RGJ: "Expect Washoe County's Housing Market To Be Sluggish"

That was the front page headline on the local paper this morning.  It talks about the dreaded "bogeyman lurking just behind the corner -- Shadow Inventory.

Let's first define a Shadow Inventory: "A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve.  Shadow inventory can create uncertainty in the market -- to underestimate the actual number of inventory in the market."

Before I move to giving you the highlights of this 1,651 word article, I want to say that this front page article just rubs me the wrong way.  And it's not because I disagree with the copy..."Shadow Inventory could postpone a housing recovery by two to three years." Yes, that makes a whole lot of sense and if nothing drastic happens, we're headed in that direction.  No, the message is loud and clear.  But the way Reno housing news is presented by our one and only major circulation  -- specifically, the timing of it, frustrates the  (H...E....Double Hockey Sticks) out of me. 

I wish our paper penned these types of "Preventive News" back in 2006, when the market was already half a year in decline.  Or even as late as 2007... if RGJ spoke with this kind of straight talk,  well-researched articles and plastered it on the Front Page; I wonder how many of people would've staved off financial disaster.  At the very least, it would've gotten the brutal truth some legroom.

Anyways....Here are the highlights worth reading from the report:

• “You hear wild rumors that there’s all this distressed inventory that has yet to hit the market. But the total extent of what’s available is uncertain, which has buyers and investors wary as to when we’re going to find a bottom and how soon it will be.” -Ted Stoever, Colliers International

• "The Greater Reno-Sparks metro area, for example, posted its second highest year of home sales in 2011, said Kevin Sigstad, president of the Reno-Sparks Association of Realtors. The positive numbers, however, mask trouble."

• "The new law (Assembly Bill 284 threatens offenders with a felony charge) dramatically reduced notices of default — the first step in the foreclosure process — as major banks stopped filing them for fear of running afoul of the stricter requirements. After averaging 506 default notices per month from January to September, the area posted 13 notices in October, 15 notices in November and 28 default notices in December, according to the Washoe County Recorder’s office."

• "With banks hesitating to file default notices on nearly 500 distressed properties per month, experts estimate that nearly 1,500 distressed properties were added to Washoe’s shadow inventory in the past three months of 2011 from delayed default notices alone."

• ON THE POSSIBILITY THAT THERE'S MORE..THAT'S MERELY DELINQUENT “If we could get our hands on actual delinquency rates — like properties that are 90 days late — then that would give you an idea of the preforeclosure numbers. There’s some national data out there and some for California, but it isn’t data that companies release (on a local level).”

• "There likely are at least a couple thousand properties with notices of default that are in limbo and a couple thousand more that are delinquent but have yet to receive a notice. All this would add up to more than 7,000 shadow inventory properties -- Mike McGonagle"

• “If the modification process worked for the banks, they would be modifying loans left and right,” Kaiser said (The UNR Economics Guy). “The fact that the number of modifications is so minuscule means there is a reason that banks would rather go the foreclosure route. I think the banks are not financially motivated to modify these loans.”

• “We are selling inventory here so rapidly, but banks are pushing down home values,” David Morris said (AGREE. ODDLY, DAVID.)

• "In the current market, residential-sales inventory typically sees an equal three-way split between bank-owned foreclosures, short sales and homes with no special conditions."

• "Meanwhile, the excess shadow inventory from the default notice freeze continues to get added to the mix. The shortage in bank-owned inventory could provide a boost to sellers of nondistressed properties. It might even give home values a bit of a shot in the arm, some experts said, though it would only be delaying the inevitable."

And last but not the least....

• “That would be a false price increase,” Kaiser said. “Once the issue with (the law passed in October) is resolved and foreclosures happen again, prices will come down to reflect that. They’re going to have to go through all that inventory at some point.”

This article is an oversimplification of a well known, and regularly sung chorus told by "experts" who

I really wish were having this kind of stage (front page!) when this type of information were more beneficial.

Another thing I want to add is that in spite of another year of falling home values, there are more than a handful making tens of thousands of dollars in this market. Any. Given. Day.

This 1,651 word article summed up in 32 words:

Higher priced homes will continue to go down. 

Banks will only get smarter in finding loop holes to maximize profit.

Shadow Inventory is a real force as it has been since 2008.

 

(And if I may add..)

Focus on cash flow but keep equity as a feasible delightful surprise IF and only IF you're in the right price range.  If you're going to pay significantly more on your mortgage compared to renting out the same property...think again.

It's time to move on Gentlemen...