http://mhanson.com/archives/980

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8/14 M Hanson…”Shadow” & “Ghost” Inventory Quantified

by Mark on August 14, 2012

Those estimating “shadow” inventory at levels inconsistent with a multi-year drag on housing are “definitionally” challenged. Moreover, they have bad data.

Bottom Line: based on the data and simple math we have at least 10 -years of distressed supply to work through based on the past two years average monthly distressed sales demand quoted by the National Association of Realtors.

Most “Shadow” inventory estimates use incorrect demand numerator assumptions and do not account for borrowers who are technically “stuck”.

Note, that the analysis below looks at two measure; 1) real “shadow” inventory and time to clear and the more important 2) “ghost” supply that traps 25 million borrowers in their houses — the prime repeat buyer cohort who must be active in order for housing to be able to reach “escape velocity one day — making them useless in the macro housing market equation.

Mhanson is Hedgie.

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Effective” Negative Equity – 25 million borrowers / houses. These borrowers are dead to the housing market, as they don’t have the equity to pay a Realtor 6% to sell and put 20% down on a new house. They were once the most active participants, the repeat buyers. Now they are “zombie homeowners”.

I know a bunch of these people in the Tampa area. Anyone who bought into the new developments from about 1999 forward is underwater. If they refinanced for more, fuggetaboutit.

I keep hearing how big the shadow invetory is.. and the logic is that at some point the guys late.. HAVE to turn into foreclosures.. well.. its almost 7 years from the peak of the market.. so my question is.. when does it hit for the housing bears..

When pensions start cashing out everything they own because zirp cash flow sucks. Then you finally won't be able to pretend.

It'll hit Japan first, right? so watch that.

ever been to japan??.. real estate is crazy expensive..LOL.

Lately I've been hearing various commentators on the MSM saying that shadow inventory has been over estimated and over emphasized... That makes me think that shadow inventory is actually pretty large.

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ever been to japan??.. real estate is crazy expensive..LOL.

It is all relative. What is the avg price as compared to 10, or even 20, years ago?

Have a look at: http://www.globalpropertyguide.com/Asia/....

real estate expensive in japan? lol, one of my family members has made a fortune there out of nothing as an income investor - always buys at >12% cap rates in one of the major cities - that's pretty good when you're putting 50% cash down and financing at like 3%.

Yes, Japan first, don't look back in time, look forward. ZIRP has to end when pensions start selling, only then will housing prices fall. Or they just go nuclear and monetize everything.

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Or they just go nuclear and monetize everything.

Can you explain this to a noob (ignore the ~900 posts, I'm still a n00b).

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Can you explain this to a noob (ignore the ~900 posts, I'm still a n00b).

In other words, the Fed and its subordinates/partners would generate enough fiat paper (backed or unbacked) to cover all unfunded obligations or bad debt.

http://www.foreclosureradar.com/californ....

NOD down 50^% YOY.. this is the reason you dont listen to poeple on the interet. have the information you get is ****ed up...

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NOD down 50^% YOY.. this is the reason you dont listen to poeple on the interet. have the information you get is ****ed up...

Hmmm....there are still over 700 properties for sale in my 'canary-in-the-coal-mine' location of the housing bubble and bust in Florida, with pages and pages of short sales. Homes built in 2005-6-7 still selling in the mid $50Ks that orignially sold for $250-$300K.

Maybe it's YOUR internet source that is lying.

http://www.realtor.com/realestateandhome....

Asking prices in CA are already back to 2005 levels. Bernanke got his bubble back.

Not for long.

Exactly. Basic arithmetic isn't an "opinion".

The first 6 months have been red hot for the Seattle market this year, driven largely by artificially depressed inventory, the stock market and high tech hiring. However, I've noticed that many neighborhoods in Seattle and Bellevue have started to curl over in the last few months (worse for other suburbs). Many of the homes I am tracking have begun reducing asking price but are still sitting on the market. I suspect that it's heading down for good. The question in my mind is how fast it slides.

http://seattlebubble.com/blog/2012/09/10....

MO.. i take it you cant read a chart too well..using Mayor's chart.. can you tell me what month NOD peaked?

realistically for housing to come back, underwriting standard has to loosen up. Until that happens we will just continue to level off and languish. 80% of mtg activity are serial refinancers (6 + months and most lenders will allow you to refi without clawback of the YSP) Very little purchasing activities. FHA is the newest push but they are also tightening their standards. Not sure how housing will growth but as soon as I here that underwriting standards have ease, I will let everyone knows..

California is also dealing with section 8 people expanding out from their traditional ghettos and an alarming rate. This causes a lot of people move quickly if they have children.

Section 8 is scary ****.

IMHO, the recent housing rally has been driven by affordability & the continuing controlled leak of foreclosure supply. Incomes haven't moved but mortgage payments are way down b/c interest rates are lower. So, future mortgage rate are likely to move down but as Gen points out this will only provide a mild tailwind to housing going forward. As Las points out not a lot of new foreclosures are going into the pipeline. Where do incomes go from here? When (if ever) do rates start to rise to more normal levels? Does the massive foreclosure supply overhang continue to leak into the market at a controlled rate? Those are the tough to predict factors. In my view, unless incomes start rising significantly, the market is pricing in close to perfection on rates and foreclosure supply.

You guys bring up an interesting point - the bad areas or potentially bad areas are everywhere.

Basically - you ideally want to buy where the younger demographic is buying but also where those same people have stable incomes, skill sets etc. - ie - where are 30-something doctors buying? It's nearly impossible to find such areas.