Oppenheim Law

Is The Housing Market Actually Rebounding? The Shadow (Inventory) Knows!

Blog post   •   Aug 27, 2012 11:14 EDT

It is hard to feel comfortable about housing these days, even though that is what many real estate indexes indicate that is what we should be doing.

That is because the shadow inventory, homes owned by banks but kept off the market, still lingers.

But Housing Secretary Shaun Donovan, says he and the rest of the Obama administration do not fear the the shadow inventory.

But should they? Maybe not.

The housing market is on the rebound. Several indexes show that homes prices are stabilizing, and home sales are reboundingThe signs are optimistic.

But lets take off the rose-colored glasses for a moment. We are not out of the woods just yet. It is foolish to think that the nation’s shadow inventory is going to evaporate overnight.

The fact is the banks are in no rush to eliminate the shadow inventory. In fact it is not in their best interest to do so. They will slowly bleed out their inventory, because if they put too many properties on the market at once, they will push prices down, which would in turn push the value of the homes they still have in their inventory down.

And if they actually dumped all their inventory on the market at once?

If they actually managed to either foreclose or sell off every last home they posses, the banks would have to write down their assets within 90 days of any foreclosure or sale.

Forgetting for a moment the near-statistical impossibility of the banks being able to sell or foreclose on all their outstanding inventory all at once, the banks would become certifiably insolvent if in fact they managed to clear their inventory in one swift swoop. 

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