Kelly was at a loss to explain the shadow inventory phenomenon other than the quantities involved.
“The inventory might be growing because there is just a lot of volume coming in. That would not surprise me,” he said.
Locally, the monthly number of foreclosures has decreased since peaking at 4,321 in August 2007. That has allowed foreclosure resales to start closing the gap.
Most observers say the recent fall-off in foreclosures came because California and many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished.
Only 65.5 percent resold
A second DataQuick study of all Bay Area homes repossessed by banks in the 18 months ending January 2009 tracked how many of those homes had resold by mid-March. It found that 65.5 percent had resold. Discovery Bay’s ForeclosureRadar.com compared its database of Bay Area foreclosures to MLS listings for the past 120 days and found that fewer than one-fifth of the foreclosures showed up as for-sale listings.
“Foreclosure numbers are artificially depressed,” said CEO Sean O’Toole. He puts California’s shadow inventory at about 100,000 homes.
So why aren’t banks selling off their foreclosures?
Observers say several factors are at work.
— The “pig in the python”: Digesting all those foreclosures takes awhile. It’s time-consuming to get a home vacant, clean and ready for sale. “The system is overwhelmed by the volume,” Sharga said. “In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month.”
— Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. “With banks in the stress they’re in, I don’t think they’re anxious to show losses in assets on their balance sheets,” O’Toole said.
— Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don’t fall as fast. “They want to be careful about not releasing them too quickly so they don’t drive prices down and hurt the values,” O’Toole said.
Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they’re negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above.
“The problem is that no one knows how extensive (the shadow inventory) is,” said Patrick Newport, U.S. economist with the Massachusetts research firm Global Insight. “It’s a wild card. If it’s a really big number, you’ll see prices drop a lot more and deeper problems for the financial system.”
Only 65.5 percent of all Bay Area homes repossessed by banks in the 18 months ended January 2009 had been resold by mid-March. This study looked at the same homes over time, not an aggregate of all foreclosures.
|% foreclosures resold||% foreclosures unsold|
Source: MDA DataQuick
E-mail Carolyn Said at email@example.com.