Thursday, January 27, 2011

California Shadow Inventory Report - Q4 - 2010

This is a simple graph to show the accumulation (or lack thereof) of REO inventory. When the blue line is above the green line REO inventory could be accumulating. I say "could be" because the green line is merely the number of homes sold during the quarter that were foreclosed in the past 12 months, so investors trustee flips would be captured in the data as well. I think the blue line will elevate somewhat but the two lines will stay pretty close as it makes little sense to foreclose and not market the home.I am very doubtful of the tsunami theory simply because the government has said it is not what they wish to happen and they have gone to great lengths for it not to happen. What we will have instead is stagnation in the market for a very very long time.

As you can see with the above graph, there was a drawdown in REO inventory in Q4. The net drawdown is about ~2000 homes. Sales were ultra low but homes taken back by the bank were even lower. I am sure this is no coincidence. REO inventory sells very well and the robosigning issue slowing down trustee sales had to have an impact in Q4.

1 comment:

Anonymous said...

Short sales are distressed property sales and have provided the banks and RE industry another avenue beyond the foreclosure process. Higher value REO's do not sell quick and banks suffer larger losses as the trend toward REO moves up the chain the banks see nothing but red ink. Auction buyers/flip sellers are having mixed success with many cutting prices just to break even and get out. The time line from auction to remodel has to be very quick as the market continues to decline cutting margins. These same auction buyers have not moved into the higher level homes as out of pocket costs add to the risk levels except for the most desirable locations. Also the FBI is investigating the small group of auction/flip buyers for price fixing at the auctions.
Your overall points are correct but the market continues to deflate in spike of the FED and Treasury actions.