WSJ: Articles on Shadow Inventory

WSJ: Articles on Shadow Inventory

by Bill McBride on 8/15/2012 

Two articles on shadow inventory …

Yesterday morning from Nick Timiraos at the WSJ: Shadow Inventory: It’s Not as Scary as It Looks

While the shadow is very large, one often-overlooked fact is that the shadow isn’t nearly as large as it was two years ago.

Barclays Capital estimates that at the end of May there were around 1.8 million mortgages in the foreclosure process and another 1.45 million where borrowers have missed at least three payments. That puts the total number of properties that could be repossessed and resold by banks at around 3.25 million mortgages.

But it is down from a peak of 4.25 million in February 2010.

[Housing analyst Ivy Zelman] published an in-depth research note earlier with the title: “Shining a bright light on the shadow: Why what’s lurking doesn’t concern us.” In it, she explains how it’s more important to focus on the pace at which foreclosures are being liquidated, and not the absolute number.

“Just like the Wizard of Oz, shadow inventory is not very intimidating once you pull back the curtain,” the report said.

And today from Timiraos at the WSJ: Shadow Inventory: Monitor Banks’ Speed, Not Just Volume

“If you don’t understand the shadow inventory, it’s very ominous and concerning,” says Ivy Zelman, chief executive of Zelman & Associates. “But if you understand the flows and how it is brought to market” it looks less intimidating, she says.

Nationally, Barclays estimates that the number of bank-owned properties will decline a bit more this year, before accelerating next year to a peak of around 575,000 in early 2014.

Meanwhile, as the shadow inventory has dropped over the past year and as banks and states have slowed down the process, demand has picked up. That’s especially the case for foreclosed properties at low price points …

I discussed some of this yesterday in House Prices and a Foreclosure Supply Shock


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