Boomer’s Blog

A huge, largely underestimated and under-reported glut of foreclosed, real estate owned (REO) inventory is clogging up the U.S. housing market, and the majority of doesn’t seem to appear on the MLS. The size of this “ghost inventory” is unknown, but its effects cold be chilling for cash-strapped lenders. What does this mean to real estate investors? Tons of cash if you know how to buy right and stay on top of the real estate marketing curve.

Inventories, Foreclosure Filings Skyrocket
In November, the National Association of Realtors (NAR) reported an 11.2-month inventory of existing homes on the market, up from a 10.3-month in October. But now it seems those sky-high numbers statistics could continue rising dramatically, which is likely to lower home sales prices, and slow overall U.S. economic recovery.

Foreclosure filings were reported on 2.3 million U.S. properties in 2008, and an 81 percent hike from 2007, and a whopping 225 percent surge from 2006, according to RealtyTrac’s U.S. Foreclosure Market Report released in mid-January.

These inventory and foreclosure statistics are interesting enough to raise a few eyebrows among hungry real estate investors. But when RealtyTrac compared NAR’s MLS data with its foreclosure data they raised more than a few eyebrows: they raised the question of whether a vast “ghost inventory” is lingering in REO lender clutches, and if so, is it poised to deliver another hard blow to the U.S. housing market?

Piecing together the “Ghost Inventory” Puzzle
RealtyTrac recently examined the MLS listings in four states, including California, Maryland, Florida and Wisconsin, and found that they contained only a third of the foreclosures it has in its database. Research and analysis by Mr. Mortgage points to an even more widespread problem. There are several possible reasons for this apparent disparity and none of them are good for lenders.

At a minimum, preliminary data suggest that only one-third of foreclosures are reaching the MLS database, and it’s entirely likely that this is a conservative estimate.

The value of REO property on the books of FDIC-insured banks at the end of the Q3  rose 21 percent from the previous quarter, to $23 billion. That total represents a 134 percent increase over last year, according to the latest quarterly report released by the FDIC.

Since there is no reliable way to track these data and existing systems are likely overwhelmed by the high volumes of foreclosures working their way through the system, all we have at this point are estimates as to the number of houses that are haunting  REO’s “ghost” or “shadow”  inventory, as it also is coming to be known.

According to CNNMoney, current U.S. housing market declines are likely to sharpen dramatically as a result of this situation because so many foreclosed homes are lingering in bank possession without representation in the MLS.  Regardless of how the government and lenders approach the problem, averting a tidal wave of foreclosures appears to be impossible.

What’s the Holdup?
What could explain this Grand Canyon-sized gap between the numbers of foreclosures that are recorded vs. the number that has appeared on the MLS? Here are a few explanations that immediately come to mind:

• Inventories of foreclosed and REO properties has grown so fast and in such high volumes that the banks can’t keep up with processing demands, which could delay the MLS listing process.
• Federal and state government attempts to slow the foreclosure tide and Fannie Mae and Freddie Mac’s holiday moratoria on foreclosures are contributing to MLS listing delays for many of these properties.
• Because it’s taking longer to process the foreclosures, the REO properties are getting vandalized or suffering natural damage as a result of what’s becoming long-term neglect. Getting these properties on the MLS is further delayed while banks grapple with making necessary repairs.
• It’s also possible that lenders are lagging in submitting these distressed property listings to the MLS in hopes of deferring their losses as long as possible in hopes of protecting their institutions from insolubility.
• Many of these REO properties might already be listed as short sales.

What does the Ghost Inventory Mean to Your Business?
REO housing inventories are expected to shatter more records in 2009 as more of them hit the market and banks continue their struggle to stay afloat. These market conditions are ideal for real estate investors who deploy sound purchasing strategies and stay on top of the game with effective real estate marketing.

For a quick  video detailing how and why this “ghost inventory” is likely to unleash a mighty wave of foreclosure inventory on the U.S. Housing market, check out this Mr. Mortgage interview on CNBC’s Faber Report.

SalesTeamLive Tows Your REI Bottom Line
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To learn how you can leverage quick-fire market developments such as the REO “Ghost Inventory” to generate tons of cash for your real estate investing business, check out SalesTeamLive or call us directly at 1-877-STL1 (that’s 877-438-7851).

Bloomberg.com: A Slice of Manhattan for a String of Beads?
Analysts say that, with the Fed-brokered purchase of Bear Stearns for about $240 million, JP Morgan stands to gain the firm’s six-year-old, 45-story office building, which currently is valued at $1.5 billion, or more than $1,200 a square foot. According to a JP Morgan spokesperson, the purchase also is prompting JP Morgan to reconsider its plans to build a $2 billion, 40-story skyscraper at the Ground Zero re-development site. Bear Stearns stands across the street from JP Morgan’s midtown Manhattan offices and offers underground access to Grand Central Terminal, where nearly 1,000,000 commuters travel daily

Reuters: Residential Rentals Soar from Grounded Markets
As the market for offices, retail space and lodging falters, and the foreclosure rate rises among homeowners, a Pricewaterhouse Coopers survey finds that demand for rental apartments is surging ahead, as a growing number of people suddenly find themselves competing for rental units.

Boston Globe: Tsunami Hits Wall Street
The Fed is scrambling to avert a total global financial crisis, but the turmoil on Wall Street already is hitting consumers, businesses and homeowners. The Standard & Poor’s 500 index is down 13.1 percent so far in 2008, and the dollar has plummeted against foreign currencies.

MarketWatch: Major Rate Cut Ahead
The Federal Reserve is expected to orchestrate a rare cut of one percentage point in interest rates before the policy-setting Federal Open Market Committee convenes amid economic turmoil on Wall Street.

Fortune: Mortgage Crisis Intensifies
A crisis that began in subprime lending is likely to continue its domino-effect, leveling markets — and the economy — until 2010, New York Times columnist and economist Paul Krugman predicts. This is likely to result in an average property value drop of 25 percent for homeowners, he says in this interview with Fortune’s Jia Lynn Yang about the economy, home prices, and the future.

MarketWatch: U.S. Home Builders’ Confidence Remains Low
The National Association of Home Builders and Wells Fargo housing market index remained at 20 in March, close to December’s all-time low of 18. Analysts say that the index shows that 20 percent of home builders have a positive outlook and that perception has held steady for nearly a year.

CNNMoney.com: Fed Strives to Neutralize Mortgage Turmoil
The Fed reports to consumer advocates that it is working to curb unfair lending practices to protect adjustable rate mortgage (ARM) holders by moving to ban lenders from issuing loans that borrowers cannot repay.

Studies: Lenders Remain Uncompromising on Mortgage Rates
Most homeowners who have trouble paying their mortgages remain unable to convince lenders to modify their loans, according to the California Reinvestment Coalition. The organization has been tracking homeowners who seek help with their mortgage problems woes, culminating in two reports: “The Chasm between Words and Deeds” and an updated version of the report titled “The Growing Chasm Between News and Deeds.” Both documents report on nonprofit home loan counseling agencies in California who are working to help families keep their homes. The latest word is that 72 percent of these agencies report that foreclosure is a very common outcome for people who seek their help, up from 57 percent in the first study.

Associated Press: Frustrated Homeowner Sells Creatively
A Colorado woman whose home has failed to sell for three consecutive Summers has decided to award her home to the winner of her essay challenge. So far, she’s made $5,000 in entry fee levies, with applicants all vying for her four-bedroom home valued at more than $169,000.