Phoenix Shadow Foreclosure Inventory-Does It Really Exist?
Ok, I've finally been asked enough questions about the "Phoenix Shadow Foreclosure Inventory" from both Phoenix short sale sellers, and the buyer clients we represent. Several buyers that we represent are now saying that their friends/neighbors/relatives are warning them not to buy, as there is this HUGE pent-up inventory of homes that the banks own, and it's just a matter of days/months before they "release them to the market". I say BS! Do me a favor and Google search the term "shadow foreclosure inventory", and you'll see that everyone from real estate agents to major news networks have been talking about this "shadow foreclosure inventory" since 2008. Yep, 3 years ago. If you read the articles, you'll see a common opinon..."Banks don't want to release all of their inventory because they are afraid they will damage a market that is already in deep trouble. BS!
As a Phoenix short sale agent that deals with banks on a daily basis, I can tell you one thing...The banks could care less about borrowers, and they care even less about "harming the market by releasing too many homes", as so many have claimed over the past several years. Banks/lenders/servicers care about one thing and one thing only...How do we make money TODAY? They could care less about screwing up the real estate market by releasing too many homes.
Now, I know that each market is different, but let's focus on the Phoenix market (as it's the only market that I might possibly have a clue about). For those of you that are "visual learners" (like me), see the graph below...Please click on the graph to make it larger..
Now, let's break this down, shall we? I'll describe each catergory below, as provided by the Cromford Report (an excellent resource for actual Phoenix data, by the way).
Pending Foreclosures: As per the Cromford Report, this includes all homes that have simply recieved a "Notice of Trustee Sale". I say "simply" because this number does not take into account potential short sales, loan modifications, etc. It represents everyone in Maricopa County that has received a Notice of Trustee Sale, which is normally received after missing 3 payments (90 days). Now, you need to understand something that is very important...Follow me here...Last month, we sold 8,387 homes, and in July we sold 11,125 homes in Maricopa County, and almost 50% of all sales were REO, or bank-owned. Also, in July, only 2,047 homes went back to the bank at the foreclosure auction, 1,673 were sold at auction, and 2,102 were postponed. Unfortunately, the "doom and gloom" that you so often read includes these skewed numbers. If people would just dig a little deeper, they would realize that we aren't in as bad of shape as they are reporting. In my opinion, these numbers should not be included in the "Phoenix Phantom Foreclosre Inventory", as there are WAY too many variables in play. For the past year, we are averaging 3,828 REO and 1,966 short sales per month, for an average of 5,794 "distressed" sales/month. At this pace, we could blow through this so-called "phantom foreclosure inventory" that everyone is talking about in 2-3 months. Is this a pending crisis? I think not.
Unlisted REO's: To me, this is the true "Phoenix Shadow Foreclosure Inventory". According to the Cromford Report, these are homes that the banks currently hold in their inventory, and for one reason or another have decided not to release them to the market. The report shows that there are currently 7,158 homes that the banks are currently "holding back" from the market. Again, in my humble opinion, this is the only "true" number of "Phoenix Foreclosure Inventory" that exists today. The "Pending Foreclosures" category is too arbitrary, and has too many variables to include it in what I feel is the true "Shadow Foreclosure Inventory". I'll repeat, we sold 8,387 homes in July, and 11,125 homes in June. Do the math, and you'll see that we could get through 7,158 homes in very little time. Again, just my opinion.
Active REO's: These are bank-owned (REO) homes that are actually actively listed in the ARMLS. As it stands today, that number is 2,781, and continues to fall as the months go by. This is a good thing, by the way.
Pending REO Sales: As the title implies, these are REO's that are currently under contract, awaiting lender/seller approval. Again, a very encouraging number.
So, what does all this jibberish mean? Do we have a Phoenix Shadow Foreclosure Inventory? I say we do, but it's not nearly as significant as some of the REO Gurus (i.e. folks trying to talk agents into taking their REO agent classes) are telling us. REO's are here to stay, but I don't think we should be afraid of an "avalanche" of REO homes that are just waiting to hit the market. These so-called "experts" have been calling for this for the past three years, and we still continue to sell homes at a pace that far exceeds the impending doom that they have been predicting.
None of us have the proverbial "crystal ball", but the numbers that Cromford is supplying do not support this theory of "shadow foreclosure inventory" that is being fed to us on a daily basis. Lord knows, most Phoenix buyer's agents probably don't want to hear this, based on recent experiences in the market of multiple offers, delayed responses from banks, etc., and most would love to see an onslought of inventory. Believe me, I feel your pain, as I have experienced it as well when representing my buyer clients.
This market continues to present challenges to all of us on a daily basis, but I don't think we have anything to worry about when it comes to the "Phoenix Shadow Foreclosure Inventory" that everyone keeps talking about. Just go out and sell what's out there!
Let's put this "Phoenix Shadow Foreclosure Inventory" myth to bed, shall we?
Until next time...
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Copyright © By Bob Hertzog 2011 *Phoenix Shadow Foreclosure Inventory-Does It Really Exist?*