 |
Homes held back? The shadow market knows
Denver Business Journal - by Paula Moore
Denver-area residential real estate brokers fear a flood of foreclosed homes still held by lenders — the “shadow market” — will be put up for sale in 2010, depressing home prices and values even more than they already have been in the recession.
A big influx of homes coming on the market all at once would hurt the recovery in the local housing market, according to real estate experts. Brokers already anticipate a sharp drop in home sales in the second half of 2010, after federal homebuyer tax credits expire June 30.
Those who believe in the shadow-market effect vary widely about how big it is. Estimates nationwide put it beween hundreds of thousands to several million homes held by lenders, but not officially on the market.
Shadow-inventory estimates are based on extrapolations by real estate and financial companies using data such as loan-deliquency figures, and comparisons of bank-owned homes to listings of for-sale homes, as well as comparing for-sale homes, default notices and auction dates.
For example, RealtyTrac Inc., an online seller of foreclosure homes, found in a spring 2009 study that only 30 percent of foreclosed homes were listed for sale by Multiple Listing Services in four states, including California.
One national report put metro Denver’s shadow market at nearly 14,000 homes, relatively low compared to cities that have been harder hit by the recession.
“There’s no question you hear a lot of [brokers] talking about it,” Will Roberts, broker owner of MB BrokerForDenver.com LLC and former president of the Denver Board of Realtors, said of the shadow market.
But some Denver-area residential brokers aren’t even sure there is a shadow market.
“I’ve got to say I’m leery of it. … It’s like the boogeyman,” said Charles Roberts, broker owner at Your Castle Real Estate LLC in Lakewood and Denver Board of Realtors board member.
Some lenders with Denver-area operations, in their defense, contend they put foreclosure homes on the market for sale as fast as they can, largely because of federal regulatory pressure to sell those homes, as well as the cost of holding and maintaining the properties. Banks also hire real estate agents to sell foreclosure homes.
“It is our practice not to hold that inventory, because our goal is to get it ready for immediate sale,” said Kevin Waetke, spokesman for Wells Fargo Home Mortgage.
Wells Fargo & Company (NYSE: WFC) — along with Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Company (NYSE: JPM) and Citigroup Inc. (NYSE: C) — are among the country’s largest mortgage lenders.
“Most banks that are carrying this kind of inventory have regulatory pressure to move it off their books. … Most banks don’t want to own real estate because of the carrying expense,” said Bruce Alexander, president and CEO of VectraBank Colorado NA.
Alexander also pointed out that banks often sell mortgages to loan pools that are packaged into mortgage-backed securities. “Part of the problem is a lot of these loans are in pools, and it’s hard to … separate out properties and get them on the market,” he said.
Some Denver-area real estate brokers believe that an increase they’ve seen this year in broker price opinions (BPOs), which banks and mortgage companies use to value foreclosed properties before disposing of them, signals more bank-owned homes will be listed for sale in the next few quarters.
“There’s been an uptick in BPOs requested for banks,” said James Browning, broker owner of Westminster-based The Browning Group LLC and a specialist in selling bank-owned properties. “What that has meant in the past is that the banks are gearing up for inventory coming on the market.”
The shadow market generally is defined as homes that have been foreclosed on by their mortgage lender because a loan is in arrears, but haven’t yet been put on the market for sale.
Homes whose owners want to put them on the market, but are holding off until selling prices improve, also sometimes get lumped into this category.
Reasons for the delay in selling foreclosed homes, according to brokers and mortgage experts, include lenders waiting for home prices to go up, and being so overwhelmed with foreclosure homes that it takes a while to put them on the market. Longer waiting periods before a default notice is issued, and government-imposed requirements such as foreclosure moratoriums, also are clogging the sales pipeline for such homes.
National real estate- and mortgage-related companies such as RealtyTrac.com and Trulia.com recently have been warning about the shadow market. Trulia.com CEO Pete Flint has said a significant number of shadow homes could hit the market in the next four to six months.
Amherst Securities Group LP of Austin, Texas, a dealer and marketer of mortgage-backed securities, among other things, estimated the U.S. shadow market’s size at roughly 7 million properties in a report released in September 2009.
“That housing overhang is the single-largest impediment to a recovery of the housing market,” the report said.
The report calculated metro Denver’s shadow-market inventory at 13,888 homes.
Of 20 major cities included in the Amherst report, Los Angeles had the highest estimated shadow inventory, at 81,389 homes, followed by Las Vegas (52,849) and Phoenix (44,868). Boston had the lowest inventory, at 1,037.
No comments:
Post a Comment