It’s Just A Matter Of When
Readers suggested a topic on housing inventory. “I would like to see a topic on how much empty inventory we will end up with and what’s going to happen to it. Locally, builders are still building or trying to build. I’m in the DC area are the builders may have slowed down but they haven’t stopped. They’re still trying to build houses, condos, and office space. We have no need for more of any of that. Lots of office space or condos are sitting empty right now, but builders have submitted plans to build more condos and offices and tear down older office buildings to make larger office buildings. Some of the builders plans have stalled because of people complaining about various things like transportation issues but the builders are continuing to overbuild.”
“What’s going to happen to all this inventory? The answer is not that it will get used when the economy turns around. There is simply too much, period, and the builders are just adding to trying to add to the glut.”
“At the rate the builders are going, they will be building 20 floor condo towers in Wyoming in 2020. By 2030 they will be building condo towers in Northern Alaska, the Canadian Arctic, Siberia, and other remote places such as the Atacama desert and the Australian Outback. By 2050 they will be building condo towers in Antarctica. By 2060 they will be building condo towers on the ocean floor and/or moon. This has to fall apart at some point.”
A reply, “All-cash Asian, Australian, Canadian and European investors?”
Another, “Low-cost, high-density, and assisted-living/senior housing?”
One said, “The above situation reminds me of that ‘Ghost Towers of Bangkok’ video I saw a few years ago. It showed never-occupied office and apartment towers that were built before the Asian currency crisis of the late 1990s.”
The Wall Street Journal. “Friday brought a disappointing statistic: The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes plunged 11.6% on a monthly basis to 81.9, the industry group said. As we report, the index, which tracks agreements to purchase homes, had increased the two previous months. A reading of 100 refers to the level of sales in 2001. The reading indicates more pain lies ahead.”
“Adrian Miller, senior VP, Miller Tabak: ‘Sales will continue to underwhelm at best and be outright horrible at worst as the decline in prices remains unabated. As long as we have a supply overhang of 6.5 months of new homes, 9.2 months of existing homes and an estimated 3.87 million of homes as part of the so called ’shadow inventory’ tied to foreclosures, home prices have no catalyst to begin to improve.”
“Daniel Oppenheim, analyst, Credit Suisse: ‘They key is that weak sales at the end of the spring selling season will likely lead to even further pricing pressure in the coming months, which in turn will pressure homebuilders to cut prices, or lose more sales.’”
“Adam Rudiger, analyst, Wells Fargo: ‘Overall, we believe this is just one more data point, on top of a multitude of others, that the housing market remains weak (both in the existing and new market) and that 2011 has not yet been the turning point for which some might have hoped.’”
The Arizona Republic. “Metro Phoenix has a “shadow inventory” of nearly 100,000 homes. These homes are either in foreclosure or the owners are behind on their mortgage payments, signaling that the houses could eventually join the supply of properties offered by lenders for sale at a deep discount. Analysts and investors have warily eyed the tough-to-measure shadow inventory since last year, when worries arose that banks were delaying foreclosures and holding onto large numbers of homes after foreclosing.”
“New data from California-based John Burns Real Estate Consulting, one of the nation’s leading housing researchers, puts the number of homes in the Phoenix area’s shadow inventory at about 92,000, the size of a small Valley suburb. But that number, which includes Pinal County, isn’t alarming housing analysts. That’s because the rate of sales is as important as the raw number of homes. If sales are brisk, the homes are snapped up quickly, meaning they won’t lead to lower prices.”
“Other markets racked by the housing downturn since 2007, including Las Vegas, Orlando and Sacramento, are in worse shape - sometimes much worse. Based on historical rates of home sales, the Valley’s inventory would clear out much faster than other cities’. ‘(Metro) Phoenix’s shadow-inventory figure may look scary, but the area is in much better shape than other markets,’ said Tim Sullivan, a principal with Burns Real Estate. ‘Foreclosure homes are selling and selling fast in Phoenix, which makes a big difference.’”
“Homes are selling at foreclosure auctions at record-setting paces, with more than 1,300 sold in Maricopa County last month. The number of foreclosure and normal resale homes on the Arizona Multiple Listing Service is a five-month supply, based on the long-term rate of sales. These homes, because they’re already listed, aren’t part of the shadow inventory.”
“So, Phoenix’s combined supply of homes, including shadow inventory and current inventory, should take 17 months to sell. Other cities with high foreclosure rates all have higher levels of total supply. Las Vegas has a 21-month combined supply, according to Burns.”
From Cincinnati.com. “Crazy deals are roiling the local housing market, turning the usually busy spring home-buying and selling season upside down. Michelle Greene bought a foreclosed home in Covington for $30,100 late last year, and it’s worth $80,000 today. Laura Schatz is thrilled to pay just $87,000 for a Pleasant Ridge fixer-upper, despite months of uncertainty on when the deal will close. And Jeff Bardua of Independence is just glad to finally sell the house he’s been trying to unload for a year, even at a $42,000 loss.”
“Realtors say they’ve never seen the local market so bloated with distressed sales - with foreclosures, properties owned by the bank or homes in which the sellers are in line to take a loss. Some houses will go for as much as 40 percent discounts. Median sale prices are at their lowest in years: Down 24 percent since 2006 to $106,000 in Southwest Ohio; off 6 percent to $126,000 in Northern Kentucky. So far this year, nearly one of every two homes sold in Southwest Ohio and one of every three in Northern Kentucky have been distressed sales.”
“‘It’s probably going to take three to five years for things to get sorted out,’ says John Glascock, economist and director of the University of Cincinnati’s Real Estate Center.”
“No one is willing to predict when the glut of distressed housing will be erased, giving the market the giant lift it needs. More than 20 percent of mortgage holders in Ohio and nearly 9 percent in Kentucky now owe more on their homes than their properties are worth. That imbalance, combined with high job losses, has led to the mounting inventory of distressed properties.”
“”The good news is that this inventory is being gobbled up, and it has to sell off in order for the market to continue to stabilize,’ says Pete Kopf, president of the Cincinnati Area Board of Realtors. The bad news? ‘More foreclosures are coming,’ Kopf says. ‘It’s just a matter of when.’”
“In Covington, Greene and her husband have become new landlords with the property they bought for $30,100 in October. Since then, they’ve spent $8,000 to install new central air, replace carpet, upgrade the kitchen and fix plumbing problems. ‘We had it rented in four days to a family that signed a year-long lease,’ Greene says. ‘It had just been sitting vacant before we bought it.’”
“In Pleasant Ridge, Schatz has been trying to negotiate a time-consuming and complicated “short sale” with Chase Bank for the home she wants to buy. Schatz says she’s not sure what the seller owes the bank, but her initial offer of $85,000 required the lender’s approval. Just after receiving a counter offer from Chase this month for $87,000, Schatz learned that the house had been broken into and all of its copper piping removed.”
“Schatz says the damage could have been avoided. ‘If the bank could move things more quickly, I could have already taken ownership of the house and prevented this from happening,’ she says.”
“For Bardua, keeping up with his monthly mortgage of $900 became out of the question after he lost his job last year. When his lender declined to rework his mortgage, he turned instead to pursue a short sale. Although he still owed $132,000 for his home on five acres, he listed the house for $90,000. In December, Bardua received an offer for $87,000 - roughly $45,000 less than what he owed.”
“Five months later, Bardua’s lender, Bank of America, accepted the buyer’s offer. ‘It was a long haul,’ he says. ‘It was a relief, but I still feel like my freedom is gone. I’ve worked for all these years to pay my mortgage, and then I got into a bind.’”
“At the end of last year, major lenders including Bank of America, JPMorgan Chase and GMAC put the brakes on filing foreclosures while they scanned over potentially flawed paperwork. That work has since resumed, and the foreclosures are moving ahead. ‘Some of the banks indicated that they were signing up to 10,000 foreclosures a month, which begs the question, ‘What kind of backlog is out there?’ says Realtor Rebecca Weber. ‘It would be a disaster if they released all of that inventory at the same time.’”
