Delayed foreclosures could form a dangerous shadow supply

Thank you so much for sharing this clip.

This is exactly what I am learning via anecdote, even here in New York City. Sellers of cooperative units sometimes have the kind of ARMs mentioned in this clip.

The shadow investor is there, inventory is going to increase and prices are going to fall. Supply and demand curves are not going away. Unless demand rises up to meet supply, prices will fall.

It's a great time to be a buyer now, and it's just going to get better for buyers. It's terrible for sellers and it's going to get worse.

{Manhattan real estate agent.}

Sorry, I meant "The shadow inventory is there."

And you asked when this will play out? As the speaker in the clip said, over the next couple of years. We hope it will unfold slowly, and I think that might indeed happen.

Banks have no incentive to foreclose on a house they can't sell anyway, and a lot of them are figuring this out. So they are doing lots of creative things--at least some banks are. I know this as actual, first-hand observation, because I have a relative whose foreclosure was stopped by the bank. They worked out a very, very, VERY generous and creative deal for my relatives. I'm convinced this is happening a lot.

But my brother-in-law still doesn't have a job. They're renting a cheaper house to live in and renting out their pre-pre-foreclosure house.

This is a very real problem and is very much being discussed in the mortgage world. Expect to see something happen here in the near future.

Wow. You read stories about people still living in their homes eight and ten months or a year after they stop making payments, but it seems like the data indicates that banks are simply not moving and waiting for things to improve.

This monster is going to take a long time to unwind. I just don't see it getting "fixed" in a few short months. I sometimes also wonder if by propping up the RE market so generously we're not making things much more difficult for ourselves in the future?

people are also selecting bankruptcy increasingly as an option despite the onerous changes made in 2005. west81st had an example of a unit being sold by a bankruptcy trustee on the comps thread. that is something i wouldn't be surprised to see more of.

evnyc, the longer it takes for a bubble to pop generally the more pain. obviously we can't allow complete collapse, but where the middle ground is i'm not sure.

like the cash for clunkers program, now data is out showing that september's auto sales will be abysmal. we have no money and so much debt. we can't stop spending, but we need to be a bit wiser i think.

"people are also selecting bankruptcy increasingly as an option despite the onerous changes made in 2005. west81st had an example of a unit being sold by a bankruptcy trustee on the comps thread. that is something i wouldn't be surprised to see more of."

those changes made a lot of sense imho. middle class people should be asked to pay at least part of the debt they used for consumption. i wonder why HELOCs (it would be great if cash out refis too) shouldn't be considered as this type of debt and not be 100% forgiven.

The craziest part of this all isn't how much more prices will fall it's the people who insist that they won't. C'mon now, how much MORE evidence does anyone need before they admit that real estate, even New York City Real Estate, is in the toilet?!

new construction is a very singular part of the market, i wonder if all this shadow inventory will have a lot more impact on pricing in the "new construction market" than it does on the rest of the market, pre-war, existing, etc, and effectively create a pricing divide between new construction and everything else? even between new construction and recent (few years) construction there are huge differences, especially in the ability to get financing. what do you guys think about this possibility? new construction being alot cheaper relative to the rest of the market?

admin, i wasn't taking a stand on whether it was right or wrong, just noting that it became much less advantageous to file as of 2005. bankruptcies decreased, but now, despite the lessened benefit to bankruptcy, they are at or near the peak that occurred just prior to the change taking effect.

glamma, it will hit the new construction market harder, but it will affect it all. there is opportunity in destruction, and people will be drawn (eventually at least) to the rubble. some will postpone purchasing even to wait for the deals. carnage, pure and simple.

"admin, i wasn't taking a stand on whether it was right or wrong, just noting that it became much less advantageous to file as of 2005. bankruptcies decreased, but now, despite the lessened benefit to bankruptcy, they are at or near the peak that occurred just prior to the change taking effect."

there was a glut of bankruptcies just prior to the implementation of the change. remember very well how overwhelmed the employees were with the queues of people making sure all their debts will be wiped out. filers are not so clueless after all.

what i mean is that the peak in 2005 was heavily borrowing from the future. sustained high unemployment was needed to reach it.

how long will it take for unemployment to come back to 5%? will it ever? if it does, my guess is that the main contributor was a shrinking labor force (less participation).

yes. and take a look at this chart. the trajectory is looking kind of ugly. like walking away, sentiment can change about issues like bankruptcy.

http://www.calculatedriskblog.com/2009/09/abi-personal-bankruptcy-filings-up-24.html

"sentiment can change about issues like bankruptcy."

for practical purposes the issue may only affect the FICO for many. so it's a private event. there's no more bankers taking your baby's crib and auctioning it in the sidewalk. the stigma imho comes from how it used to be a couple of generations ago. people are slow to adjust.

I just wonder exactly how LONG until we see the end of this? Will it be 5 years, 10 years...how long before real estate corrects itself? I guess no one knows for sure.

Japan's decline has been going on well over a decade, right? Real estate prices have declined since roughly 1991? That's almost eighteen years. (thank you, Mish)

http://1.bp.blogspot.com/_nSTO-vZpSgc/SlWZstbTz7I/AAAAAAAAGb4/2PJ8OabU4Ds/s1600-h/japan-land-prices-update-2009-07-09-rgb-176-10-10.png

Anyone who finds "news" in that story must have me on ignore.

Oh no 30yrs I don't have you on ignore. I know you've been saying this for months now. I think by posting it, it just re-enforced what you already said. The shadow inventory is going to be a beast to deal with & I doubt that the system we have in place now is even equipped to do so.

LD: I totally apologize if you think my comment was a shot at you. It was simply the cock crowing taking credit for the sun rising (that being me).

30 yrs no offense taken but thank you for being so polite to apologize :) It's nice to see this kind of decorum on the board.

Is that japan chart nominal or real based?

Jim, I'm sorry, I don't know.

"30 yrs no offense taken but thank you for being so polite to apologize :) It's nice to see this kind of decorum on the board."

Well, it's only because you're not a fucking idiot like some of these other assholes here. ;).

Well Thank You 30yrs :)