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Is There Really A Real Estate Inventory Shortage?

For the past few months there have been a stead stream of claims that the real estate marketplace somehow has an inventory shortage. To be polite, this simply isn’t possible when at the same time you have an annual increase in the number of distressed properties for sale, properties which are typically sold at discount.

RealtyTrac, in its first-ever U.S. Foreclosure Inventory Analysis, which shows nearly 1.5 million U.S. properties were actively in the foreclosure process or bank-owned (REO) in the first quarter of 2013, up 9 percent from the first quarter of 2012. “Up 9 percent” means more short sales and foreclosures are available today than a year ago.

Inventory Up

According to the National Association of Realtors, existing home prices have been rising for 20 straight months as of February. The number of existing home sales reached 4.98 million on an annual basis in February compared with 4.52 million units a year ago.

According to NAR, “total housing inventory at the end of February rose 9.6 percent to 1.94 million existing homes available for sale, which represents a 4.7-month supply 2 at the current sales pace, up from 4.3 months in January, which was the lowest supply since May 2005. Listed inventory is 19.2 percent below a year ago when there was a 6.4-month supply.”


But — distress homes still represent a quarter of the market — and still sell with discounts that typically range from 15 to 18 percent.

How can you have a supply shortage AND have discounts at the same time?

“Delinquent loans that fell into a deep sleep after the robo-signing controversy in late 2010 are gradually coming out of hibernation following the finalization of the national mortgage settlement in April 2012,” said Daren Blomquist, vice president at RealtyTrac. “The settlement provided some closure regarding accepted foreclosure processing practices, and as a result lenders have been reviving more of these delinquent loans and pushing them into foreclosure over the past 12 months, particularly in states where a lengthy court process has resulted in a bigger backlog of non-performing loans still in snooze mode.”

RealtyTrac also reports that:

  • The annual increase in foreclosure inventory at a national level was caused by a 59 percent jump in pre-foreclosure inventory, while inventory of homes scheduled for foreclosure auction decreased 25 percent and inventory of bank-owned homes decreased 3 percent.
  • Foreclosure inventory behavior was split nearly down the middle at the state level, with 26 states posting annual increases in foreclosure inventory and 24 states, along with the District of Columbia, posting annual decreases in foreclosure activity.
  • Among properties actively in the foreclosure process (excluding bank-owned properties), 35 percent were properties identified as vacant or where the homeowner had moved. The percentage of owner-vacated foreclosure inventory was 50 percent or higher in several states, including Indiana, Oregon, Washington and Nevada.
  • Inventory of listed foreclosures decreased 43 percent nationwide from a year ago, but inventory of unlisted foreclosures increased 12 percent.
  • Government-backed entities Fannie Mae, Freddie Mac and FHA/HUD accounted for the biggest portion of foreclosure inventory, with a combined 12 percent of the national total, followed by Bank of America with 11 percent, Wells Fargo with 10 percent and Chase with 7 percent.
  • More than two-thirds of the properties actively in the foreclosure process or bank owned as of the first quarter of 2013 were built in 1960 or later; however, in terms of year built the fastest growing segment of foreclosure inventory consisted of homes built before 1960 — up 11 percent from a year ago while foreclosure inventory of properties built in 1960 or later increased 6 percent during the same time period.
  • More than 60 percent of foreclosure inventory in the first quarter of 2013 was comprised of properties with loan amounts under $200,000, while homes with outstanding loans between $200,000 to $400,000 represented an additional 30 percent of all foreclosure inventory.

“The settlement,” said Blomquist, “provided some closure regarding accepted foreclosure processing practices, and as a result lenders have been reviving more of these delinquent loans and pushing them into foreclosure over the past 12 months, particularly in states where a lengthy court process has resulted in a bigger backlog of non-performing loans still in snooze mode.”

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