Rumors are mounting that lenders are stock piling – some people say hoarding – a huge number of yet to be marketed properties that have come to be called the “shadow inventory.” Bloomberg reports that according to industry analysts about 7 million properties are about to be seized by lenders and placed on the market. Evidence exist that there is a tsunami of foreclosures and pre-foreclosures due to hit the market in the next couple of years. Contributing to this wave effect is the result of the recently lifted State and Federal Foreclosure Moratoriums allowing lenders to proceed with legal actions against defaulted borrowers. Several categories of potential shadow inventory exists:
REOs (Real Estate Owned by the Bank)
These are bank owned properties repossessed after foreclosure that have not yet been put on the market. Reports are the number is growing – no one knows for sure though. Speculation exists that accounting reasons justify the banks hoarding of their inventory. Others speculate banks are cautiously avoiding glutting a neighborhood with REOs. As of this writing, only 42 bank owned single family homes in San Mateo County are offered for sale on the Multiple Listing Service (MLS).
Foreclosures in Progress
The delinquency rate has continued to rise, and this will probably result in many more foreclosures later this year as the bulk of the adjustable rate mortgage (ARM) and subprime mortgage loans are scheduled to recast or reset over the next 24 months. The number of foreclosures depends to some degree on the success of the loan modification programs.
Last year many delinquent homeowners listed their homes as alleged short sales, so those homes were not shadow inventory, however fewer delinquent homeowners are listing their homes now as they try to work with their lenders on a modification because many did not meet the eligibility requirements of a short sale. As of this writing, 135 of the 1164 Single Family Homes listed in the MLS are alleged short sales. (I say alleged because a short sale is not a short sale until it is approved by the lender. In most cases, homeowners who claim their homes to be short sales have not been approved, skewing the numbers a bit.)
New High Rise Condos
These properties are not included in the new home inventory report from the Census Bureau, and do not show up anywhere unless they are listed. In San Mateo County very few new high rise condos exist – if any – so they are not a factor.
Homeowners Waiting for the Market to Improve
Homeowners waiting for the San Mateo real estate market to improve figuring to recapture some of the equity lost in the past 24 months. They believe the light at the end of the tunnel is real. Inventory is usually the best measure to follow for the housing market – and according to recent releases inventory is declining for both new and existing homes – however shadow inventory haunts the market. In San Mateo County, inventory levels have declined and the least costly homes – homes under $600,000 – are generating brisk sales and multiple offers. The more expensive homes – over $1,200,000 – are languishing in many areas of San Mateo County.
Inventory in the Lowest and Highest Ends of the San Mateo County Real Estate Market
Currently, there are 218 single family homes in San Mateo County priced under $600,000 and 461single family homes priced over $1,200,000 for a total of 1164 single family homes in San Mateo County listed for sale on the MLS. Clearly San Mateo County is not experiencing the depth of the housing bust that Florida, Arizona and Nevada have seen.
Will San Mateo Real Estate Values Tank When these Homes are Listed?
Does this mean that home prices will drop if and when these properties are listed for sale? That’s a great question that nobody can answer for sure. The Atlantic published an article speculating how banks would handle the new batch of foreclosures. It’s uncertain how the banks will treat this apparently inevitable event and I won’t speculate. If I’ve learned anything in my 31 years as a real estate broker, it’s this: The San Mateo County real estate market will be what it will be. It will be the only market we have and we’ll have to deal with it.
What’s for Sale in the San Mateo County Foreclosure Market?
Click on the map to view San Mateo County foreclosures and short sales for sale. This map is updated daily.
Do You Think the Shadow Inventory Will Flood the Market? Weigh in.
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Raymond Stoklosa, Broker/Co-Owner
Chela Stoklosa, Realtor/Co-Owner
Yes San Mateo County is a unique place and yes it is insulated from the hi growth areas (antioch, vallejo, tracy) that expanded dramatically and have been hit extremely hard by foreclosures. But, because most of the peninsula is relatively expensive ($750,000+) and there will be VERY FEW “move-up” buyers for several years, anyone that “has to sell” an SFR from Palo Alto to Burlingame will have a diminished pool of buyers bidding on that property. IMHO this calls for loooooong, slooooow price decline on the higher side of real estate
Hi JJ,
Thanks for your perspective. It reminds me of a client I had in 1992 who told me that everyone was leaving California because there were no jobs and homes were too expensive. It seems she got it wrong too. As of this moment, I’ll stand by my prediction: In 2013, people will lament that they didn’t buy a home in 2009.
Please check back then and we’ll compare notes. Good luck.