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.
Your main objection seems to be based on a belief that there are large numbers of homes with mortgages that the borrower has stopped paying months or years ago, but for which the banks aren’t even filing a notice of trustee sale.*
The problem I have with the claim that “shadow inventory is there, but it’s just not measurable” is the same problem I had back in 2006 with claims that Seattle home prices were not in a bubble. These claims are based on gut feelings, rumors, and anecdotes—not the data.
It’s true that we can’t measure the number of borrowers who have stopped paying their mortgage but have not even reached the first quantifiable step in the foreclosure process (notice of trustee sale). However, we can look at what data we do have available to see if it implies something else going on that we can’t measure.
Foreclosure filings surged from ~250 a month in the years before the housing bubble burst to over 1,600 in a single month in 2009, when home prices were falling over 16% year-over-year. 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?
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?
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.
How many foreclosures would have to have occurred for you to believe that there was no large backlog of shadow inventory being withheld by banks? 50% of homes sold during the bubble? 75%? 100%?
I’m not buying it any more than I was buying the “Seattle is special” anti-bubble argument in 2006.
*There were also a few of you who consider homeowners who are current on their mortgages but either underwater or otherwise unable to sell as “shadow inventory.” I consider those homes to be “pent-up supply,” and I think that number is probably quite large (but also not measurable). For the purposes of this discussion though I’m going to limit the definition of shadow inventory to homes where the borrowers have stopped paying their mortgage(s).