Real Estate Statistics | Short Sale Lease Back | Brian Bean and Tim Hardin | Riverside Short Sale Agents | Shadow Inventory

Dark truth lurks in the shadow inventory

The infamous “shadow inventory” of distressed homes, which has cast a pessimistic hue over the housing market for years, appears to be easing.

But is it too little, too late for underwater homeowners?

Shadow inventory — which refers to homes with mortgages at least 60 days late, homes already in foreclosure, or homes owned by the bank but not yet on the market — decreased by 1.2 million properties in the first six months of 2012, according to a study by JPMorgan Chase. That leaves about 5 million homes still in the shadow category.

Chase said the clearance was the result of a combination of factors: fewer homes foreclosed on by the banks, more short sales completed, and more loan modifications approved.

With workout solutions fairly systematic at most major banks and servicers, and with home-buyer demand running high, researchers expect the second half of 2012 to be as healing as the first, doubling the number of homes removed from shadow status by the end of the year.

“Although re-defaults and new delinquencies will continue to keep shadow inventory elevated, the rapid decline should prevent downward pressure on home prices going into 2013,” study analysts said in a release. “Combined with better existing home sale, investors have reason to be optimistic about running recovery scenarios.”

So what do the recovery scenarios look like?

PRICES GOING UP?

If the housing market is at the bottom now, and this is the beginning of an upturn, will prices skyrocket immediately? Southern California home prices have been on the increase for most of 2012.

In Riverside and San Bernardino counties, prices are up 10 percent to 12 percent from a year ago, according to market tracker DataQuick. But that spike is the result of abnormally low inventory and historically low interest rates.

At some point, more homes are likely to hit the market, perhaps by the end of this year or early next year, increasing supply and taming demand.

Banks have millions of homes in their inventories that are not yet on the market (and part of the shadow inventory). Liquidating those properties, in most cases, requires putting them on the open market.

Average appreciation historically has been 4 percent to 5 percent per year. For the average Inland Empire homeowner, whose home is worth $200,000 today but still owes $400,000 on the property, it’s still a long climb back to break-even. Perhaps 10-12 years if prices increase at even 5 percent a year.

Compared with consumers who completed short sales three years ago and are now buying at the bottom of the market, while interest rates remain low and prices are attractive, the 10- to 12-year wait may be too much to ask for some.

Other factors point to a drawn-out recovery.

The last of the five-year adjustable loans are resetting late this year, and then come the seven- and 10-year adjustables, though they make up a much smaller percentage of the total adjustables remaining.

The next expected wave of defaults is in FHA loans, which have been the dominant choice of home buyers the past few years.

HOMEOWNER OPTIONS

LOAN MOD: Despite what they may have been told by friends, family or neighbors, a loan mod that reduces the loan balance is unlikely for all but a few homeowners. Others may get a lower interest rate but still owe the full balance on their loan, later opting for a short sale when they realize just how long it will take to reach break-even.

SHORT SALE: Others immediately choose a short sale, in which a home is sold for less than the loan balance and the bank agrees to discount the payoff.

Short sales in recent years have lost their stigma as hundreds of thousands of homeowners have used it as the best solution to avoid foreclosure. Banks responded by creating massive departments and streamlining the process. Why? Because they net 12 percent to 25 percent more money in a short sale than a foreclosure.

Is it any wonder why banks prefer a short sale over foreclosure?

LEASE-BACK: This year, some homeowners are opting for a short sale in which they can stay in the home and perhaps even repurchase the property three years later.

The Short Sale Lease-Back Program, which was introduced earlier this year, has become a popular option, though not everyone can qualify.

In the program, the homeowner completes a short sale to a qualified non-profit organization with the intent to lease the home for three years and then buy it back at a predetermined price, presumably less than they currently owe on the home. Candidates must have sufficient income to pay fair-market rent and many parties must say “yes” to the deal.

Whichever solution is best for a homeowner, they must take action, or the bank surely will. Because despite recent improvements in the real estate market, local homeowners have a deep, dark hole out of which to climb.

Want to know if you qualify for any of these programs? Call us today at 951-778-9700 to make an appointment for an interview.

(Brian Bean and Timothy Hardin are Default Advocates and owners of Dream Big Real Estate. They can be reached directly at Brian@DreamBigRealEstate.com or 951-778-9700.)

Brian Bean and Timothy Hardin

Licensed Default Advocates

DRE Lic #01889132

Info@DreamBigRealEstate.com

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Real Estate Statistics | Short Sale Lease Back | Brian Bean & Tim Hardin | Riverside Short Sales | Shadow Inventory

Labels: California Homes for Sale, Foreclosure, Riverside Short Sale Agents, Short Sale Lease Back, Short Sales

# posted by Scott Chappell and Brian Bean @ 5:41 PM