(Source: By Adam Belz, USA TODAY) - It used to be when someone was moving out of a house along mail carrier Rob McGregor’s route, he’d see a “for sale” sign quickly go up in front.
Now, when houses along his northern Des Moines route empty out, it’s not unusual for them to stay that way. There’s no sign or Realtor’s phone number or house-hunters stopping by.
Stagnant home prices have become usual nationwide, and one of the big reasons is the giant shadow inventory — the hundreds of thousands of homes like those on McGregor’s route that are either in foreclosure or repossessed by banks but not yet on the market.
Already, more houses are for sale in America than people want to buy, and the roughly 1.6 million homes in the nation’s shadow inventory promise to drag down home prices for years, experts say. States such as California, Florida, Illinois, Georgia and Ohio have the largest shadow inventories, according to RealtyTrac, a firm that tracks foreclosures and delinquent properties nationwide.
“Sale prices are down across the state, with none of the area being able to maintain more than a one-month growth in sales prices,” said Bob Niemi, director of the Ohio Mortgage Bankers Association.
Even in Iowa, a state that had been largely immune from the bubble and bust of the housing market, empty off-the-market homes are a gathering cloud on the horizon, state mortgage bankers and real estate agents say.
Jayne Seelhammer lives in a working-class part of Des Moines along McGregor’s route. She watched the family next door leave their home as HSBC Bank foreclosed in May 2010. It was more than a year before a “for sale” sign went up.
One reason: HSBC didn’t get a title to the home until April 2011, according to court records.
And odds are, when the house does sell, it will be for a greatly reduced price. Foreclosed homes on Seelhammer’s block have sold for a fraction of their assessed value the past two years. According to the Polk County Assessor’s office, one house assessed at $134,900 sold for $45,250 in February; another assessed at $75,600 sold for $40,000 in September 2009.
Ohio has almost 70,000 homes in its shadow inventory, according to RealtyTrac. California has nearly 270,000.
“It’s absolutely an impediment,” says Dustin Hobbs, a spokesman for the California Mortgage Bankers Association. “It’s hanging over the market.”
He said there are two factors slowing the movement of foreclosed homes into the market. First, legislators imposed a moratorium on foreclosures in 2009, as well as imposing other delays. And lenders have imposed delays as they try to find ways to keep homeowners in their homes.
But eventually, he says, “The market will have to cycle these homes through.”
Standard & Poor’s estimates the national shadow inventory of homes is worth $405 billion. That’s down from $433 billion in June, but S&P still estimates the inventory will take four years to clear.
“We believe prices are likely to fall further as servicers clear the shadow inventory backlog and the properties under the distressed loans crowd the already weak housing market,” wrote Diane Westerback, a managing director for S&P.
It’s a paradox for banks. If they clear the shadow inventory slowly, home prices will be depressed for an extended period. If it happens quickly, the glut will overwhelm the market and quickly drive down prices, the S&P report said.
Many foreclosed homes must be repaired and cleaned before they can go to market, said Jason Menke, a representative for West Des Moines-based Wells Fargo Home Mortgage, the No. 1 mortgage lender in America.
“It’s in everybody’s best interests to move the inventory of foreclosed homes as quickly as possible,” Menke said. “We want to make sure that we are doing what we can to turn those houses into homes.”
But foreclosed properties are taking longer to sell in all states, according to RealtyTrac, up from a national average of 164 days in June 2010 to 178 days a year later.
Neighborhood Finance, which makes loans to home buyers in some Des Moines neighborhoods, is trying to sell three foreclosed homes that have been renovated. An additional 10 homes are in foreclosure and will have to be sold eventually, said Holly Olson, the organization’s director.
A baby swing sat empty in the living room of one such home in southeast Des Moines. A blanket and clothes hangers were scattered on the hardwood floor.
Olson said the group has changed the locks and winterized the home so pipes won’t burst during the cold months. Someone regularly checks on the home.
Jack Daugherty has been trying to sell a two-story home near Union Park, on Des Moines’ east side, for three months. The house is listed at $150,000, but he believes the reason it hasn’t sold isn’t the price or the neighborhood.
He thinks it’s because buyers can’t get financing, or they can’t sell the home they live in now.
“Part of the problem is people are anxious about what’s going to happen in the future,” he said.
“Really, it’s nobody’s market,” Daugherty said. “I don’t think anybody’s winning in this market.”
Belz also reports for The Des Moines Register
(c) Copyright 2011 USA TODAY, a division of Gannett Co. Inc.
A service of YellowBrix, Inc. Publication date: 2011-10-04
Source: By Adam Belz, USA TODAY