Sarasota Foreclosures and Shadow Inventory
I am sure that there is something to the story (like this one in the NY Times) on the clogged foreclosure pipeline. The general theme of all these articles is that the backlog is creating a large supply of what is generally called “shadow inventory”. The article suggests that :
- Lenders own a pile of foreclosed properties (872,000)
- They have over 1,000,000 foreclosures in process
- They are poised to take millions more over the years to come.
The article doesn’t state the percentage of the bank-owned properties that are already on the market. It provides no perspective on the 1,000,000 homes in the process of being foreclosed (ie is this an increase or a reduction over last year). The “poised to take” statement is not supported by any facts – that all seems to be total hyperbole.
For at least two years now there has been talk of this huge bubble of inventory about to hit the market. For every new round of articles, the logic supporting the assumptions changes. This time it’s because of the courts have bogged down the foreclosure process. So, either we are living through it now or it has never come. But assuming that there is something to the story, how would it affect us?
The chart below shows sales, new listings, and monthly inventory totals of all Sarasota bank-owned property in the MFR MLS. First notice that, as of the end of April 2011, there were only 205 pieces of bank-owned inventory listed in MLS. Note that total MFR MLS listed inventory at this time is over 6,000 pieces of property. Bank-owned inventory is a very minor component of overall inventory.
Next notice that 147 pieces of Sarasota bank-owned inventory were sold during the month or about 75% of the opening April balance (end of March level of 212).
With such low levels of inventory and inventory selling at such a fast pace (less than one month's supply on hand), there is no reason for the banks to hold off on listing their property. There is so little inventory, in fact, the fire is about to burn out.
This next chart shows unsold inventory in Sarasota County listed as a short sale. If you assume that owners first try to short sell properties that they can't afford, then the short sale inventory and new short sale listings should tell you something about the direction of bank-owned inventory.
Short sale inventory is also at an 18 month low along with levels of new short sale listings. There is no "pig in the python" here that looks as if bank owned inventory is about to explode.
If all of the short sales on hand right now converted to bank-owned inventory today, then bank owned inventory would still only be about 18% of the total. And at the rate bank-owned listings sell, I think the only thing that would happen is that we would clean out about 1,000 units of inventory in about 3 months.