Since the housing peak near 2007, approximately five (5) million homes nationally have gone all the way through the entire foreclosure process, ending up with the banks or with third-party investors. Another potential five (5) million homes may have gone through various phases of foreclosure but did not go all the way to a final foreclosure sale.
If these numbers are true, then there were potentially upwards of ten (10) million homes nationally which went through some phase of the foreclosure process these past several years. As a comparative number, there are an estimated five (5) million mortgaged homes combined in California alone.
So why are inventories declining? As we all know, one of the best ways to try to increase the value of something is to suggest that there is a shortage of the product.
Home listing inventories have fallen in many regions by 30% to 70% year-over-year, despite our ongoing sluggish economy. At the same time, many homes have increased in value by 5% to 20%+ just over the past year.
Are there potentially several million “Shadow Inventory” foreclosure homes that may have been delayed? Are banks trying to artificially suppress listed home inventory levels, so that home prices slowly increase once again?
The MERS and LIBOR Scandals
The LIBOR and MERS Scandals are two key reasons why home supply is declining and the MLS inventory levels are much lower today.
The #1 reason why there was a foreclosure moratorium is linked to the questionable and legal right of MERS to actually foreclose on many homeowners. Since MERS acts as the nominee on behalf of many of the biggest banks and mortgage servicing companies, they affected the legal ownership of real estate and “Chains of Title” more than anything else.
LIBOR allegedly involved the rigging and manipulation of interest rates. Many homeowners were charged higher rates on their mortgages and credit lines which used the benchmark LIBOR rate as their core index.
If a homeowner may currently be in foreclosure, then will this same homeowner be able to stop the foreclosure process if he was overcharged thousands of dollars in fees and rates due to the rigging of LIBOR rates?
Numerous banks have sold entire packaged pools of their “Shadow Inventory” homes to domestic or foreign investment groups to avoid potential legal issues with future MLS buyers.
Supply and Demand
In life as well as in real estate, perception typically becomes one’s reality. If someone believes there aren’t enough homes for sale, then this will cause that same buyer to jump back into the real estate arena before the existing prices and interest rates rise too rapidly in the near term. As demand increases, then so do home prices.
Many big banks and mortgage servicing companies are trying to clear up their foreclosure supplies by either selling them off in bulk to large investment banks or even by bulldozing them, like in Detroit. Instead of a true “popping” real estate bubble, we have experienced more of a slow leak by gradually releasing more foreclosed “Shadow Inventory” homes to the General Public.
The brightest real estate investors out there are picking up some great deals with very cheap money, and are “fixing and flipping” these same homes for quick profits, while the home listing inventories remain very low.
The supply of capital drives the future direction of the housing market more than any other economic factor. Let’s hope that banks decide to lend more of their money to U.S. consumers instead of hoarding their cash to save themselves. Your comments are welcome.