“Shadow Inventory” Conspiracy Theories Are Nonsense

“Shadow Inventory” Conspiracy Theories Are Nonsense

For some reason, a couple weeks ago the Seattle Times website featured a syndicated article about RealtyTrac’s “Vampire REO” nonsense, which in addition to being a completely worthless bit of non-news, was already weeks old when it appeared on the front page of the Seattle Times website.

In the comments to the article I did my best to point out the misleading, sensationalist nature of the RealtyTrac “data.” A commenter going by the name of “IArustic” was not satisfied when I summarized the monthly foreclosure data I post here:

The data shows a reasonable pattern of homes moving through the foreclosure pipeline, with foreclosures peaking in mid-2009 and generally declining since then.

The number of homes coming out the end of the foreclosure pipeline (via Trustee Deeds and subsequent MLS sales) has moved in proportion to the number of homes coming in (via Notices of Trustee Sale). There is no evidence to suggest a growing number of homes being stuck in the process nor a giant backlog of “shadow inventory” that will burst forth any day now and collapse the housing market.

In response, IArustic argued that:

Your monthly posts track the notices of sale, but not the MLS foreclosure sales, that I can see. I don’t see the data for your proportional claim.

I’m not arguing so much as asking a data guy to show me the data.

Ideally what we would be able to do is look at how many homes hit each stage of the foreclosure pipeline (described in detail in this post) over a long period of time, rolled up by month. Unfortunately notices of default are not public record in Washington, so we can’t get that data, but thanks to my old friends at the technology-powered brokerage Redfin, I was able to get counts of actual foreclosures, MLS listings of bank-owned homes (REO), and REO sales.

Here’s what the pipeline looks like in King County since January 2000:

King County Foreclosure Pipeline

As you can see, it’s exactly what I described in the Seattle Times comment thread. Foreclosures, MLS listings of REOs, and subsequent sales of REOs have moved in direct proportion to notices of trustee sale (NTS) throughout the entirety of the data I have available.

  2000-2004
(Pre-Bubble)
2007-Present
(Post-Peak)
NTS Filed 16,746 59,562
Foreclosures 3,717 23,654
Unforeclosed NTS 78% 60%
REO Sales 3,401 22,126
Unsold REO 9% 6%

The table at right shows a summary of the total number of foreclosures through various stages of the process during the 2000-2004 pre-bubble period and the 2007-present post-bubble period.

Many notices of trustee sale do not translate into an actual foreclosure, because the homeowner is able to get current on their mortgage or because numerous notices are filed on the same home. During the period when home prices were rising at a reasonable rate, roughly 78 percent of notices of trustee sale did not result in a foreclosure. As we would expect when home prices were decreasing, that number dropped to 60 percent, meaning that a notice of trustee sale more often did end in foreclosure.

Only nine percent of foreclosed homes did not appear in the sale stats Redfin pulled for me during the pre-bubble period. During the post-peak period, that number decreased to just six percent.

If banks were intentionally keeping large numbers of foreclosed homes off the market, we would expect to see both of those numbers increase during the post-peak period, not decrease.

Does some amount of shadow inventory exist? Yes.

Are there some homes that are taking years to move through the foreclosure process instead of months? Yes.

Is there a massive backlog of foreclosures being “held back” by the bank, amounting to a huge shadow inventory large enough to have a large effect on the housing market? No. Not in King County, anyway.

The data shows foreclosures being processed in much the same way they always have, and a general decrease in the number of foreclosures since late 2010.

Full disclosure: The Tim is currently a Redfin shareholder.

  

About 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.

41 comments:

  1. 1
    Plymster says:

    I understand that the data doesn’t uphold the idea that there is a lot of “Shadow Inventory” out there. Unfortunately, the data doesn’t jive with my personal experience.

    There is one home on my block that was short sold a year ago. The old owners are still living there.

    Another home on my block was in the foreclosure process for a while, until it was scheduled to go to auction (since June). Each week before it was scheduled to go to auction, it was postponed for a month or so, until it was finally “Cancelled”. Various renters stayed there until recently. It is now vacant again.

    An acquaintance was bragging about a year ago about buying a townhome in Snohomish County in 2010 and not paying her mortgage since 2010. A quick Public Records Search shows me that B of A just sold her mortgage to a new loan servicer. 5 days later, the HOA put a lien on her place.

    Coupling all of this anecdotal data with the opacity of the foreclosure process, and bizarre data from Redfin (a quick search of King County shows 866 homes, townhomes, and condos in “foreclosure”), and the quick assertion by anyone asked that “oh that data must be in error”, or “they’re not tracking what you think that they’re tracking”, and eventually all of this looks overwhelmingly suspicous.

    I’m not saying that there IS an overwhelming tidal wave of “shadow inventory” (which by the way, includes homes that are not being foreclosed upon, so wouldn’t show up as NTS anyway), and I know it’s unreasonable to ask you to prove a negative (ie: prove that unrecorded, unforeclosed defaults are being hidden on bank and GSE balance sheets). I am simply trying to help you understand why people believe this.

    Until personal experiences line up with the data (which, lets face it, is sketchy at best), there will be plenty of folks out there (myself included) who still believe in the “mythical shadow inventory”, as much as we believed in the “mythical housing bubble”, “mythical CDO ratings scam”, “mythical known bad mortgages hawked by banks”, and the “mythical Fed manifesting money out of thin air, handing it to the banks, and calling it QE”.

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  2. 2
    The Tim says:

    By Plymster @ 1:

    I understand that the data doesn’t uphold the idea that there is a lot of “Shadow Inventory” out there. Unfortunately, the data doesn’t jive with my personal experience.

    The thing is, how often do you take note of the times when a foreclosures goes smoothly, transitioning from former-owner-occupied, to vacant, to MLS-listed in a matter of a month or two? Probably not very often. The instances when the process takes an extremely long time are the ones you’re most likely to notice.

    I think it’s a form of confirmation bias. We hear stories about nefarious and/or incompetent banks, then when we see the foreclosure across the street sitting empty for a year it confirms what we’ve read, so we take note. We don’t tend to notice the nine other nearby homes that moved quickly through the foreclosure process.

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  3. 3
    Erik says:

    RE: The Tim @ 2
    09.30.2012 23:00 4846
    10.31.2012 23:00 4244
    Delta = 602

    09.30.2013 22:00 4806
    10.31.2013 10:00 4471
    Delta = 335

    Okay, inventory is not decreasing nearly what it decreased last year. Last year was abnormal though. This decrease in inventory seems historically normal.

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  4. 4
    Sean says:

    I’m not arguing your overall point, but this:

    “Foreclosures, MLS listings of REOs, and subsequent sales of REOs have moved in direct proportion to notices of trustee sale (NTS) throughout the entirety of the data I have available.”

    …makes me wonder if we’re looking at the same chart. There appear to be a number of divergences in the trends, most notably in early 2012 where NTS climb even as the other numbers slide downward. Nor do the “echo” spikes appear to be in scale to the original spikes.

    I don’t expect it to be either smooth or exact but that doesn’t meet any common understanding of “direct proportion” that I am aware of.

    Maybe you crunched up the underlying data and got a better demonstration of symmetry, but the “as you can see” statement doesn’t match what I can see there.

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  5. 5
    The Tim says:

    RE: Sean @ 4 – Here, I created a few extra graphs to better demonstrate the clear connection. All I’ve done in these charts is scale the y-axis and shift the x-axis of the later foreclosure stage to show how well it proportionally lines up with the earlier stage.

    King County Foreclosure Pipeline: NTS vs. Foreclosures

    King County Foreclosure Pipeline: Foreclosures vs. REO Sales

    [edited to add:]

    Here are scatterplots for the above comparisons:

    King County Foreclosure Pipeline: NTS vs. Foreclosures

    King County Foreclosure Pipeline: Foreclosures vs. REO Sales

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  6. 6
    ARDELL says:

    While it is difficult to compile a data driven “tie breaker” on this issue, here are some facts.

    King County under $300,000, bank owned, sold in the last 30 days…58 single family homes. While I can’t do all 58…let’s pull 6 (roughly 10%) at random but spread around the County as a sampling.

    Foreclosure August 2012 Tukwila, Listed August 2013, closed October 2013.
    Foreclosure November 2012 Federal Way, Listed June 2013, closed October 2013
    Foreclosed July 2011 Auburn, Listed July 2013, closed October 2013
    Foreclosed Nov. 2011 Vashon, Listed Aug 2013, closed October 2013
    Foreclosed Dec 2012 Shoreline, Listed July 2013, closed October 2013
    Foreclosed May 2013 Seattle Seward Park, Listed August 2013, closed October 2013

    I can’t get a broader representation of area in the above given the price parameter of $300k or less.

    Next group $301k to $600k. Significantly fewer properties sold using the same criteria as above at 15 homes vs 58 homes. Since 10% would only be a house or two I will expand the price until the sampling is about 60 houses sold. Going up to $800k I only get one more house. Putting NO upper limit at all I only get one additional house for a total of 17 houses over $300k and 58 houses under $300k. While this doesn’t tell us what I am looking for…wow…it tells us something. :) Given I could not get to any prime areas in most any of the previous 58 homes, this tells us a lot about the concentration of bank owned homes sold in the last 30 days. It may tell us that prime areas are more likely to sell pre-foreclosure either on or off market. That’s my best guess.

    I’ll do 6 of the over $300k bank owned sales even though that represents more like 33% than 10%.

    Foreclosed March 2011 Shoreline, Listed February 2013, Closed October 2013
    (the above sale was likely August 2013 closing with a late reporting or some issue perfecting the exchange which could account for the lengthy timeframe from foreclosure to listing and closed and ambiguity as to whether it closed in August or October of 2013.)

    Ran across one in Ballard that says it was bank owned, but that appears to be an error, so drop that total sold from 17 to 16.

    Another discrepancy with a bank owned not really being bank owned. Quick turn around from foreclosed March 2013 to listed June 2013 and closed October 13. Appears that an investor bought it a hair after foreclosure and did a quick turn around.

    Stopping the data sampling here as my observations are if you are interested in homes over $300,000, the sampling of data is nominal and draws no real conclusions.

    “Foreclosed” means the owners’ lienholder took it at foreclosure OR an investor bought it AT foreclosure OR the bank took it but someone bought it from that bank immediately after foreclosure. The fast turn around sales seem to be the ones bought by a private party either at foreclosure or shortly after and before the “bank” listed it for sale in this price category.

    In the over $300k category 1,258 homes sold in King County in the last 30 days of which only 15 to 17 were bank owned sales. slightly over 1%
    In the under $300k category 416 homes sold in King County in the last 30 days of which 58 were bank owned and almost all of those were in less than prime areas. 14%

    If you are looking for a house over $300k in a prime area, this topic is of little concern to your home search and home buying process.

    If you are looking for a house under $300k you can expect a fair amount of “shadow inventory” is lurking.

    The length of time from foreclosure to listed and sold has more to do with the particulars of the foreclosing party and the house itself. ONLY in the event that one particular lienholder had a lion’s share of the foreclosures in a small geographic area could there be any reason for a lienholder to manipulate the hold time based on controlling supply and demand factors. Basically the same strategy as a builder and nothing abnormal that could be viewed as “a conspiracy”.

    of note…the properties in this data are only single family homes and not condos or townhomes or mobile homes or houseboats or vacant land

    (Required Disclosure – Data in this comment is not compiled by, verified by or published by The Northwest Multiple Listing Service.)

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  7. 7
    ARDELL says:

    For those who don’t like long comments, long story short:

    If you are looking to buy a good house in a good area with good schools for over $300,000, the topic of NTS activity is about as fruitful as keeping charts on hurricane potential in Florida’s weather patterns.

    Possibly slightly interesting, but not likely worth the time and effort based on the impact it will have on your immediate and overall strategy to achieve your objective at hand.

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  8. 8
    No Name Guy says:

    The Tim

    I agree that confirmation bias can be an issue. Being aware of that helps one guard against it.

    That said, I’ve watched the known / obvious foreclosures in my ‘hood of South Sno Co for a while. Two in particular are STILL vacant several years later, after going on market for a bit as short sales, before being pulled back. E-mail if you’d like addresses. These are both within 1/2 mile, in the same direction. I spotted them as I drive by frequently. I have to wonder how many others there are in places I don’t drive by frequently – you know, that whole statistical sampling thing.

    Yes, as you say, some foreclosures go quickly, or at least at a more normal pace. I’ve noted those as well in my ‘hood – they’re easy to spot / be reminded of (red front doors seemed to be the popular thing to do to spruce up a foreclosure.)

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  9. 9
    joe smith says:

    Whenever I see the term “shadow inventory” I dont think of a conspiratorial cabal of banks hoarding foreclosed listings so much as I think of current homeowners who are underwater, unhappy with where they live and who would love to move, but they just can’t list because they owe way more than what they could get if they were to try to sell. Right or wrong, I always seem to associate that pent up inventory of underwater homes as the true “shadow inventory” affecting the market right now.

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  10. 10
    The Tim says:

    RE: joe smith @ 9 – I typically refer to people in that situation (underwater or just not enough in the black to afford to move) as the “pent-up supply,” which I believe probably is a lot larger than the foreclosure shadow inventory. I think pent-up supply is probably the main reason that inventory is currently so low, but unfortunately there isn’t really any good way to quantify that with data.

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  11. 11
    Haybaler says:

    Plymster’s sensibilities are not too far off base…. We just need to look at statistics available to folks living and working on the financial side of realestate.

    This from DistressedPro.com:

    “a) 3,762 banks are reporting residential REO balances right now at about $7B

    b) 4,814 banks are reporting 30 times that amount in residential late and non-performing loans ($210B)”

    That item in b) is the shadow inventory.

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  12. 12
    Sarah says:

    RE: ARDELL @ 7 – real estate agents want clients to believe what you wrote. If their clients have any brains, they should run away from those agents as fast as possible!

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  13. 13
    Erik says:

    RE: Haybaler @ 11
    Yeah, not everything can be determined from raw data because the data maybe isn’t there yet. This is called intuition. A data man lacks intuition. What I think is that there will be more distressed properties to come, which produces about the same result as shadow inventory. Maybe prices will go back down and people will get tired of holding onto bad debt and stop paying? The people holding onto the old fashioned value that keeping a bad debt is the right thing to do will eventually figure it out and shortsell or foreclose. It is now time for all the people that weren’t smart enough to stop paying their mortgage the first time to figure it out and stop paying.

    The formalists will continue paying because that is the rule. The utilitarians are capable of complex thought and dumped their debt on tax payers years back. When the formalists figure it out, there will be another wave. Engineers and computer programmers are generally formalists. I work with these people all day. Many are not capable of thinking outside the general set of rules they were taught. They will figure it out last.

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  14. 14
    corndogs says:

    Corndogs has grown weary of people who cannot conceptualize how the market works. Available inventory can be predicted with a mathematical equation. All you need is the correct input variables and formula. Things to consider are population growth, total existing inventory, home-ownership ratio, days on market, rate of build. I would challenge the Tim to begin the equation and other engineers or other smart people can give input. (This doesn’t include software engineers). This would be similar to a global warming model except it would actually work. You will be able to simulate the past, predict the future and understand the sensitivity of the output to the various input variables. Without the equation, you guys will be talking in circles for years.

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  15. 15
    corndogs says:

    RE: Erik @ 13 – There is a whole continent of people who think like you Erik. It’s called Africa.

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  16. 16
    ARDELL says:

    RE: Sarah @ 12

    Just real numbers there, Sarah. Nothing to not believe. you can pick another data set or a different time period. But real numbers are what they are. Unless you are saying I made up the properties from thin air.

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  17. 17
    mike says:

    By ARDELL @ 6:

    Putting NO upper limit at all I only get one additional house for a total of 17 houses over $300k and 58 houses under $300k. While this doesn’t tell us what I am looking for…wow…it tells us something. :) Given I could not get to any prime areas in most any of the previous 58 homes, this tells us a lot about the concentration of bank owned homes sold in the last 30 days. It may tell us that prime areas are more likely to sell pre-foreclosure either on or off market. That’s my best guess.

    That’s the same conclusion I’v reached – the areas that are furthest down in price from peak have much greater concentrations of unsold, empty homes – but that doesn’t extrapolate to all areas. People may observe that their neighborhood is full of potential shadow inventory, and others may say there isn’t any and they’ll both be right depending on where they live.

    By The Tim @ 10:

    RE: joe smith @ 9 – I typically refer to people in that situation (underwater or just not enough in the black to afford to move) as the “pent-up supply,” which I believe probably is a lot larger than the foreclosure shadow inventory. I think pent-up supply is probably the main reason that inventory is currently so low, but unfortunately there isn’t really any good way to quantify that with data.

    There may be a way to quantify this, not 100%, but with a decent correlation. The neighborhoods that are reselling at 2006-2008 level prices probably have very few ‘trapped’ homeowners. This can be measured by looking at regular sales at/above bubble era prices. My neighborhood saw a large # of bubble era regular resales as prices started bumping up this year. In the spring, most of them were 5-10% below peak, but as the summer wore on people were coming out *slightly* ahead in most cases. Owners saw the opportunity to move and took it. I think we’ll see more of this next year as more owners realize they’re above water and start planning to move.

    There’s one other group that’s still trapped and a bit harder to measure – I have one across the street. They inherited the house free and clear, then cashed out a half mil in equity – they’re above water but have little income and ruined credit after defaulting on bubble era mortgages they should never have qualified for in the first place. The banks keeps trying to foreclose because 1) they’re not paying the mortgage and 2) the sale price should cover the outstanding loans. The owner however is doing whatever they can to stay despite not being able to afford the place.

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  18. 18
    Corndogs says:

    RE: The Tim @ 10 – there’s nobody underwater in San Francisco Tim andinventories are only one and a half months. in fact it’s pretty obvious from inspection that low inventory is inversely related to a large number of people under water when comparing zip codes. it doesn’t do any good to keep throwing out tea leaves if you can’t read them. Corndog has explained on this site why the inventory is LOW. read and learn it has nothing to do with underwater homeowners

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  19. 19
    Erik says:

    RE: corndogs @ 15
    Ha ha ha. Hilarious.

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  20. 20
    Azucar says:

    By corndogs @ 14:

    Corndogs has grown weary of people who cannot conceptualize how the market works. Available inventory can be predicted with a mathematical equation. All you need is the correct input variables and formula. Things to consider are population growth, total existing inventory, home-ownership ratio, days on market, rate of build. I would challenge the Tim to begin the equation and other engineers or other smart people can give input. (This doesn’t include software engineers). This would be similar to a global warming model except it would actually work. You will be able to simulate the past, predict the future and understand the sensitivity of the output to the various input variables. Without the equation, you guys will be talking in circles for years.

    There are enough variables and unknowns that making an actual equation/mathematical model – at least one that is right very far into the future – would be impossible. A few additional things to consider that you omitted from your list are:

    – Wage growth
    – Inflation/deflation/stagflation (macro-economics)
    – Population migrations due to availability/unavailability of jobs
    – Populations closer to/further from job locations as a result of changing fuel prices
    – Rental prices and availability
    – Consumer sentiment
    – Performance of other investment possibilities (i.e. the stock market, bonds, etc)
    – Interest/mortgage rates
    – Possible government intervention (i.e. interest rates, changing/eliminating the mortgage interest deduction, etc.)
    – Countless other influences – some of which can be predicted, and some of which will be total surprises

    Many of the above factors are TOTALLY unpredictable – or if they were predictable people could make enough money off of them that they wouldn’t be concerned about the price of housing.

    Yes, some factors which are big influences are predictable and should be considered, but your implication that a formula could be derived to (accurately) predict the future of housing prices is a bit far-fetched.

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  21. 21

    We’re missing the WA State laws that went into effect at about the time when we see the jump down in The Tim’s graphs. WA State Foreclosure Fairness Act. http://www.commerce.wa.gov/Programs/housing/Foreclosure/Pages/default.aspx

    There was a spike upwards in NTS and T-Sales before the law passed and then and downward drop in new NTS/T-Sales which would correlate to the downward drop in REO sales later.

    What we need here is a foreclosure attorney to jump in and tell us what’s going on in from that vantage point.

    As others have mentioned, I am still hearing many stories of Seattle area homeowners sitting in their homes paying nothing for 1-2- and now 3 years and the bank has not yet sent ANYTHING in the mail to them, not even an NTS letter.

    So instead of a big shadow and then a large spike, maybe we will just see a steady flow of REOs for a while.

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  22. 22
    The Tim says:

    By Jillayne Schlicke @ 21:

    So instead of a big shadow and then a large spike, maybe we will just see a steady flow of REOs for a while.

    I believe that is exactly what we will see.

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  23. 23
    Kyle says:

    Thread of the year in my opinion. Good reminder for me to donate to the site. Really enjoy reading the diverse opinions without the personal attacks. Very cool stuff here.

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  24. 24
    Sarah says:

    RE: Jillayne Schlicke @ 21 – I also believe that you are heading in the right direction!

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  25. 25
    Mike says:

    RE: Jillayne Schlicke @ 21 – I have a few friends in this position, but they’re in neighborhoods where current values are 40% below peak. The ones in areas where values recovered faster got kicked out a while ago.

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  26. 26
    ARDELL says:

    Referring somewhat to Mike’s comment about inherited homes and hoping Jillayne might know. If a person still owns the home free and clear that they inherited and owes 2010 taxes of $2,000 the King County site says it will be foreclosed on when the debt is 3 years old with no noticed mailed to the owner.

    If the home is worth $200,000 will the County sell it for $2,000? if they sell it at closer to fair market value and are only owed $2,000, would they keep the $198,000 overage?

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  27. 27
    speedcat says:

    Hi Tim,

    Been reading you for years. I don’t always agree with you, but I think you’ve been right more than I have FWIW. :)

    When I hear the words “shadow inventory,” I don’t merely think of the foreclosure and REO inventory. I think of all the homeowners who are lurking in the background just waiting for the market to rise that much more so they are now out of the red and can sell without losing too much cash. I think this is far more of a “shadow inventory” issue than the foreclosures and REO inventory. Once a healthy dose of those folks’ homes hit the market, IMO we see a flattening if not a bit downward.

    Anyone have thoughts on this?

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  28. 28
    Neil says:

    Tim, I see a few critical issues with your analysis. It shows what it shows, but it doesn’t get at anything useful, and doesn’t really support your conclusion. Data can only go so far, and a wise reader always has to consider the data that isn’t shown also. And you can’t simply dismiss the many firsthand accounts of owners continuing to live for years in a house after defaulting.

    You said you don’t have access to Notice of Default data, but that is critical if you’re going to capture all “vampires” that exist at that point in the foreclosure process: after Notice of Default but before Notice of Trustee Sale. You can’t just ignore that because you don’t have data.

    Second, there’s vampire shadow inventory that is in default but hasn’t received formal notice yet and so isn’t yet part of the foreclosure process at all, but is de facto bank-owned and foreclosable at whatever point the lienholders want to initiate the process. For all intents and purposes where the market impact is considered, these are just as important to count even though not *technically* foreclosures *yet*. So it makes perfect sense for RealtyTrac to include those in their analysis, where you didn’t.

    Third, you create a hyperbolic strawman when you say that any shadow inventory won’t “burst forth any day now and collapse the housing market”. The original Seattle Times article didn’t claim any such thing; the quote from RealtyTrac there was an exponentially more restrained and reasonable one: “Blomquist said vampire foreclosures will slow price appreciation as they start to go up for sale and tilt real estate more to a buyer’s market.” And this stands to reason, as banks won’t want to “collapse” the market by flooding it all at once, just as they haven’t to this point, because it’s not in their best interest. They’ll dribble them out, depressing any upwards price trend but supporting a level where they can still recoup value. Why do you overstate RealtyTrac’s claim?

    So yes, you showed something very limited: that foreclosures very narrowly defined, once begun, tend to complete. But that doesn’t get at the larger issues at all, nor does it support your “nonsense” claim. And you seem to be attacking a “market collapse” strawman that just doesn’t exist in any real way.

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  29. 29
    Corndogs says:

    RE: Azucar @ 20 – “There are enough variables and unknowns that making an actual equation/mathematical model – at least one that is right very far into the future – would be impossible.”

    Wrong! the inventory is predictable! to an extent.. Of course the further we go right the less predictable it would be. I did not imply that it could have amazing accuracy going out into the infinite future, that was something you pulled out of your butt to make the argument you felt like making today. I think we just want to know which direction it is likely to go into the next season. There were very specific things in play during this bubble that help reveal which inputs are the most important and this phenomenon of vanishing inventory was widespread and consistent through large swaths of the country. There are very few people on here even close to figure it out. For example, the Tim is still saying that it’s caused by underwater home-owners. This is proven false by simply looking at the data. The utility of a tool as I have suggested can only be assessed by going through the process of investigation of all known variables and showing correlation. It certainly, won’t get accomplished by people that dismiss things out of hand with the excuse that things are impossible and listing a dozen inputs that may or may not have high sensitivity to the output. Corndog has already dispelled many myths here based on mathematical reasoning. I’m just suggesting that you guys might want to do this for yourselves, evolve, create and master some tools. After all that is a main difference between men and apes.

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  30. 30

    RE: Plymster @ 1

    Banks are All Litttle Angels

    They’d never cook the books on repossessed inventory sitting around rotting….my neighborhood has several of these bank owned rotting units; some stay empty for years.

    Its a small percentage of the homes, so what, so are the homes listed for sale, a small percentage. Most Seattle homes are not for sale.

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  31. 31

    By ARDELL @ 26:

    Referring somewhat to Mike’s comment about inherited homes and hoping Jillayne might know. If a person still owns the home free and clear that they inherited and owes 2010 taxes of $2,000 the King County site says it will be foreclosed on when the debt is 3 years old with no noticed mailed to the owner.

    If the home is worth $200,000 will the County sell it for $2,000? if they sell it at closer to fair market value and are only owed $2,000, would they keep the $198,000 overage?

    The county will auction it off for the back taxes plus interest and penalties. But it’s really pretty rare that a habitable home gets auctioned for back taxes. Investors are always looking at the lists, and will swoop in and “rescue” these people, offering to buy the house from them. You’d think that somebody inheriting a house would know that property taxes would need to be paid, and the tax bill would reflect the total amount due, including the past due amount. In fact, most of the stuff at the back tax foreclosure auction is either unbuildable or inaccessible. The King County Treasury has the list on it’s website. There are houses on the list, and some of them have a high assessed value. But they’ll likely be gone by the time the auction rolls around.

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  32. 32
    The Tim says:

    Worth noting: More Than two thirds of the Foreclosure Inventory is in Judicial States

    Washington State is primarily non-judicial—banks can pursue a judicial foreclosure if they want to be able to come after you for the full amount of the mortgage, but most choose non-judicial as it’s faster and easier. I wouldn’t be at all surprised to find that there is a much larger amount of shadow inventory in judicial foreclosure states.

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  33. 33
    Benji says:

    Common sense dictates that if lenders are withholding defaulted inventory (and all signs suggest they are), then they are letting that inventory sit in the initial stages, either pre-ND or pre-NTS. To their competitive advantage, this keeps it a fairly known but speculative variable as far as the pubic is concerned, rather than a large and known absolute number hanging over the market, since no public data is available. Since this is where that shadow inventory logically is sitting — where there is no public data — then looking at the only available public data (charts above) is looking in the wrong place, and it’s no surprise things look normal there. It also is misleading I think to refer to a conspiracy, since it’s just a case of lenders acting individually to protect the value on their books. They quietly wait out the market, control sale timing, and meanwhile have the former owners keep the place maintained. Where’s the conspiracy in that?

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  34. 34
    The Tim says:

    By Benji @ 33:

    Common sense dictates that if lenders are withholding defaulted inventory (and all signs suggest they are),

    What signs, exactly? Please cite the specific signs that you believe point to “lenders withholding defaulted inventory.” Rumors and anecdotes do not count.

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  35. 35
    ARDELL says:

    RE: Benji @ 33

    Benjii,

    Back in 2011 the lenders were smart to wait for the market to improve before taking them and putting them on market. They do owe their shareholders the advantage of acting as a prudent man would, sometimes known as The Prudent Man Rule which governed bank employees back when I worked in a bank.

    The reason they would then leave those in pre-foreclosure state during that time is to manage risk, which is also their obligation to shareholders. Once they take the property they are liable for many, many things they are not liable for as the lienholder vs the owner.

    They determine, as best they can, if the owner is living in the house and basically maintaining it as to keeping it heated so pipes don’t burst and create massive damage to their collateral, etc. If the owner is living in and maintaining the home they reduce the “hold costs” by not taking over the ownership until they deem it is a better time to sell. They do have to forecast a bit so if you see banks moving more quickly that is a good sign that they expect the market to go down within 12 months or more. In 2011 they were betting on the market going up, and that is why they had longer processing times.

    Common business sense really. Maximize the asset value and minimize the liability. Asset Managers by definition do this. Is that a “conspiracy” to maximize the asset and minimize liability. I guess, if some want to call it that, they can. :)

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  36. 36
    speedcat says:

    Ardell, that makes complete sense. Thanks for sharing this. You should have your own blog. :)

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  37. 37
    The Tim says:

    RE: speedcat @ 36 – Ardell has hit the 5 comment limit on this thread, so I thought I should let you know that she does have her own blog: https://www.realtown.com/ardell/blog

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  38. 38
    Benji says:

    By The Tim @ 34:

    By Benji @ 33:
    Common sense dictates that if lenders are withholding defaulted inventory (and all signs suggest they are),

    What signs, exactly? Please cite the specific signs that you believe point to “lenders withholding defaulted inventory.” Rumors and anecdotes do not count.

    Anecdotal evidence (personal testimony, not rumor) is not ideal, but it’s infinitely better than no data at all. You’ve drawn a firm conclusion while still having a huge gap in your data right where one would expect to find any shadow inventory. So I would reply, “partial data doesn’t count”. Further researching anecdotal accounts objectively to track down what is going on would be more useful than simply writing them off because they disagree with your partial data. Another “sign” is the robosigning/compromised titles issue, which prevents many lenders from foreclosing even when they’d like to. Can you speak to the remainder of my comment above, the main points? Thanks.

    By ARDELL @ 35:

    RE: Benji @ 33
    Common business sense really. Maximize the asset value and minimize the liability. Asset Managers by definition do this. Is that a “conspiracy” to maximize the asset and minimize liability. I guess, if some want to call it that, they can. :)

    Agreed Ardell, what you say is just an expansion of my point. Except the part about conspiracy — that word has a specific meaning, and I haven’t seen anything to support it.

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  39. 39
    ChrisM says:

    One wonders if banks have a regulatory responsibility to begin foreclosure proceedings after 180 days (or pick some other limit) so that assets are accurately tallied.

    Then, one is hit by the TBTF clue by four, and one shuts up.

    The shadow inventory is property that is 90+ days delinquent but for which the banks take no action.

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  40. 40

    […] A number of you took issue with my data-backed claim that foreclosures are proceeding in a normal, orderly fashion and shadow inventory is a non-issue in the Seattle area. […]

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  41. 41
    Azucar says:

    RE: Corndogs @ 29

    Yes, inventory is predictable to an extent. I agree with that.

    So are a lot of the other variables that affect home prices.

    And sometimes those predictable variables are strong enough factors that they drive the market.

    However, there are a lot of other variables – some of them very predictable, some of them less predictable, and some of them total shots in the dark. Also there are some variables that play into the market as a surprise – that weren’t historically big factors, but suddenly pop up and become major drivers.

    My point was that it would be impossible to create a formula that takes into account all of the variables and uses them to predict the future in any kind of reliable way any distance into the future. Yes, you can look at a few of the big drivers and get a reasonable idea of where the market might go in the near term, but that’s what a lot of people are doing in here and elsewhere in the realty world “using their experience” after “studying the data”. But those people are right sometimes and wrong other times. Many times the times that they are wrong are easily explained… “I thought that housing in Bellevue would continue to go up, but that was before I knew that Microsoft was moving to Chicago” or whatever – those are the “countless other influences that may be total surprises”.

    So, I agree that some kind of “formula” could be put together that roughly approximates what “smart, experienced real estate investors do”, but I just don’t think that it would be reliably accurate any significant amount of time into the future.

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