Posted by: Timothy Ellis (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.

50 responses to “Shadow Inventory Gut Feelings, Rumors, & Anecdotes”

  1. Benji

    These claims are based on gut feelings, rumors, and anecdotes—not the data.

    Anecdotes from those actually still living in houses mortgage-free years later are indeed data. It’s not as easily sourced as simply downloading tens of thousands of foreclosure stats from Redfin in seconds, since it would take lots of time researching to get a similar quantity. But the fact that non-foreclosure data is much harder to amass than foreclosure data doesn’t mean it’s not data. The phenomenon would still exist whether well-documented or not.

    [...] That’s a peak level four times higher than the highest level ever recorded before 2007 and nearly six times higher than the pre-bubble average. Does that sound like banks holding back foreclosures?

    It’s impossible to say. You don’t provide any data to show how much worse it could have (or could not have) been. It’s just your gut feeling that since it’s high, that it couldn’t have been much higher. That’s not a data-driven conclusion.

    From January 2005 through July 2007 (when Seattle home prices peaked), 100,533 homes were sold in King County. From July 2007 through September 2013, 23,441 homes have been foreclosed. That volume of foreclosures represents nearly one in four homes sold during the bubble years. Does that sound like banks holding back foreclosures?

    It’s misleading to try to tie back all foreclosures during 6+ years including a deep recession to just sales during 2.5 bubble-years, without any data to back it up. It’s a false comparison. In any case, there’s no reason to believe it couldn’t have been worse with still-existing shadow inventory added in, and your numbers above would include foreclosures that were indeed delayed: for example one where default happened in fall of 2007 but the owners lived there until finally foreclosed in 2013. The numbers you cite aren’t evidence of the non-existence of shadow inventory. You’re just trying to say it was “big so it couldn’t have been bigger”, which isn’t logical or data-based.

    There is nothing in the data that we do have that suggests that large numbers of defaulted mortgages are being withheld from the foreclosure process. On the contrary, the foreclosure data looks just like you would expect it to during a massive collapse in home prices following years of increasingly dangerous lending.

    The numbers you quote here aren’t specific enough to determine much of anything other than foreclosure rates generally rose over a wide period of time, which we already knew. That doesn’t preclude years-long shadow inventory backlogs that slowly filtered into that foreclosure pipeline fueling that rise (and which are still filtering in).

    It’s just another sort of confirmation bias. You believe shadow inventory is “nonsense”, so where you don’t have data at all (pre-NTS), or only sketchy generalized data of total foreclosures and total sales that can’t be reliably correlated to one another, you make leaps of logic that confirm your belief rather than objectively investigating those who claim knowledge or personal experience of actually *being* shadow inventory… some leads even seemed to appear in the comment thread of the post that spawned this current thread, and over the years I remember seeing many articles that cited mini case studies of real, named people. But it would take even an objective researcher seeking the truth a very long time to accumulate enough personally sourced and validated data in sufficient quantities to fill in the data picture. That doesn’t mean such data doesn’t exist, however.

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  2. S-Crow

    I have a neighbor (that I know personally) that walked a few years ago…..house still vacant and still no property status change…..Bank of America is the bag holder. No recorded Deed reflecting any change at all. Title still in the homeowners name. I’m of the gut feeling that there is still quite a bit of inventory in limbo. The question is how much?

    We continue to operate in the most heavily subsidized market in the 20+ yrs I’ve been in the housing field. (QE Part 1, part 2, part 3 etc.. Refinance programs for underwater homeowners; lender incentive payments to homeowners in short sales and so on. Remove those and the a few nutty lender guidelines and we’ll be in a normal market where price discovery is based on a solid foundation, not riddled with wood boring beetles in the name QE etc..

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  3. Haybaler

    I know that there are sources for data, monthly, about financial institutions and their loan portfolio performance. People in the financial industry use these sources as a matter of course everyday. A whole subset of investors are mining these sources for opportunities to buy/control real-estate thru Notes and Deeds of Trusts.

    I wish I was tech savvy enough to whip together a set of data for you. It’s out there. One just needs to look in the right places. I wish I could remember where I’ve found some of mine.

    One should be able to correlate those financial services stats to yours presented yesterday. Your data looks backwards. Those in the financial services industry use data on debt defaults and apply their formula’s to it in order to create projections of future outcomes…%Cures, %Mods, %BK’s, %Foreclosures, etc,.

    There are people who KNOW how many mortgages are in nonpayment status….. You could become one of those people….There is a S******d out there. Many multiples more than are currently in the public/legal pipeline. This is the “Shadow Inventory”.

    One of my sources is the Website that I referred to in yesterdays post. Here is a screenshot of one of todays pages….

    ******
    You Just Found Distressedpro.com
    On this site you’ll find REO and non-performing loan reports for every bank and credit union in the US. You’ll see what each institution has in it’s distressed asset pipeline and you’ll have access to hundreds of thousands of contacts. Click on the big red button on the right to learn more.
    Previous Reporting Periods
    Enter any bank name and hit ‘Go’
    6937 U.S. Banks Reporting for Sep 2013. 25 banks updated today. 22 banks added today. 205 banks updated this week. 4502 banks added this week.

    REO Report
    Loan Reports ▼

    List of U.S. Banks With Residential First Position Loans 90+ Days Late
    Click on a bank name to see the full bank record. Click on a table heading to sort your results. Click ‘Watch’ to add a bank to your personal watch-list.
    Show entries
    Search:
    Bank

    City

    State

    Total
    Bank City State Total
    Login to View Charlotte NC $24,551,000,000
    Login to View Cincinnati OH $4,225,166,000
    Login to View Wilmington DE $1,760,764,000
    Login to View Oklahoma City OK $1,644,490,000
    Login to View Jacksonville FL $1,156,623,000
    Login to View Pasadena CA $1,105,645,000
    Login to View McLean VA $979,399,000
    Login to View Winston-Salem NC $927,863,000
    Login to View ATLANTA GA $632,026,000
    Login to View SAN JUAN PR $528,000,000
    Showing 1 to 10 of 500 entries
    FirstPrevious12345NextLast
    – See more at: http://www.distressedpro.com/app/banks/residential/list/RCONC237/#sthash.SmfZpM5o.dpuf

    ****

    One point to note is that many other metropolitan areas are much worse off than the Seattle area with many many times more units in default.

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  4. Jillayne Schlicke

    One source of data will be the FHFA, Fannie and Freddie’s regulator who publishes a report on a regular basis that provides delinquency data on loans in all 50 states. I will be on the lookout for the next report for us and will post the link in the weekly open thread.

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  5. Scotsman

    I too think there may be more shadow inventory than the easy statistics capture. No idea how accurate it is but I’ve been tracking the Zillow stats for delinquencies. They’re in small print on the info graphic linked below. Generally some improvement, but I’m struck by how prevalent the 8-12% numbers are. That’s a lot of folks who are still struggling. What percentage go bad and how the banks do or do not process them aren’t easily know to Joe Public.

    http://www.zillow.com/visuals/negative-equity/#11/47.5464/-122.1072

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  6. ChrisM

    Tim, can you explain these stories (largely from 2009 – I wonder why this is no longer a topic of interest)

    http://blogs.wsj.com/developments/2009/08/20/one-in-eight-homeowners-delinquent-on-mortgage-payments
    “The number of homeowners behind on their mortgage payments hit a new high during the second quarter, with more than one in eight homeowners delinquent or in the foreclosure process.”

    A story on banks refusing to foreclose due to maintenance costs:
    http://www.americanbanker.com/issues/178_78/banks-halting-foreclosures-to-avoid-upkeep-1058558-1.html

    http://www.washingtonpost.com/wp-dyn/content/article/2009/06/23/AR2009062303500.html
    “A growing number of American homeowners are falling into financial limbo: They’re badly behind on payments, but their banks have not yet foreclosed.”

    http://www.calculatedriskblog.com/2009/07/lenders-walking-away.html
    “The home represents a growing phenomenon known as walkaways – properties for which lenders sue for foreclosure but never take the title.”

    Tim, you’re dodging my point – if we had a mark to market requirement (oops, we actually do) then banks would be forced to dispose of a non-performing asset, or dump a delinquent loan. This has not been happening since at least 2006. I’m disappointed that you consider this news.
    Can you explain why you’re so dubious banks would wait 90+ days before beginning foreclosure?

    Finally, kind of wonky, but again I have to raise the topic that the banks are required to have an accurate mark to market:
    http://www.nakedcapitalism.com/2013/10/occ-replies-to-elizabeth-warren-reveal-extent-of-regulatory-capture-on-derivatives.html
    which currently is not actually happening. Banks should be required to dispose of non-performing assets if delinquent more than 90 (or 180) days. This is not rocket science. I’m disappointed anyone thinks otherwise.

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  7. whatsmyname

    RE: S-Crow @ 2

    Do you mean the solid foundation of the worst recession in over two generations? That kind of normal? I suppose it could become normal; if folks like you get their way.

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  8. ChrisM

    My prior comment (#6?) is awaiting moderation because I included a bunch of links. I believe if you enter over four links it goes to moderation.

    So, while you’re waiting for my excellent comment to get approved, you can go and read
    http://www.nakedcapitalism.com/2010/11/servicer-driven-foreclosures-the-perfect-crime.html
    from 2010, and rest assured that the banks were acting according to the law when they initiated foreclosure.

    Down here in Clark County, WA (one of the largest growing counties in the nation during the Bubble) it is trivial to locate a property that is abandoned, but not foreclosed. Additionally, there are a *ton* of people who are underwater and are stuck. Not sure why this is so contentious.

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  9. MM

    I keep hearing about “shadow inventory” for many years. It’s like UFOs. Everybody talks about it but no one has seen them so far.

    I see something completely different – a “shadow demand”. I know many people that would like to buy a house on the eastside but they don’t want to spend $600k+ or $800k+ on a decent home. I believe they would jump in quickly if prices dropped and inventory increased. And they have a lot of buying power either in cash or in borrowing.

    Right now the market for buyers is a tragedy. I also would like to buy a condo for investment and I wish I was more aggressive in 2010-2012.

    It would be nice to have some data about shadow demand to know how many buyer may suddenly appear if prices are down or there is more houses for sale (or both).

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  10. Erik

    RE: ChrisM @ 8
    I have lived in Washington for 25 years and the first time I ever heard of Clark county was when you mentioned it. It is pretty easy to be the fastest growing percent wise when you are a tiny spec. Seriously though, does the graphs on this site have any correlation to the far away land you live? It is good to know what is going on in the real world I guess.

    In crook county you think I moving cabins from one site to the next on skids is a good idea as you posted here earlier. We don’t do that here in modern society.

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  11. McGrath

    RE: Jillayne Schlicke @ 4 – Here are FHFA reports for 2013 specific to Fannie Mae & Freddie Mac. These reports also show what is being done to remedy the situation.

    * In Qtr 1 Washington was #10 in Deeply Delinquent (365+ days) mortgages: http://www.fhfa.gov/webfiles/25340/ForeclosurePreventionReport1q2013FINAL.pdf

    * In Qtr. 2 Washington fell off the top 10:
    http://www.fhfa.gov/webfiles/25550/ForeclosurePrevention2Q2013FINAL100713.pdf

    By 2010, Fannie and Freddie owned or guaranteed approximately half of all outstanding mortgages in the United States, including a significant share of sub-prime mortgages, and they financed 63 percent of new mortgages originated that year. Other federal agencies, including the Federal Housing Administration and the U.S. Department of Veterans Affairs, insured another 23 percent of home loans. This means that federal taxpayers guaranteed approximately 86 percent of all new mortgage originations in 2010.

    http://www.heritage.org/research/reports/2013/01/a-housing-market-free-of-fannie-mae-freddie-mac

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  12. One Eyed Man

    RE: Scotsman @ 5

    I pulled some estimates on the percentages of mortgages underwater a few months ago because some one claiming the sky was falling threw out a bogus number like 50%. I think the articles I saw estimated that the percentage of underwater mortgages nationwide had dropped from about 30% to about 20% (I believe of total mortgages, not homes) with the rise in home prices last year. But even 10% would seem like a large number worthy of some concern.

    It surprises me that I can’t find articles that analyze the mortgage related shadow inventory issue by starting with the number of non-performing loans held by public companies. I’ve looked for such articles several times over the last few years. I haven’t found any but haven’t spent all that much time trying, and perhaps my research technique is lacking. I haven’t gone directly to the annual reports to find numbers for non-performing loans, but I’d think that a statistic as significant to their business as the number of non-performing loans would be set forth in annual or quarterly reports for publicly traded financial institution (and the now basically government owned Fannie and Freddie).

    The article linked below gives what appears to be the number of non-performing loans held by Freddie Mac and not in the foreclosure process. The article states:

    “Freddie Mac alone has not dealt with about 58,000 foreclosures on single-family homes, letting the borrowers go into default instead of paying back the loans, according to the investigation conducted by the inspector general of the Federal Housing Finance Agency.”

    Read more: http://www.washingtontimes.com/news/2013/sep/25/fannie-freddie-leave-46-billion-in-collectible-for/#ixzz2jVUvt43I
    Follow us: @washtimes on Twitter

    http://www.washingtontimes.com/news/2013/sep/25/fannie-freddie-leave-46-billion-in-collectible-for/

    Perhaps the “inspector general” has or will published a report that lays out some of the numbers. Presumably one can calculate the percentage of US mortgages held by Freddie, make a guestimate as to how similar Freddie’s default rate is to the mortgage market in general and do an approximation of the number of non-performing mortgages in the US. If one backs out those currently in foreclosure one would have an estimate of the potential mortgage related shadow inventory.

    CD seems to think that people who are interested should develop a methodology perhaps something like the above to do the estimates of pre-foreclosure mortgage related shadow inventory. To extrapolate from one of Ardel’s comments on analyzing the relationship between inventory and trustee sale activity, I think she and others would say that the effort to do the above calculation would likely be an unreasonable use of time because of the limited accuracy and utility of the estimates and conclusions. I might look for articles once in a while, but as much of a pseudo-intellectual Ahole as I might occasionally be I’m not going to do the grunt work to write one. That’s The Tim’s job here, right? ;-)

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  13. whatsmyname

    By ChrisM @ 6:

    Finally, kind of wonky, but again I have to raise the topic that the banks are required to have an accurate mark to market:
    http://www.nakedcapitalism.com/2013/10/occ-replies-to-elizabeth-warren-reveal-extent-of-regulatory-capture-on-derivatives.html
    which currently is not actually happening. Banks should be required to dispose of non-performing assets if delinquent more than 90 (or 180) days. This is not rocket science. I’m disappointed anyone thinks otherwise.

    This is a very good article from a very good site, but is not at all about your intended point.

    To your point, banks are required to mark down seriously delinquent loans based on reasonable expected recovery, and to continue marking them down as delinquency grows. The quality of this work varies by bank, but the markdowns are annually sampled/reviewed by multiple regulators plus each bank’s internal and external accountants.

    The results are reflected in the bank’s financial statements. Per loan information is proprietary, and to be managed by the bank for the greatest benefit of the bank’s stockholders. Business is cyclical. It is absurd to suggest that a solvent business be required to arbitrarily sell its assets into the distress cycle when there is no distress in the business. This is mostly a good way to make a solvent enterprise insovlent.

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  14. Frank

    I think a lot of the believers in the shadow inventory notion are people who have been hoping that they didn’t miss the opportunity to buy a home when prices were low. Most reputable sources have pretty much eliminated the existence of any sizable inventory out there just waiting to hit the market.

    For those who keep believing that there are homeowners who are anxious to put their homes on the market but are waiting until prices rise further, I ask you, where are they going to live once they sell? The supply/inventory in the US as well as Seattle is at an all time low and most people are staying put for that very reason. For the past 4 years the headlines have been full of allegations that “a huge shadow inventory is coming” or “more inventory will hit when potential sellers come off the fence and put their homes on the market” or “builders are going to quickly ramp up supply taking the pressure off of low supply” or “increasing mortgage rates are going to end price increases” (in spite of the fact that they are still at historic lows and research has shown that maybe at 6% or higher, mortgage rates might limit some borrowing.) The fact is that builders are only producing at a 60% replacement rate nationally the 1.5 million residential units necessary annually.

    There’s just no money in it for developers who build cheap housing in places like Seattle. So many have gone BK that the remaining builders have only been building what they sell and are not building homes before a buyer signs a contract. Moreover, much of the bottom quartile of the homes have been bought by investors for rentals and probably have been removed from the re-sale market for many years. People at the lower incomes who used to buy are now going to have to face the fact that they’re likely to be tenants.

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  15. MichaelB

    Median Household income in King County 2012 was about $68,000. Meanwhile, the median home price in April 2013 in King County was $392,000. This multiple should be 2 to 3 times rather than 5-6 times. Asset prices in the USA are inflated due to QE – the housing bubble has been reflated. QE is not normal and when it stops and the tide finally goes out, we will see who is swimming naked.

    Of course, it’s hard for people who have purchased homes and who have stock in Redfin to come to this obvious conclusion…

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  16. whatsmyname

    Frank, you nailed it. Except that there is some spec building.

    MichaelB, Before asset prices were inflated by QE, they were deflated by the long wave great recession. QE is not normal, and neither is the great recession. With adults in charge, they will fade away approximately together. How on earth do you miss that?

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  17. ARDELL

    RE: MichaelB @ 15

    The median household income is reported as being only $10,000 higher than the median per capita income. Begs the question: How many people buying a single family home vs a condo are one income families? Do we use two times per capita median for the % of homes being purchased by two wage earner households?

    I ask this as both husband and wife working is more the norm in my experience when dealing with single family homes vs condos. The 2nd wage earner is usually making much more than the $10,000 difference between per capita and household median income. Also the two incomes are often somewhat equal vs a “primary” wage earner plus a “secondary” and much lower wage earner.

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  18. Saulac

    From the Tim, above:
    “There is nothing in the data that we do have that suggests that large numbers of defaulted mortgages are being withheld from the foreclosure process.” Emphasize “do” by the Tim.

    My take is as that you say you do not have any data that indicates there is a shadow inventory. I must agree with you on this technical point.

    Thank you for showing that banks, in general, process properties in a timely manner once the properties have reach the Notice of Trustee Sale state.

    That said, it is currious why you, in the last two post, seem to defind shadow inventory as from “NTS” to “listing”, instead of from “in default” to “listing” (per your excellent “Minimum Foreclosure Timeline in Washington State” illustration in previous post.)

    Just like many people here, I believe there is a certain amount of shadow inventory in the form that the morgate holders have stopped paying for a long time but bank has yet to issue “Notice of Trustee Sale” (I have no clue if banks would stil issue “Notice of Default” or not. I guess they still do). The key word, I am sure that you already knew, is “delinquency rate” or “seriously delinquency rate”
    I understand the delinquency rate is still higher than the history norm. From here:
    http://www.calculatedriskblog.com/2013/10/fannie-mae-mortgage-serious-delinquency.html
    I think banks have learned not to forclosed and let properties to rot. Instead, they let people live for free.
    Tim, have you explored the shadow inventory from the delinquency rate, or I missed something?

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  19. doug

    The shadow inventory has been absorbed by investors such as blackrock who are buying real estate in bulk. Are we witnessing lies in the economics of real estate? Yes we are. But its not just in real estate its in almost everything. The central bankers are throwing the biggest party in Americas history thanks to QE. The tides are shifting and reality and the crash that should have happened in 2000 is about to begin. Gold GUNS CANNED GOODS. PROTECT YOUR FAMILIES GET OUT OF THE BIG CITIES.

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  20. One Eyed Man

    RE: Haybaler @ 3

    Would you agree that the amount of potential “shadow inventory” is (for our purposes) probably directly proportional to the dollar volume of mortgage loans that are delinquent (or non-performing).

    If I told you that statistics linked above on this thread show potential shadow inventory may have declined by 50% this year, would you respond by saying, “right, when monkeys fly out of my . . .”

    If you generally agree with the above hypothesized direct correlation of non-performing loan volume to volume of shadow inventory, a stat linked by Haybaler on this thread supports the conclusion that the dreaded (potential) shadow inventory may have declined by more than half this year.

    Go to the site Haybaler linked? Then, click on “Loan Reports” and click on “Residential” in the drop down menu. Then go to the “Previous Reporting Periods” on the left and click on 12/31/12 to pull up the bar chart for the total dollar amount of delinquencies. It will appear at the bottom of the page. Compare it to the 9/30/13 bar chart. If I’m reading it right, the dollar numbers for non-performing loans for the approximately 7000(?) banks reported on the site has been cut approximately in half in the last 9 months. If the dollar amount of delinquencies is directly proportional to the dreaded amount of potential “shadow inventory” then it would appear the volume of potential shadow inventory is dropping rapidly, perhaps cut more than 50% this year!

    Now pull up your pants back up and get that stinking monkey a shower!

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  21. Haybaler

    RE: One Eyed Man @ 20

    Look, I’m not one claiming the world is coming to and end suddenly. I think this whole mess is unwinding smoothly and the market players (financial industry, politics, real-estate industry) are learning to work with the current situation. We live in a great country.

    Saulac, at 18, has a great link. Very timely for this discussion. I really like the graph at the end of that article:

    http://4.bp.blogspot.com/-Km1ui3MNrns/Ukn35-gUodI/AAAAAAAAcIo/ssC0adp9qtc/s1600/FannieAug2013.jpg

    50% improvement this year? Ok, Check out the graph. We appear to have a way to go with a return to “normal” numbers of delinquent mortgages in late 2015…(assuming we can put trust in the commentary accompanying the chart).

    If we agree that there is a correlation between numbers of delinquent mortgages to the total dollar amount then it appears from these sources that the backlog of inventory (shadow inventory) is still abnormally large by about…400%?

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  22. One Eyed Man

    RE: Haybaler @ 21

    I made my comment as a reply to your comment Haybaler, only because you linked the site with the data. My intent was to give you credit for the linked data and to make it easy for others to find by going back to your comment. I didn’t mean to imply that you took any particular position on the shadow inventory or that the substance of your comment was either logically correct or incorrect. I just thought that the potential implications one could draw from the data were interesting. For example, if I had put up a one sentence comment that (potential) shadow inventory dropped 50% in the last 9 months a lot of people reading this site would have said there was no data to back that up and that I was “full of it.”

    The possibility of a 50% decrease in potential “shadow inventory” over the last 9 months (based on the drop in non-performing loans shown on the linked site) begs a number of questions such as “Will the claimed iceberg of shadow inventory completely melt away with little or no increase in inventory generated thru short sales and REO’s?” Another question would be whether the change in non-performing loans is driven primarily by the increase in prices evidenced by the increase in the CSI over the last 18 months.

    The bear case for market collapse to be caused by an iceberg of shadow inventory seems to be predicated upon the need to clear a huge unknown number of non-performing loans from the system as short sales and REO’s. Corndog has been saying for months that the stream of known REO properties (counted by NTS’s and/or Trustee’s Deeds) isn’t large enough to make a meaningful impact on inventory currently for sale. His conclusion is based upon relatively simple math using the number of new trustee sales and an assumed absorption rate for the REO stream. But his math only dealt with the tip of the iceberg (i.e. the stream of trustee sale properties). A more exact analysis would require one to find the data showing the magnitude of non-performing properties which aren’t counted in the foreclosure data. The site you linked not only provides what may be a dollar denominated proxy for the number of non-performing loans, but also provides an historical tracking showing that a huge portion of the potential shadow inventory disappeared in the last 9 months with little or no change in the inventory listed for sale.

    I couldn’t tell from what I saw on the linked site whether it included the non-performing inventory of Freddie and Fannie which are probably the biggest piece of the iceberg. I tried putting in Fannie’s full name where you can inquire regarding particular banks but it said “no match.” It’s possible that I had Fannie’s name slightly incorrect or that the non-performing GSE loans are listed under the servicers names, but I didn’t see any simple way to tell.

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  23. One Eyed Man

    RE: Haybaler @ 21RE: Saulac @ 18

    I hadn’t read Saulac’s link to Calculated Risk when I posted comment 23. Thanks Saulac and Haybaler for the links. I had unsuccessfully looked for that or similar data on several occasions.

    The Calculated Risk link shows that the GSE held delinquent loans have decreased rapidly over the last couple of years (but not 50% in the last 9 months) with no significant increase in the inventory listed for sale. The data from both links would appear to support the conclusion that shadow inventory is disappearing without much effect on the actual inventory, at least to this point. I think the data supplied supports The Tim’s comments concerning the limited effects of shadow inventory. IMO, given the data supplied by Haybaler and Saulac, those who see shadow inventory as a huge market risk will now have to show why that trend (disappearance of potential shadow inventory with no increase in actual inventory) will change before the level of potential shadow inventory is normalized to historic levels.

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  24. Neil

    Tim, I’m trying to understand your motivation here. It seems like rather than looking for the complete facts, you’re looking to support your odd hypothesis that there’s simply no such thing as shadow inventory, and there never has been all through the bubble and its aftermath. Why do you label shadow inventory “nonsense”, rather than something less inflammatory? You also radically overstated RealtyTrac’s claim about the potential effect of shadow inventory on the market — and when someone “doth protest too much” like that, I have to wonder about motivation.

    So now you probably feel that you really have something to prove, which I expect will result in another post that tortures more shadowy data while dismissing common sense indicators and any data that interferes with your hypothesis. I think your reputation will be better served by regrouping and reconsidering your hypothesis and your apparent attachment to it. Right now, I have to take any further claims with a huge grain of salt.

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  25. whatsmyname

    RE: Neil @ 25 – Tim has never represented anything remotely like “simply no such thing as shadow inventory, and there never has been all through the bubble and its aftermath.” Perhaps you should consider your own motivation in radically overstating this straw man.

    It would be one thing to show Tim is selective in choosing his facts, (and he sometimes is), but you don’t seem to provide any “complete facts” to support your “common sense” perception, let alone anything to the level of facts that Tim does muster. Frankly, you are also overlooking that the whole post goes against Tim’s often demonstrated and proclaimed personal pro-buyer bias.

    Still, I know that you know a guy who knows a guy, plus I saw a vacant house last month too. So keep renting, and keep waiting for the tsunami. It will be good for both of us.

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  26. Scotsman

    Good discussion. To sum up, at least from my perspective, I think that whatever shadow inventory has existed and/or might still exist is being absorbed by the banks and market at a well managed pace. Through a variety of mechanisms the FED has ended up with the bulk of the bad paper, its member banks are on stronger footing, and all appears well. Is some unforeseen slug of shadow inventory going to suddenly appear and collapse the housing market? No. Prices are still a function of income and general affordability, factors that appear to be holding stable. But the core of this seemingly well managed economy is still rotten, propped up by QE and an enormous amount of new debt, not real growth in productivity, employment, and net worth. We’re still very much in a bubble, just not a housing bubble. The disease has spread through dilution, infecting a broader base. How much longer it can hold is anybody’s guess but I wouldn’t give it more than a decade at best. Math and reality will still win in the end.

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  27. toad37

    RE: Scotsman @ 27

    Well said.

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  28. fubarrio

    RE: Erik @ 10 – on the off chance this post wasn’t 100% troll…there is “another” vancouver most washingtonians have heard of.

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  29. fubarrio

    RE: Frank @ 14 – get in now, before you’re priced out forever.

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  30. Erik

    RE: fubarrio @ 30
    This has been ongoing with ChrisM. I think his knowledge doesn’t apply since it he isn’t part of the area. I am waiting for him to explain what he is learning here since this data does not apply to him. Yes, I was trolling for a response. :-)

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  31. Neil

    By whatsmyname @ 26:

    RE: Neil @ 25 – Tim has never represented anything remotely like “simply no such thing as shadow inventory, and there never has been all through the bubble and its aftermath.”

    Not even “remotely like”? It’s only a quibble over semantics, Tim calling it a “non-issue” in 28 above, and before that, nonsense, “foreclosures being processed in much the same way they always have”, negligible effect, etc. … but yes, it’s not a direct quote. If only you were half as quick to call Tim on his much more significant issues.

    By The Tim @ 28:

    By The Tim @ 25:
    According to the data in that second link, a grand total of 21,591 loans were 90+ days delinquent across the entire state of Washington, representing 2.6% of total Fannie / Freddie loan inventory. Hardly seems like a massive store of possible shadow inventory to me.

    For a little more context, that’s approximately 0.7% of the total housing units in the state.

    Except for all the data caveats you don’t mention. Such as the fact that you use total housing units to arrive at that 0.7%, which includes apartments and mobile homes that never had a mortgage and never will. Using just single-unit housing, it’s about 1.1%. Such as the fact that percent of total housing isn’t a very relevant number to start with, though percent of current inventory would be. Such as the fact that you’re only accounting for Fannie/Freddie loans, not the total loan pool. Such as your ignoring the Q1 link above in favor of Q3 which is lower, since you’ve maintained that shadow inventory has been a non-issue all through the boom/bust cycle. That you consider even your lowballed but significant 2.6 months of remaining shadow inventory a “non-issue” is a real eye-opener. And how do you reconcile that with your nicely matched charts? No, it won’t be dumped all at once, RealtyTrac never said that, and I never did, that’s the strawman. But it has been a significant market drag and will be for some time yet to come. And it’s not a finite pool, it’s a revolving pool… it won’t be played out in 2.6 months or anything close to that.

    Again, the data points toward shadow inventory being a non-issue.

    You’ve produced lots of numbers and charts, but no useful data points. It’s a shame you’ve dug in and circled the wagons rather than eating some crow and moving on. While shadow inventory may not be what it once was, no reputable market watcher believes it’s been a non-issue. The banks got their TARP money and then sat on their non-performing loans, never even entering your charted foreclosure data stream until it made sense to start putting them on the market.

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  32. whatsmyname

    RE: Neil @ 33 – Tim has always maintained that there is shadow inventory, so it is not a quibble to draw a distinction when you go to the extreme to say he claims that there is “no such thing”.

    I don’t know Tim’s full opinion, but it is a huge distortion to equate Tim’s statement that the shadow inventory IS a nonissue with a statement that it HAS ALWAYS BEEN a nonissue. (eg. The Nazi party IS weak in Germany).

    I am pretty quick to call Tim on analytical errors. I’ve been doing it since 2007.

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  33. Neil

    By whatsmyname @ 34:

    RE: Neil @ 33 – [...] it is a huge distortion to equate Tim’s statement that the shadow inventory IS a nonissue with a statement that it HAS ALWAYS BEEN a nonissue..

    Is it? His chart went back to 2000, and he claimed “The data shows foreclosures being processed in much the same way they always have”. Where is his exception in there for a period where shadow inventory has been an issue? I don’t see it.

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  34. Neil

    By The Tim @ 36:

    By Neil @ 35:
    By whatsmyname @ 34:
    it is a huge distortion to equate Tim’s statement that the shadow inventory IS a nonissue with a statement that it HAS ALWAYS BEEN a nonissue.

    Is it? His chart went back to 2000, and he claimed “The data shows foreclosures being processed in much the same way they always have”. Where is his exception in there for a period where shadow inventory has been an issue? I don’t see it.

    Yes, it is. In late 2010 it would have made sense to talk about a large shadow inventory, given how many homes had been foreclosed over the last year or two prior. And indeed, that’s when the shadow inventory became real inventory and moved through the market. Between early 2011 and early 2012 roughly 1 of every five homes sold in King County were bank-owned.

    I don’t doubt that there was late-2010 shadow inventory, but you can’t have it both ways. You claimed in your earlier post with the chart that the consistent proportional nature across the chart, “throughout the entirety of the data” from 2000, precluded significant shadow inventory. Where is your late 2010 shadow inventory on that chart? Off-chart, like everyone has been telling you? If it doesn’t appear in late 2010 then it doesn’t appear anywhere, including now, and the chart can’t possibly say anything about shadow inventory.

    Also, you can’t judge volume of shadow inventory by percent of bank-owned sales. That assumes that delinquent properties are being brought to market at a consistent rate, where a decrease in listings/sales would mean a decrease in backlog. That’s an unsupported assumption though. Timing is entirely under the control of the lenders, with feedback from the market. An REO sales slowdown could just mean the market is too low at the moment to bring more inventory to sale, and shadow inventory is building up rather than decreasing.

    The problem is, there are perma-bears who have been going on and on about a large shadow inventory for years now despite the fact that all signs point to foreclosures and distressed sales becoming less of an issue.

    Which is it, “less of an issue”, or a “non-issue”? Because even I would agree it’s likely less of an issue, though still significant. RealtyTrac said similar.

    I don’t mean to harangue you on this… more than anything I’m disappointed by your abandoning of method on this subject. You’ve said your engineering background influences your perspective here, but on this issue you seem to be following anything but the scientific method, cherrypicking data that supports (at first glance, anyway) your hypothesis. Maybe it’s just an over-reaction to those perma-bears, but it’s not objective.

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  35. Erik

    RE: The Tim @ 36
    “Perma-bears” I like it. Lot of those on this website.

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  36. Haybaler

    Here is an update on the Calculated Risk page on Delinquent mortgages and Foreclosures.

    http://www.calculatedriskblog.com/2013/11/lps-on-mortgages-new-problem-loan-rates.html

    It appears to me that this place called the Mortgage Monitor is The place for historical and current data.

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  37. Benji

    By The Tim @ 40:

    RE: Haybaler @ 39 – That’s about three months of inventory at the rate of closed sales over the last six months. It would barely put a dent in the market, even they all turned into real inventory all at once, which they obviously wouldn’t.

    Two quick questions: 1) Can you show your math on that? and 2) Last I heard, current total King Co inventory is at about 3 months… how do you figure that hypothetically doubling that instantly would barely put a dent in the market?

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  38. ChrisM

    RE: MM @ 9RE: doug @ 19RE: whatsmyname @ 13

    whatsmyname — I completely agree with all your points. My problem is that I don’t believe the markdowns are happening. I don’t think the bank necessarily needs to sell the distressed property (or the loan) but that they need to recognize they won’t be collecting, and that this isn’t happening.

    We’ve seen serious admissions by Bank of American and Chase that they weren’t complying with the law. Do you think this falls under that admission, or are you of the camp that thinks they capitulated to avoid further legal fees?

    While I don’t think Seattle per se has this problem, I think other areas (Phoenix & Atlanta for example) still have issues.

    Doug – In Washington (I don’t know how other states operate) the foreclosure process should be open to the public, who are free to bid at auction. Thus, everyone gets a shot at the property. If this is not happening then it should be major news.

    MM – I’ve seen tons of shadow inventory and so can you – just go to Redfin’s website, look at property that has gone into foreclosure, but has not gone for sale after 120+ days (or whatever measure you prefer).

    Finally, does anyone think this is a normal market? If so, please explain to me how 1 year CD rates under 5% are supposed to make sense. Tonight I listened to a segment on NPR about how Washington state is watching Colorado’s vote on a proposed income tax for education. If Washington does in fact pass an income tax, will this affect housing? I have to suspect so. A few years before blood is running in the street does it make sense to purchase a non-liquid asset, especially when in many cases it isn’t an asset at all?

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  39. Undocumented Shadow Inventory Scarce in King County • Seattle Bubble

    […] last Friday’s post about shadow inventory, “Haybaler” shared a great link in which Calculated Risk reported LPS delinquency data for September. This data addresses the main […]

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  40. MichaelB

    RE: whatsmyname @ 16

    Yes, how could I have missed $80 billion / month ($1 Trillion / year) and no taper in sight… That $80 billion has to go somewhere and it is going into reflating asset prices including the stock market and housing. Welcome to the new normal…

    Magic pudding or Bubble Tea? “It’s all good at Seattle Bubble” I must be a “perma-bear”

    The reality is that the taper cannot be delayed indefinitely…we are in new territory and nobody knows what the end result will be. This equals a high degree of risk, especially for non-liquid assets. When the taper happens, interest rates increase, prices drop, investors will run for the exits. Should be interesting.

    Looking only at statistics like shadow inventory (which may well have decreased due to reflating of the housing bubble) without the macroeconomic context is foolish.

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  41. doug

    RE: doug @ 19

    Man, leave the blog for a few months and some guy with your username is ranting about guns and gold.

    Ironic since I spent a lot of my time on this site arguing that gold was a bad long-term investment when it was around its peak.

    i should’ve picked a more demonstrative username.

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  42. ron

    RE: doug @ 46 – Doug, I was wondering if you’d snapped! There’s another Ron on here as well but without the Lab pics…

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  43. PatH

    $80 billion / month ($1 Trillion / year) and no taper in sight… That $80 billion has to go somewhere and it is going into reflating asset prices including the stock market and housing. Welcome to the new normal.
    Taper?, I’m wondering how far down the road is the next increase.

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  44. Jeff

    Sorry to resurrect, but I was interested in the discussion in light of this years apparently slim inventory and price gains.

    http://www.seattleshortsales.com/short-sale-blog/stats-for-seattle-area-homes-underwater-delinquency-rates

    The article above shows more alarming delinquency rates they say they got form Zillow. Is it just marketing flannel to make people pay attention to their article? The “little or no equity” bit was interesting reading too.

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  45. ChrisM

    RE: Jeff @ 49 – HI Jeff – I’m still happy to debate the topic — I still don’t believe the banks are forced to dispose their distressed assets.

    What do you think?

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