You may have noticed in the news today items about the increase in foreclosures in July, 7% more than in June. All the news I have read point to an increase in foreclosures and ongoing foreclosures for the next couple of years.
The interesting thing to me is this phenomenon called the “shadow inventory.” There was an article in the San Francisco Chronicle about it a few months back. This refers to the homes that have been repossessed by the banks, but have not been put on the market for sale. There is a growing number of these properties.
At the recent Real Estate Connect SF conference that I attended there was talk about this shadow inventory. The gist of it was that the banks can’t afford to sell the houses. Think about this… if a bank owns a property in which it has $500K invested, the property has a book value of $500K. If the actual market value of the property is $250K, the bank will have to write-off a quarter of a million dollars when it sells the home. It does not take too many home sales like this to add up to a huge loss for the bank.
Another factor, last year banks placed so many homes on the market that home values slid down a very slippery slope to record lows. So this is a second really good reason for banks to hold onto properties until the time is right to sell.
