Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

57 responses to “The Shadow Inventory Next Door”

  1. Kary L. Krismer

    It will be interesting to follow. I’ve seen some foreclosures hit the market quickly, but that’s where the owners probably left things in very good condition (judging by the fact they left appliance manuals).

    BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.

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  2. Ken M

    There are a lot of house not on the market just sitting there. No incentive for the banks to sell as it will depress the prices farther.

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  3. Kary L. Krismer

    RE: Ken M @ 2 – The incentive is to get their money. If they cared about the market they would process short sales better.

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  4. NewHomeOwnerInFremont

    Kary. You are a blog posting machine today.

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  5. Kary L. Krismer

    By NewHomeOwnerInFremont @ 4:

    Kary. You are a blog posting machine today.

    My procrastination is almost over. I only have one more check to write.

    For me paying bills takes about an hour of my time, but it takes days to complete!

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  6. Scotsman

    RE: Kary L. Krismer @ 1

    “BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.”

    What makes you assume they had income? Are food stamps now accepted for first/last and damage deposits?

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  7. ChrisM

    I was playing around on RedFin a couple of weeks ago, and stumbled onto a way to see when banks had taken the property back but had not yet offered it for sale. In Clark County (WA), there were dozens (hundreds?) of cases where banks have sat on a foreclosed property for more than a year with the house still not put on the market.

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  8. Pegasus

    By The Tim @ 5:

    By Kary L. Krismer @ 1:
    BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.

    I wouldn’t. I was pointing out, as I have done on these pages a number of times in the past, that the portrayal of foreclosure as being some sort of terrible horrible fate for a family is bogus.

    That’s a rather snobbish look at foreclosures, Tim. Many foreclosures were brought on by the subprime mortgage scandal and most now are being brought on by a loss of jobs and income that was caused by the banking industry. Not knowing whether the former homeowner is gaming the system makes your statement look rather obtuse. The facts are that being behind on your mortgage and foreclosure are ranked extremely high in the stress tables and by your records they have been struggling for a long time. They might also have had to deal with collections agents, illness, lack of food, loss of job etc. Quit being so cavilier about foreclosures.

    This foreclosure might also be a factor in the bank acting so fast in approving your bid for your home, along with the other known negatives that we have already discussed.

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  9. ChrisM

    Cool pics, BTW. Going for the Dorothea Lange look?

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  10. ray pepper

    RE: The Tim @ 5

    “that the portrayal of foreclosure as being some sort of terrible horrible fate for a family is bogus. ”

    AGREED! I have yet to meet a person/family that has ever told me personally that their Foreclosure was a “terrible horrible fate.” All seemed to find it a liberating experience and most seemed to save up a hefty amount of cash. In addition many families I know got paid 1500-5000 to leave the home in “broom-clean” condition…

    It does seem though they all want to buy again at these new lower levels and NOT rent for awhile. I would say over 1/2 of the people I know who walked away bought again in one way or another.

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  11. Toad37

    Tim, what do you guestimate this bad boy will go for at auction?

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  12. Kary L. Krismer

    RE: The Tim @ 14 – Probably the amount owing. Also, that price will allow them to list it for $165k. :-D

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  13. kfhoz

    RE: Pegasus @ 10

    Most foreclosures are brought on by irresponsible borrowers as well as irresponsible banks. When property prices were going up and these risk takers were “winning” then they kept the profits. When the risk does not pay off the irresponsible borrower gets a year free rent and the bank gets money from government guarantees.

    We all know people who have gone or are going through the foreclosure process. All that I know took on an unreasonable amount of debt, albeit egged on by the banksters. All of the ones that I know live/lived in nicer houses that I do.

    The people I have seen are not victims, just gamblers who win (or at least do not lose much) either way. Tim is in no way being snobbish.

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  14. Kary L. Krismer

    By kfhoz @ 17:

    All that I know took on an unreasonable amount of debt, albeit egged on by the banksters.

    Often that other debt has little or nothing to do with the house, other than the fact that a few years ago they may have rolled it into a refinance on the house.

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  15. cheapseats

    RE: The Tim @ 14 – There will likely be a “celebrity next door premium” on this place at next sale.

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  16. WestSeattleDave

    This story is a perfect example of the foolishness of the bubble years. In August ’05 they began missing payments, it went NTS 5 months later, and the delinquency was cured by February ’06. Yet 18 months after that episode, they were able to do a cash out refi. Apparently, they could fog a mirror!

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  17. Toad37

    RE: The Tim @ 14 – I think that is what the bank marked to market when taking it back. It will likely be sold to the next home-owner for MUCH less.

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  18. Toad37

    RE: The Tim @ 22 – Understood Tim. I meant to say what do you think your future next door neighbor will pay for it.

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  19. MichaelB

    Is this example of shadow inventory common throughout Seattle, or only specific to your neighborhood? Was this a consideration in your decision to buy? Are there other properties like this in your neighborhood?

    If the house is only worth $80,000, assuming the structure is worth $0, what does that say about the value of land in the neighborhood? Possibly an investor would buy this as a low income rental property?

    What do you perceive to be the impact of this shadow inventory on the values of surrounding properties such as your own?

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  20. Rhonda Porter

    RE: The Tim @ 24 – who want’s to be The Tim’s neighbor for $80k??? :)

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  21. ray pepper

    RE: The Tim @ 24

    Tim, if that house goes for 80k right next door it will NOT be positive for you other then getting all that junk cleaned up. I know you are NOT moving anytime soon. I hear that from everyone…But, then something happens and they MUST move…. I’m hoping you have double the sq footage but I have not checked comparisons nor age or lot size dimensions but on a resale flip right next door I don’t see it even pulling in 200k. If it did pull 200k ” TURN-KEY” that would be a HUGE return for the investor.

    With so many people calling us everyday for work 30k goes a VERY LONG WAY in rehabbing a house now. We just did one for 10k because labor is cheap cheap cheap.

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  22. ray pepper

    RE: The Tim @ 28

    WOW!!!!!!!!!!!!!!

    That house IS a real PIECE! Sure its not the unattached garage of your home? Better check title!! Time to look at an aerial!

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  23. David Losh

    RE: The Tim @ 28

    Is that the house to the back of yours?

    Have you considered claiming the property as a part of yours? Is there a claim to be made that it was attached to your property, and some how illegally carved out? Is this your former garage, or carriage house?

    You don’t need to offer to buy it. You can just make inquiries. The bank may take your inquiries for an interest in the property, or may conceed the interest to you as the highest, and best use, or value.

    Maybe, and stranger things have happened, the bank may let you take the property over for some monthly consideration with a cash out, or balloon in 15 years.

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  24. Pegasus

    RE: GreenAcres @ 16 – I agree that failing to pay the mortgage is what caused the foreclosure but the majority of foreclosures now are caused by people losing their job and being unable to find another. Labeling foreclosure hardship as bogus is just nonsense. It is the same as the banks labeling everyone behind on their mortgage as deadbeats when the truth is the banks and mortgage companies are involved in scam after scam and caused the global nightmare. When one is expecting to make a profit from someone else’s hard luck he ought to at least be respectful about it instead of declaring their pain and suffering is bogus. Stats show that strategic defaulters are declining in numbers now and the downtrodden former worker bees are the majority of all foreclosures. Tim isn’t walking in their shoes but he is benefiting from their plight. The house that Tim highlights had a very short time period for being in foreclosure compared to most. I am hoping Tim highlights my responses as he did yours now that I have straightened the facts out for both of you.

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  25. GreenAcres

    Pegasus – the point is no one knows the reason behind this foreclosure or any other. To paint all foreclosed owners as “deadbeats” is as wrong as painting them all as “downtrodden former worker bees”… you just don’t know.

    Face it – you have no idea whether the people in the house next door to Tim were foreclosed on because they had a financial disaster, smoked away their savings, or simply thought it would be better for them to rent than to hang onto a home that was depreciating more quickly than they could ever pay off.

    I won’t cry for them any more than I’ll judge them because I don’t know their situation or their reasoning. The “poor foreclosed homeowner” may, in fact, be in a better financial position and happier now that they are out from under their mortgage.

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  26. David S

    Who here’s planning to bid against The Tim at the action?

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  27. Jonness

    By Scotsman @ 7:

    RE: Kary L. Krismer @ 1

    “BTW, Iâ��m not sure why you would expect someone who has had free rent for a year to become homeless.”

    What makes you assume they had income? Are food stamps now accepted for first/last and damage deposits?

    When the Federal Unemployment extensions expire we’ll have plenty more homes to choose from. The name of the game these days is beat down the sellers, be it banks or privates. If you must part with your money early in this housing downturn, then nail the deluded sellers to the cross. If they aren’t bleeding by the time you move into the house, then you failed to play the game properly.

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  28. Jonness

    By David S @ 33:

    Who here’s planning to bid against The Tim at the action?

    $25K cash seems about right. :)

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  29. Pegasus

    By Jonness @ 35:

    By David S @ 33:
    Who here’s planning to bid against The Tim at the action?

    $25K cash seems about right. :)

    Let’s wait and see if it becomes a crack house or a meth lab first. You might be a bit high if that happens. A tear down and disposal of contaminated property might be too costly at any price. Can you get a permit to build a new structure on a 1700 sq ft lot these days without a whole lot of hoops to jump through? I think it is too small to house those seven repeat offenders that live a block or two away.

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  30. Pegasus

    RE: GreenAcres @ 32 – My point was not to label their hardship with the term “bogus” which you appeared to be defending in a round about way. Are you? Looks like my comments are now being moderated without any links. So much for getting opinions from consumers.

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  31. David Losh

    RE: The Tim @ 38

    I don’t think so. Is that the house behind you, on that strip of dirt, in your back yard?

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  32. Hugh Dominic

    Question: what bank gave them $180k after they had just missed payments on their previous loan? Never mind. The bank probably had a government guarantee on that loan and didn’t care.

    And Tim: these guys are right. You have more to gain from controlling that property than anyone else. A junk house next door to mine sold for like $140k. I rue the day I let that one slip by. Do you know what kind of neighbors you get in Seattle for $140k? I hope you do not have to find out.

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  33. Jonness

    By The Tim @ 38

    Tim: You should consider lowballing the bank on this house so you can control its destiny. If you do, it’s best to have the attitude you don’t care if you get it or not. Go for blood and aim at maximum positive cash flow.

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  34. Real World Express

    If you really wanted to carry this blog to its ultimate conclusion, you might stop paying your own mortgage (since, you estimate that the average price was just re-established at $80,000 or less) & you might also try to buy your neighbor’s property at cutthroat pricing, raze the trashed up house and double your lot.

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  35. MichaelB

    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful. I’ll say one thing for that house – it has provided plenty of excellent blog material!

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  36. Cheap South

    RE: The Tim @ 5

    …and I know people with cancer that have not died. It does not mean they are happy and enjoying life.

    The fact that the kids still play in the neighborhood is not proof that they are living the dream. They lost their home, period. They HAD to move. Do you think that’s something easy to explain to kids?

    Friends of ours got an offer yesterday on their short sale house. They are losing $100K. The father had to move out of state for income. They are not homeless; but the family is broken and they are all devastated. Two teen kids; the dad is so ashamed; that’s all he can take about. How he could not give his kids the childhood he had.

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  37. Pegasus

    By MichaelB @ 44:

    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful. I’ll say one thing for that house – it has provided plenty of excellent blog material!

    How is living under the Fremont bridge working out for you? Catch any goats? Ah yes, the house that keeps on giving. I am beginning to wonder if Tim bought that house just for blog stories that will create traffic? If so it appears to be working.

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  38. David Losh

    RE: The Tim @ 40

    I don’t think it’s on it’s way to an MLS listing. That is the oddest lot lay out I have ever seen. The buyer pool for that house would only be to an investor who would rent it out.

    I see the house has deferred maintenance, it’s in an urban setting, so the bank has to secure the property, but it may never make it to the open market.

    It would be worth at least doing a title search and asking if that is a legal lot. I’m just saying that you may, you may, be able to muddy the waters on that title.

    The house has a value to you, but to some one else?

    So was that plan all along? Because I think it’s a good idea.

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  39. Kary L. Krismer

    RE: The Tim @ 47 – I suspect it’s too late for that, and also wouldn’t impact your value anywhere near the cost. It would only be something you would do if you want to become a landlord. If it’s Fannie you can buy for 10% down! ;-)

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  40. Kary L. Krismer

    By Pegasus @ 46:

    By MichaelB @ 44:
    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful.

    How is living under the Fremont bridge working out for you? Catch any goats? .

    MichaelB, finding ways to get Pegasus and me to agree on at least one thing.

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  41. Dirty_Renter

    RE: ChrisM @ 11
    I was thinking the same thing. I thought they looked like depression-era black & whites, very cool. Makes me want to break out in a Woody Guthrie song.

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  42. Kary L. Krismer

    RE: Dirty_Renter @ 51 – Maybe Tim can become the photographer of choice for REO agents. ;-)

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  43. Foreclosure Delays Cast Shadow on Real Estate Market | The SunBreak

    [...] Bubble marks that trend with a post titled “The Shadow Inventory Next Door,” while over at Redfin, Glenn Kelman explains why firesale foreclosures are more likely to be [...]

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  44. Dave Francis

    I read this article three times, and let my gut do the work. Each time I read it, I became more sick to my stomach. We were lucky enough to not work with a lot of subprime lenders during the 04 boom, and consequently, kept busy with refi after refi from responsible homeowners. But Tim has reawakened the anger I felt when my neighbor did the same thing, and laughed about it while she used mortgage dollars to get a boob job. I almost never wanted to see another boob in my life. I see by statistics this is the trend, and I am getting sick of paying for it as well. Keep selling!

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  45. MichaelB

    Kary and Tim’s house – the gifts that just keep on giving…

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  46. Kary L. Krismer

    By MichaelB @ 56:

    Kary and Tim’s house – the gifts that just keep on giving…

    Spoken like a true troll.

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