need to prove profitability to investors while thinking up the next big thing or buying private islands in the Caribbean. Hail the new American corpo-fascism (wink wink) “capitalism!”

    • What about the bidding war I just lost in 92123, not the best area and the house got 11 offers? The winning bid was 21K over as and AS IS!

    • Although I somewhat agree with you about your comment but remember we have a failed media and people are not getting a real picture of how things are. Our nation is full of uneducated creeps who watch FOX. THey haven’t a clue as to which way is up or down. THose who are doing well don’t pay attention. Sometimes I can’t believe how ignorant people are. College grads, graduate school – they are clueless and believe the hype the NAR spouts constantly. RE agents are some of the worst. Their tiny world is good now that investors are buying up thousands of homes.Just take it a bit easy on those folks. They don’t give a damn. Life goes on.

      • Lord Blankfein

        Bobi, then you have the truly uneducated creeps who don’t watch any sort of news and personally don’t give a rat’s ass of what this country is turning into. As long as the Section 8 check, welfare, EBT and free school lunches keep on rolling in like clockwork…they can keep sitting on their coach watching American Idol and Dancing with the Stars!

    • The bidding wars are all over. Not just Silicon Valley. It’s LA, San Francisco, San Diego and possibly all the states hard hit. Many of the investors are the same ones who made fortunes pushing bad mortgages on unsuspecting buyers. And probably the RE agents and brokers who also got a pile of money lying to buyers.

    • Frustrated observer

      I completely agree. The problem is, since the 90s and even before then, Bay Area has always been is different bubbles, tech, housing etc.and after each bubble , Bay Area seems to get stuck with a big portion of the appreciation in the housing.
      There is too much Silicon Valley funny or real money floating around here, making the cost of living go up in stratosphere, which makes it very hard for any other type of business to thrive. The cost of living ( primarily housing) makes it very hard to find employees at reasonable rates.
      As a former small business owner( I’m a healthcare provider) we always dealt with several issues that was making running a profitable business very hard (these are problems that almost all Bay Area small businesses deal with):
      Cost of commercial real setae (rent or buying) being very high.
      High employee cost (because of high cost of living) and and clients with with no disposable income because of cost of housing and living in general and lack of good quality school districts in most of the Bay area.Private school tuition costs are over $ 24,000 per child per year at elementary school levels and over $30,000 per year at high school level.
      I know these numbers sound crazy,they don’t sound any more reasonable to me who have lived her since the 90s.
      There are practically three areas here with safe and decent public schools. Southern Marin, Parts of Silicon Valley and parts of East Bay. East Bay used is the cheapest amongst the above.
      It seems however that the Silicon Valley cash is finding its way into parts of East Bay( I believe these are people who have been priced out of Silicon valley or do not like what they get for their money) and are now getting into nicer East Bay areas. The same thing happened during the last tech bubble at the end of 90’s.
      The funny thing about all the excess Silicon Valley cash is that even after the tech professionals had bought multi million dollar mansions at the height of the last tech bubble, once the bubble was burst they could not even pay property taxes out of their ordinary income and had to sell the properties!

  • @matt

    I so agree with u. Indeed the true inflation is arnd 8-10% …..govt. is lying outright to everyone….

  • One word sums up the current housing market.. “CHAOS” We’ve never experienced a market with today’s conditions. NEVER… It will be several years before we will see a normal market or even the resemblance of one.

    Keep up the great work Doctor!

    • You are right about that. I keep telling everyone I found the house of my dreams during the biggest housing bubble in history, 2000, yet during this so called housing crash I have been looking for nearly 3 years now for something I would be happy with.

      All I see is junk that needs 150K in work in rotten areas or nice houses at near peak prices.

      Zero percent money may go away for awhile but now that we have crossed that bridge, as soon as the economy falters, zero money will be back. I would even venture to say that the children born in the next 10 years will someday read in their history books that “once upon a time, people could actually earn interest on their savings”

      • It’s ultimately a case of why pay anyone interest to lend their money when the government can just create money (for the banks etc.)?

  • So, I have been lurking for a little bit. And very confused about RE in LA. We will be moving to LA over this summer. Both myself and my wife are well-paid professionals, and looking to buy. However, it seems that LA housing bubble has not fully deflated yet. Santa Monica is still @ 2004 (5 years into a bubble) levels. Buying something for 1.2mil that still needs 200k in renovations sounds totally insane.
    Hopefully as shadow inventory gets released the prices will come down to “normal”.

    • We Don't Make Those Drinks No More

      After reading your post, stating you’ve been reading this blog, I’ve gotta ask…if you think housing in LA is a bubble, prices are “insane”, why would you choose to move to LA looking to buy a house based on hopes of shadow inventory being released and “normal” prices? Why join the ranks of so many frustrated “well-paid professionals” who frequently post on this blog…people who have saved, hoped, and years later..still priced out, some angry and bitter. Honestly, no judgment, best of luck.

      • We are moving to LA because our jobs are taking us there..
        THe question is rent vs. buy. If, in fact, the bubble is not fully deflated i can easily wait.

      • Lord Blankfein

        Good point. Many people stick it out here because they have family in the area and want to stay close to them. I would not recommend anybody moving out here unless they have one hell of a high paid job lined up.

        I see it all the time at work. You have these ultra smart kids with masters degrees in engineering from Michigan, Purdue, etc come out to LA to “start a life.” They usually stick around for about 5 years and then come to the conclusion that if they want to get married, start a family and buy a house…it’s virtually impossible to buy in a decent area anywhere close to work. Many end up moving back to the Midwest, that’s how it goes here!

      • Rent to Buy is the new by-line of the FED and the next stumbling block to prevent reality from setting in. No flood is coming on Bernaks watch.
        As of April 5th, the FED has issued a statement which when translated into truthiness goes something like this.
        We at the FED know all you private banks are still on the hook for a lot of non-conforming loans and CDO’s that would sink you if you had to declare them at mark to market. So in the spirit of extended and pretend, we will let you “rent” them out for up to TEN YEARS and, surprise surprise, not have to count the losses on your books. Thanks for reading, nothing else to see hear, more on about your business.
        So instead of a flood of homes you will see a trickle of stuff on from FHA/VA/Fannie/Freddie.
        Private Loans will hide out for up to 10 more years in rental limbo land. The high end will be off market for an extended period of time.
        The market in California is closed off to working middle class for an indeterminate period of time.

        If you want a nice house in LA, SF or OC start a property management company, “incentivize” the middle managers at the banks into hiring you to “rent” the off market homes. Collect hefty fees, do minimal work on maintenance. Do a lot of work on your favorite rental, “incentivize” the bank manager again to rent it to a “good firned’s LLC” that you know, sublet the house from the “good Friend LLC” at a “fair price” live like a king for 10 years getting paid to make repairs to you viking stove, jacuzzi tub, travertine floors, etc. etc.

        If I thought this up in less than a minute how many dirtbags in the Realtard Industry are already planning scams like this.

        Did I forget to mention that the FED gave their blessing to Banks to ignore repair and maintenance expense in determining the CAP rate on the rentals. Giant money hole of fraud waiting to happen. This can keep everyone in Realtard Corp funded for a decade. And no one has to record one penny of losses.

        Article at Calculated

    • Lord Blankfein

      Mike, LA real estate would make a great case study in business/finance school. You have few desirable pockets where there is intense competion to say you are a “homeowner.” Like you said, you have two well paid professional incomes…that’s pretty normal out here for the younger crowd that wants to live in these areas. Then add in people who have rich parents, inherit houses, have successful small businesses or are foreigners who come here with their suitcases full of money.

      As far as waiting for the banks to release their shadow inventory so prices can go down…you have lots of company there! Even on this blog I still read about people waiting for prices to come down to they can buy in a prime area with their 150K income, ain’t gonna happen man! That is chump change around here, you’ll be competing with people making 2x or 3x that much.

      Good luck with your move, LA real estate will be truly eye opening to an outsider.

      • Lord B. Thanks for your insight.. but we are making 2 or 3x that much..
        maybe I just need to re-think about how much i need to be extended.. i guess with interest rates this low we could afford more vs. what i think is possible.
        We are moving from Boston, where RE prices are also very high, so it’s not a big sticker shock, however I was expecting to get more for the money :).

      • Truly eye opening, or truly insane. It is one thing when the quality of life here in L.A was the best in the country. Now mention L.A to the rest of the country and bad schools, high crime, hellish traffic congestion and an ever falling quality of life comes to mind. I travel a lot to both places in the States and overseas. I meet Americans all over the States and the world who can tele-commute living very high quality lives. Compare that to what Southern California has become it is just a pity.
        It seems to me we have a new government/corporate shell game. Holding back inventory and creating huge artificial shortages. It is all to transfer YOUR money to the banks. In other words, another Ponzi scheme. People should be up in arms over this new scam.The big banks should have been nationalized in 2008 and they should be now. The top five banks are completely insolvent and it is only through bribery that the government lets them getaway with this latest fraud.

      • Mike,

        No offense, but if you make 3 times $150,000 and you do not know that when interest are low is the worst time to buy then the US is a lot more screwed up that I ever imagined.

      • The traffic congestion is going to get worse. They want to build a football stadium that will make the freeways with the worst traffic in America worse. L.A. is going to become entirely unnavigable if that happens. The city is already barely livable, but it’s going to get worse. What a wonderful place to commit yourself to for life with a mortgage ball and chain.

    • Take my advice Mike, find a rental first in a desirable neighborhood that is near your work. Check out the territory and don’t rush dropping over 200K for a down payment on property you will regret later on. County and City of LA is laying off, reduced federal spending to defense contractors and other key federally funded companies, will create a situation of less high value jobs and higher unemployment. This will eventually further erode real estates values and appreciation. Be patient, being from Chicago, I learned my lesson a few years ago on acquiring real estate in CA. Remember, the W.LA area is one big traffic jam, almost every day. Good Luck!

      • Thanks, Don.
        THis is exactly the plan right now. We will rent for at least 6 months while we look around and see where we want to be, and where the market is going to go.
        The only reason I was thinking about buying early was favorable interest rate environment. However, with the recent payroll data, i think QE3 is in the cards.

  • Great job Dr. HB, and you saw this coming years ago. You told us that the banks could not hold back the flood of foreclosures indefinitely and you were right.

    A question: You said “over 50 percent of all MLS inventory is now composed of short sales showing that banks are now willing to sell homes for less than the original mortgage balance.” The banks are willing, or the homebuyers are? Isn’t it the homebuyer that has to pony up cash to sell if the home is under water? If someone can fill in this gap in my knowledge I’d appreciate it.

    • I think both the home owner and the mortgage holder have to be on the same page for a short sale to work. If the home owner/occupier does not want to leave then the mortgage holder is really just selling the mortgage at a discount and then the new holder of the mortgage will have to foreclose to get the home owner out of the house. But the mortgage holder does not have to sell at a discount, they can foreclose on the delinquency of the mortgage. So, you can see that a short sale needs the mortgage holder and the home owner to both want the short sale to work.

  • Question on number of real estate sales

    Zillow and Redfin indicate when a property is transferred to a bank as a sale [e.g.: SOLD on such a date and “This home was foreclosed and bank-owned.”]

    Question: Are these sales included or excluded from the statistics (so many houses sold in such a month)?

    • Sale info reported on Redfin and Zillow does not always correlate to what is recorded at the County. Some listings show sales that are actually the repo auction value that was won by the first note holder. I researched one short sale listing that showed as sold that was never recorded at the county, it somehow magically got re-listed but still showed a sale price and date of sale that actually never occurred with a transfer of title at the county assessors office. The county shows ownership as being F’d Buyer straight to the bank repo. No knife catcher ever bought the place but Redfin said that it did happen. Who are you going to believe.

  • We have had a shortage of inventory for 4 years in my area and been dealing with multiple offer scenarios almost constantly since the market started to correct itself. People who wisely decided to sit out this mess have been waiting a very long time to buy a house, and I think that is part of the bidding madness we see here — people who waited 8 years to buy a house and then have had to look for one for a year can start to act a little frenzied.

    The other thing I see is tremendously qualified buyers (cash) and barely qualified buyers (1% down and squeaking into a home) and not many in between buyers with 10% or 20% down and solid incomes. A lot of those folks have short sales or foreclosures and are screened out for now. So, the market seems a bit artificially deflated at the lower and middle ranges, and don’t even get me started on what has been done to the condo market. The folks currently buying at the under $250,000 range have either very little buying power or they are investors who are just trying to buy cheap. Add to this, the people whose life circumstances won’t allow buying because the process now takes FOREVER and they just can’t be in limbo for a year and a half to buy a house. There is nothing close to normal about this market.

    In my opinion, the banks are deliberately holding back inventory and I do not see that changing any time soon. They are maintaining control over the real estate market. Why after 4 years would they suddenly flood the market? They may, but as a real estate agent I would welcome it. I feel like I could sell all those houses by myself right now — there are so many buyers right now. I do think short sales are better because it forces their hand and keeps the banks from adding to their shadow inventory which is good for no one. It makes a house available that if it went into foreclosure might linger in the bank’s hands for years.

    Inventory shortages and they are talking about selling bulk to investors? Why? Or making Fannie Mae or Bank of America your landlord? C’mon. I won’t pretend to know all the details, but I do know if it is a bank decision (and 4 years implies a decision) it is about money and control. The shadow inventory is part of the (continued) manipulation of the real estate market.

  • DHB you are a cool drink of water in a hot dry desert. If you listen to the media, things are turning around and prices should be shooting up any minute now! However, slowly the lemmings and the sheeples are waking up. My husband sent me the article below. It references what you have been saying for a very long time. Rich neighborhoods are riddled with foreclosures and owners have been living rent free pushing the two year envelope.

    Somethings got to give….this is simply unsustainable. Lower tier markets will always have buyers, but who is going to buy all the McMansions? Baby boomers ready to downsize? Move up buyers who are scraping by with one income? New grads saddled with student loans? I think the real estate market in So Cal is going to be interesting this summer.

  • Housing prices continue dropping in mid and now high-end tier markets. Santa Monica is now taking hits, even with all the goverment props. Most people have lost confidence in housing really appreciating, until all this hidden inventory is worked through. In addition, the job market increases to be more unstable. Weak hands have begun some buying, as they are tired of waiting and LISTED INVENTORY is held artificially low. More declines in middle and upper-tier markets are in store, as real inventory is still bloated and those sements have yet to fully correct like the lowest tier already has.

    You can now keep abreast of everything that is currently selling in all areas on The Westside of LA, by checking a rolling monthly view at Westside RE Meltdown. In addition, you can check a rolling weekly view of everything selling at Santa Monica RE Meltdown.

    Knowledge is pwer. Prices are still dropping and don’t be fooled. We are already 5 tears into the correction of the biggest housing bubble in history. Be patient as it could stretch on for years longer at this rate.

  • I just got out bid by someone who offered 5% over list on a home. This is in a mid tier market of Burbank. I have friends in the Movie business, regular workers who say there is no work. Productions are going out of state. There is no more aerospace industry in Burbank. Yahoo who has offices in Burbank is laying off. So where is the driver? Who knows but it’s there! Multiple bids is the case here as well.
    The banks are not going to dump a bunch of foreclosures. If you do try to buy one you will waive all rights to make sure the property is not a money trap. They will sell to investors who will rehab and flip for 100k, selling into a market with multiple offers. Short sales, give me a break. You gotta be insane to try. These things sit forever as people stall, banks stall everything stalls. Wait several years or bite the big one and know you will lose 10% or more of your investment if you buy now. Anyone who thinks that there will be another sudden drop in prices will be safely disappointed. This will drag out for years.

    • Interesting that some regular readers (yourself and Mad as Heck) are knowingly willing to flush ~10% of your money (and/or home equity) down the toilet to buy now in a low-inventory, over-priced, unfavorable interest rate environmnent. I’m not judging (really!). It’s your money. It just speaks to the psychology game that the banks, even though legally “people” (haha), will always win over regular folks like ourselves.

    • How much am I losing on my 2200 a month rental? That’s equal to a 450K home after mortgage tax deduction? Either way I lose! Might as well have my own wall colors?

  • The one axiom that comes to mind within all of this is the adage of “that which cannot go on forever, won’t.” So the banks and their enablers in the Federal government can try to forestall the inevitable with their dwindling supply of tricks in their bags – but the fact remains that there aren’t enough qualified buyers out there that can take all of these forthcoming properties off their hands, and those that are qualified will just keep waiting for the inevitable to happen.

    • “Forever” is a long time. How about just settling for 20 years or so? Kinda like Japan has.

      • If that scenario plays out then the last thing many of us will have to worry about is home prices – I’m old enough to remember the stagflation of the Carter years, and if that had continued for much longer the consequences for everyone would have been disasterous.

  • As long as we can exponentially grow the debt and hold rates at artificial target zero, perfect logic will not lead to the answer. Surely there is a point when the debt will break the dam and Manhattan will let the rest of us drown, but that could still be years or decades away. The only thing that has changed is the scale of this mess. We had an artificial recovery after the S&L crisis, and we were broke then. What’s to stop them now?

  • One commenter said there are multiple offers etc. Yes, it’s the investors. They are like locusts buying up homes by the thousands. Now they are planning to package them as securities to sell to more investors. It is insane. They are buying them to rent not to turnaround. No one knows how this will work out having so many rentals properties all in different locations. I was watching multiple properties in Ventura County and also in San Diego. Suddenly in just a few days they are almost all ‘contingent’ as opposed to ‘active’. A local RE agent of 32 years experience said they are bidding some properties up. I am hoping as more come on the market I can compete to buy a little place for my dog and me. But they pay cash so the banks choose them so they can close fast.

    So far I haven’t seen any comments on this.I will go back and read more to see. In many places the only properties left active are so bad who would buy them. This is happening in many places at once. How did they all decide to do this at the same time?

    Any answers would be welcome.

    Also I admit maybe this is not affecting the graphs above but it appears to be the DEMAND is way up and the Supply is almost deleted

    • Demand might be up with investors for low-priced inventory, but certainly not for first-time home buyers or move-up buyers.

      This is a Supply story.

  • Hi everyone.
    On pins and needles. After 3 years and just one offer worth doing (rescinded on an REO w/ 44,000 gal pool/freakin ocean/cost were $$$$$) we put in an offer for a standard sale. We didn’t lowball it, and hopefully we can meet in the middle. After 3 years this house screams HOME. It’s our final home, and we’re paying cash. I’ll tell you, housing is priced ridiculously, and most are in bad condition and dated. This one is a gem. We’ll see how it goes. Oh man, where’s the chocolate?

  • Why does Carter get blamed for stagflation? Nixon defaulted on Bretton Woods because Johnson had a war and massive entitlement programs and implemented wage and price freezes. Ford had whip inflation now buttons. Reagan gets all this credit for being a financial wizard when all he did was crank up the printing presses. Eisenhower tried to warn us, but nobody listened, and what good would it have done anyway. This is our inheritance, might as well make the most of it. I don’t live in CA anymore, and you know what? It’s possible to live in other states and visit once in a while.

    • I was by no means blaming Carter solely for the economy on his watch – it was used merely as a reference point for those of a certain age. Nixon with his insane price freezes and the appointment of Connolly as Treasurer Sec. certainly didn’t help the situation, and Carter did one smart thing near the tail end of his tenure – he brought in Volcker.

  • We Don't Make Those Drinks No More

    They’re baaaaaack… house flippers, drama! He never loses money! Everything old is new again! Buckle up folks, bet it’s gonna be an even more fun ride this time around!

    • I believe it, Drinks.
      The biggest bubble of all is human ignorance. Many have no idea and are finding ways to get that 3.5 down and buy their way into housing bondage. Maybe when Iran starts launching nukes we can hide under our granite counter tops…

      • FYI, Granite counter-tops emit low level radioactive particles. Containers full of marble and granite counter-tops set off dirty-bomb detectors at the ports.

        You have managed to make the situation worse, congratulations, you are now promoted to a government policy making position.

  • Thank you Dr. HB and all the rest of you who keep things in focus. I’ve given up on regular media, it seems more important to show “photos del dia” then to do some serious journalistic work. I don’t think the capacity or will even exists. Even NPR only interviews from the realtor side where the word is that it’s getting better. What does “getting better” really mean? I don’t know and I don’t care. “The Right” is as always living in some fantasy where facts don’t apply, feel sorry for them, but that’s their problem. Too bad it has to affect us trying to live in a world where 1+1=2.

    There is too much damage out there, too many bad variables, too many idiots, too much fraud, and not enough will to do the right thing.

    We’ll be laying low, renting the same appartment in Hollywood going on nine years now, there is no other option. We’re working people, HHI $120k with a baby.

    Join bank transfer day! I did, went to Alliant..

  • It is unclear to me why there is no welcoming of all cash buyers, even if they are investors, could someone explain (perhaps even dumb it down for me)? Someone earlier mentioned Burbank and asked why there is there such demand. My answer is that Burbank is very attractive area due to its close location to LA areas, good neighborhoods, and proximity to an airport so you have both local and international buyers who would want to buy there. Myself being part of the student loan generation, I still have a while to go before my loans are paid off, and I can start saving up a down payment. Given my six figure income in SF Bay area with repaying student loan debt doesn’t afford me the ability to buy into good housing areas, I’m setting my sites out of CA and making plans to relocate. I find the idea of low housing, good income, and being able to retire with no debt very attractive, even if it comes with colder weather and the occasional tornado warning.

  • I think we’re seeing a “dead cat bounce” in the low cost areas. Think parts of AZ and Florida. People have memories of 2007 and they think the prices are great. There is also the money from the $300K a year gang and those with money who sold in the mid oughts like us. We bought a 229K home in the Inland empire we are renting out and it is wonderfully cash flow positive so that can be done – carefully.
    It’s hard to be patient when we see those frenzies but the macroeconomic trends don’t support today’s prices over the long term. Buy carefully in a down area or practice patience.
    “Lord grant me patience and I want it right now!”


    • I feel anything east of the 215 is priced properly, and take that literally. From San Berdoo ($75k homes) to Dallas and everything in between. Seems only parts of CA have this RE bubble wanna-be high price fantasy.

  • An article from CNN Money today has the numbers at 10 million underwater and 4.5 million not making payments. Are these adjustments or is there just a disagreement? Article –

    • I believe from my research and investigation that since 1999 when the banking laws were changed to allow depository banks and brokerages to act as one and the same, that 62 million mortgages were involved in this equity stripping ponzi scheme that has raked in trillions for the bankers and left the borrowers penniless as the future equity in their biggest investment was stolen. Then to add insult to injury the tax pagers were duped into bailing out the too crooked to fail banks, and to make sure they never got caught, the banks simply had their attorneys installed into the positions of US Atty General namely, Erik Holder and their other Atty that helped them creat MERS and other mechanisms to ron our country, namely the head of the criminal division of the US Justice department Lanny Breuer. So in reality, 62 million mortgages are effected by their equity stripping ponzi scheme that makes Maddoff look downright honest! Lol this shortage in houses on the market is a fraud. It is being manipulated by the crooks that robbed us to begin with! We must DEMAND justice instead of blaming the so called deadbeat borrower who in reality was a victim of the equity stripping ponzi scheme and was merely used and duped into putting up their home in the bankers gamble with other peoples money! And told they were merely getting a loan, except the lender never loaned anything they owned and risked losing! Hence the loan was a lie on the bankers side, you want to talk liar loans??? Quit blaming the borrower! It was a giant criminal endeavor carefully crafted w laws changed to pull off the biggest heist ever perpetrated in our countries history.

  • I do agree with a lot of people that the banks are manipulating the market by keeping shadow inventory off the market but that is only half of the story. Where I live in the central valley 48% of all homeowners are underwater. This makes it very hard to put your house on the market if you have to give the bank a $100,000.00 or more at closing. In other words people who would like to sell their homes can’t afford to. Thus no inventory.

    • There are also the lawsuits that BofA is settling right now that are keeping inventory off of the market. A lot of those homeowners aren’t making payments and aren’t being foreclosed on because their lenders broke the law in how they issued the mortgages. Odds are they’ll be expected to pay up at some point and those properties will hit the market.

      My guess is that “Obummer” will be rolling out some new plans to keep this colossal supply from hitting the market and further crippling the industry.

  • Fannie Mae and Freddie Mac own about 60% of all mortgages outstanding. These agencies are now managed by the Federal Housing Finance Agency (FHFA). FHA controls at least 10% of mortgages. FHA is managed by Housing and Urban Development (HUD). So, over 70% of all outstanding loans are now under federal government control/ownership. The big banks – BOA, Wells Fargo, Chase – are servicers for these agencies. They underwrite new loans that are immediately sold to these agencies. They service the bad loans for these agencies. Today, few banks underwrite loans for their own portfolio. At the same time, the Federal Reserve is still buying up bad legacy mortgages from these big banks, and, dropping them off at Fannie and Freddie. Meanwhile, FHA is still doing 3.5% down loans on new mortgages and collecting the mortgage insurance payments from borrowers to protect against future defaults. However, FHA is immediately spending that money on other stuff, like housing assistance (another Ponzi scheme in the making). Most importantly, with all this government involvement, the numbers look great during an election year – reduced inventory, rising prices, bidding wars, low rates, declining foreclosures! What next?

  • boise property management

    Yes! Thank you! particularly since we are still suffering from the damage of the Shrub. If Bush would have just let the banks fail, we would be in full recovery already. See Iceland and Argentina for examples. Failures? See Europe and Japan for examples.

  • boise property management

    I do agree with lots of people that the banks are manipulating the market by keeping shadow inventory off the market .They service the bad loans for these agencies. Today, few banks underwrite loans for their own portfolio.

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