Will More Real Estate Inventory Hit the Street After the Elections?

Question

Despite reports that several of the large banks will be releasing a new wave of inventory, we all wonder what is really happening behind the scenes. Our most active real estate investors have been sending fewer and fewer properties to us for real estate financing as the months go by. Some of them speculate by saying no large amount of new inventory will hit the streets until AFTER the elections.

What is your thought on this? With so many properties in varying stages of pre-foreclosure and foreclosure, there’s definitely inventory out there waiting in the wings. Personally I think it will continue to trickle out and not be “dumped” after the Elections. If you have an opinion on this topic, please share.

Jeff S. · Answer

I’ve not seen a shred of evidence that the banks will release a new wave of inventory after the election but I’d love to read about it. What is your source for this, Corey Dutton? The banking sector has been immensely profitable and any losses they’ve incurred from housing have been more than made up by their investment banking side. All reports I’ve seen still indicate they still hold upwards of 2.5 to 3 million homes as REO’s. From their behavior, it’s been pretty clear that they are willing to hold these for a long time. From a few of their own statements, some of the big REO agents in my area, who used to represent hundreds of REO’s a month now have as few as five. It appears the banks have turned their focus to short sales, which they seem to now be encouraging and which I suppose minimize their losses over straight REO sales. In fact, reports abound that they are paying upward of $30,000 to the homeowners to encourage these sales. Plus, at least in some areas, prices seem to have stabilized – of course this is through extreme market manipulation by the very banks that hold the inventory. From a public relations viewpoint, it also seems that they’ve slowed down on actual foreclosures. Public policies, such as the “Homeowners Bill of Rights Act,” here on the left coast, are also restricting them. Can you imagine the public cry if the banks were held responsible for crashing the market by a huge release of supply? It’s wishful thinking for me to think that the election provides some sort of gate for the banks to change their recent habits. I know most investors want it to happen, but I really see no reason. Of course, I’d like to read your source, Corey. Jeff

Ibrahim Hughes · Answer

I don't see it. I deal with a lot of abandoned properties in my local area (inner city - South Ward of Newark NJ where the foreclosures over the years have been ABUNDANT) and find myself looking up the ownership of a lot of properties. Tons of them are under water YET still in the hands of the defaulting owner. Very few taken by the banks and very few with a foreclosure even initiated yet. And like a lot of markets, very little REO inventory on the MLS yet plenty of short sales. Rehabbers are now putting shorts under contract and waiting for a response in 2-3 months when just months ago they wouldn't touch them. I just don't see the release of this 'shadow inventory', primarily because I don't see where the Banks have that much inventory they're holding onto. I agree with Jeff S - I think they're concentrating more on short sales and perhaps even loan mods.

Corey Dutton · Answer

Again, this is all just rumors, there's not a "source." This is what real estate investors are all saying....

Kofi LeGrand-Sawyer · Answer

Good knowledgeable post.

Corey Dutton · Answer

Jeff S - This is what I'm hearing from real estate investors in our fold, not from any real, legitimate sources. It's all here say....

James H. · Answer

No magical switch is getting flipped after the election. Policies tend to change slowly and gradually. Remember, our government consists of more than just one dude calling shots.

Kyle J. · Answer

In my opinion, I don't think anyone knows the answer to this question and at best would be speculating. They've actually discussed this same topic recently on the Norris Group Real Estate radio show. Even the real estate agents and brokers say they don't know. From my standpoint, it'd be nice to have more inventory come on the market. I guess we'll have to wait and see.

Mike H. · Answer

I think its going to come out. But I think the banks are going to try to push it out to bulk buyers so they don't have to report the individual sales and it won't affect comps as much. And I think there's another big wave coming from the delays the bank made and from the people who realize it makes more sense to take the foreclosure now because their house is going to take decades to return to their previous value (and what is owed on em). Once people fall behind a couple of months, its almost impossible for them to ever catch up. And, for some, it doesn't make sense to even if they could. Take the hit now and, more than likely, they'll still be able to buy their own house back (or one similar) for 20 to 30% less by the time they can qualify again.