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The shadow of bank inventories is looming still

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By : John Smith    99 or more times read
The bogey bears of the American property markets these days are the shadow inventories of foreclosed homes that banks are allegedly about to dump onto already soft markets, producing a further run on underwater properties, more foreclosures, lower prices, and so on, just as American families were beginning to catch a whiff of hope.

But what exactly are these shadow inventories, and how great dangers are they actually? Even acknowledged experts don’t agree. Some refer to all homes that are past 90 days late on payments. Others speak of just repossessed homes awaiting distressed sale. Still others add underwater households sitting out the crisis until things improve again.

The definition of something as important as shadow inventory needs firming up, and soon too. Estimates of the quantity of American shadow homes involved currently vary between 2 million and 8 million – that’s far too wide a spread for anyone’s planning purposes, especially as, of the 5.5 million homes forecast to change hands this year, just one third are expected to be in one or other form of distress.

The top-end of estimates are understood to include foreclosed houses not yet listed, properties moving towards foreclosure, and those 90 days plus delinquent. That includes a whole lot not likely to sell under constraint, and besides, they have no business chance in Hades of hitting the markets at the same time. In fact, several pundits I spoke to think the process will stretch out through to 2013, where after prices should gradually recover.

But there are other concerns around shadow inventory too. The properties concerned are more than average likely to be semi-derelict and in hard hit regions too where vice tends to flourish. This drags down surrounding neighborhoods, prices, and of course the fortunes of immediate neighbors. For these and other reasons Americans have a long wait ahead of them before the markets turn. While some optimists expect an improvement before the end of next year, more sober thinkers speak of several years to come.

In summary, then, there are several reasons why America’s shadow inventory is so difficult to count. Financial institutions insist on playing their cards close to their chests – another is their tardiness in releasing them, for fear of driving values further down. The third is that nobody really knows the impact that HAMP has had, and will be making in the future. The most optimistic estimate is that just 45% of applications for modifications will survive the system, and that the rest are heading for foreclosure.

This is not exactly good for America’s underwater and possibly jobless lower and middle-lower income earners.
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