posted: Oct. 16, 2012 @ 8:05a
The following theories and conclusions (aka opinions) are based on my own personal observations.
So, for the last 2 years, I have been noticing a trend in my neighborhood (a neighborhood that is/was riddled with foreclosures and short sales). More and more, I have been noticing that neighbors who are not current and have not paid their mortgage in at least 9 months (some close to a year) still have not been officially "foreclosed" by the bank. In fact, one house that is a few doors down, sits vacant because the owner strategically defaulted and walked away almost 1 year ago. However, all that is happened to that house is the bank has sent someone over to change all the locks, repaint certain interiors, and put a lock box on the doors. The house has NO sign of having been foreclosed other than a montly visit by caretakers who spruce up the yard, cut the grass and take care of odds and ends. In fact, the house even remains in the old owner's name according to property records, even though he has stopped paying and has not been to the property in almost 1 year.
Back when the housing bubble burst in 2008, a house like this would have been quickly labeled a "foreclosure" and put up on the market (signs and stickers on the house would have immediately given away that it was a foreclosure). Today, this house sits vacant with no signs (other than the ones mentioned) that it is in the bank's control. It's not even listed for sale yet. It may not have even gone through the process of being transferred to the bank's name yet.
A few doors down from this house sits another house where the owner occupant refuses to pay his mortgage. It's been going on for approx. 9 months and the owner has accepted that they will eventually be foreclosed, but as of right now, they are just waiting patiently and living for FREE!
Presently, there is only 1 home (that is a foreclosure) listed for sale in the neighborhood. This home has been on the market for the better part of 6 months. It's paltry asking price is 1/3 of what many of the homes would be valued at if the foreclosure was NOT on the market. Normally at this time of the year, there would be at least 4 - 5 foreclosures in listed for sale in my neighborhood alone. However, oddly enough, there is only 1 for sale.
After talking with a few agents who sell homes in my city, I realized that short sales are taking over 1 year to close in some cases and it's not unusual for the process to drag out over 9 months in most cases.
What's more is that a lot of homes that are currently on the market (foreclosures, short sales, etc.) are receiving multiple offers on the lower end of the market, sometimes exceeding the asking price by about 10% and still not closing for another 9 - 12 months (this is true esp if it was a short sale).
In fact, I would say that there are more short sales these days than there are foreclosures (which is very odd).
Based on all of this, I have concluded that banks are engineering a stealth shadow inventory of homes by NOT foreclosing on homes as rapidly as they once were, thereby giving the market a sense of a rebound and a false sense of urgency to buy now before inventories dry up. They are prolonging the short sale process by taking longer to review short sales and in some cases out right rejecting the short sale only after months and years have passed. This in effect takes the property "off the market" during the review process and further drives up bids on the properties that are still listed for sale.
Foreclosures are being stalled (at least the official bank control of houses that have been abandoned). These empty homes remain empty for the better part of 12 months and remain "off the books" of the bank by remaining in the previous owner's name until the bank is ready to put the house up for sale. The banks are controlling how many houses they put up for sale (again to give the appearance that inventories of foreclosures have dried up). Where before they would have 4 foreclosures on the market at any given time, they now only have 1 (even though there may be 3 or more ready to go up for sale).
For deadbeat homeowners, they are allowing an owner to remain in their homes much longer than before even if he/she has stopped paying the mortgage. This again keeps the inventory at bay and creates the illusion that there are NOT that many homes available for sale.
For short sales, they are dragging out the process and allowing homeowners (some of whom are no longer paying their mortgages) to remain in the house while they play the "review" game and take an abnormally long time to approve or reject a sale.
And to top all that off, agents are now encouraging buyers who are in the market (most of whom are speculators and investors who are buying up a "portfolio" of homes with the expectation of a rebound) to bid more than the asking price of a house to ensure the closing of a sale. Some neighborhood listings have 1 official foreclosure and 5 short sales. Almost all go into a "pending sale" or "pending lender approval" status within a few days of being listed. Some (I would say a majority) return to market a few months later for not having closed for a bunch of reasons. When they do return to market, they may be listed at a slightly higher price (or lower price if the sale was too high to begin with). The listing agents take longer than usual to return phone calls or inquiries into bank controlled properties (again building a false sense of urgency in the under-educated public).
We've returned to the days where a "credit" bidder is bidding against a "cash" bidder. The credit bidders are over bidding for properties they would never be able to afford under normal circumstances and will probably end up strategically defaulting some day in the not too distant future (if given the chance to close).
It is my opinion that banks want cash buyers, but they are entertaining credit bidders in an effort to inflate closing prices on their properties and get cash buyers to pay more for the property.
Welcome to the new bubble.
With QE infinity, expect a lot more bankster games in the near future.