A string of recent upbeat stories are claiming that a housing “recovery” is underway.
I find these cheerleading stories worrisome because the fundamentals of residential real estate are still lousy. Not only are we nowhere near the bottom, but what I find most troublesome is that the market is being manipulated by the nation’s largest banks. I speak with real estate agents all across the country and every one of them says that banks are deliberately withholding bank-owned properties to drive up prices — they hope — and create the illusion of a market turnaround.
Supply Bank Owned Homes Dwindles
Unfortunately, the strategy of restricting the supply of bank owned homes for sale isn’t working. If you look at the latest Case-Shiller home price index, 16 of 19 MSAs — or 84 percent of the markets surveyed — saw price declines month-over-month — the sixth straight decline. (Due to delays in data reporting, Charlotte was not included in the January 2012 index values).
Another emerging story line claims that housing supply has shrunk and prices are rising. The Wall Street Journal wrote about this last week, claiming that a shrinking supply of homes was causing bidding wars in Phoenix, Washington, D.C., San Francisco, Seattle and Miami.
But are the decreases in inventory artificial? Are banks manipulating inventory levels to control prices and spark demand?
Bank Owned Properties Decrease in Some Markets
In markets like Phoenix, Las Vegas, Orlando, Fort Myers and Portland, the banks are holding bank-owned properties off the market, according to RealtyTrac interviews with local realtors. In Portland, lenders are reluctant to release their shadow inventory of repossessed homes, according to the East Oregonian.
I believe housing still faces considerable headwinds, and we are nowhere near a recovery because too many homeowners are underwater (12.5 million), too many borrowers are delinquent on their mortgages (3.5 million), too many borrowers are in some stage of foreclosure (1.3 million), and mortgage lending standards are too tough for many would-be buyers. So far there’s no evidence we’ve hit bottom. Prices continue to fall because there is too much inventory.
Don’t you think that new home construction would be rising if the market was recovering? Yet housing starts are at historic lows.
So, how long will the banks be able to conceal their growing stockpile of bank owned homes?
Who knows? But I do know this: It’s funny how the banking “capitalists” are now dependent on government welfare (billions in TARP bailouts) from Uncle Sam to survive. Some see this slow and powerful drift towards greater concentration of power and wealth in the hands of Big Business-Big Government as not good for a healthy housing market.
What Do You Think?
What are your thoughts? Are banks secretly holding shadow inventory of bank owned foreclosures on their books? Or, are stories about banks manipulating the housing market overblown?
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