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The shadow inventory & the bogey man
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Does the bogey man exist?

Some economists are asking that question in terms of the long-feared bogey man of the housing market - the shadow inventory.

It sounds sinister enough. But add in working theories about how banks are holding back on foreclosed properties that some fear could hammer the housing market back to Depression-era levels and you’ve got a monster lurking just out of sight.

But even if a shadow inventory exists large enough to nuke the housing recovery, banks would be rewriting the book on stupidity. By now they should understand that doing anything that hurts their bottom line such as depressing housing prices by flooding the market with foreclosures is exceedingly self-destructive.

Some get that point. That is why they are quick to point that the banks are going to slowly let the shadow inventory trickle out to essentially keep prices flat for the next millennium.

There is some anecdotal evidence that this has been happening just in the way foreclosures hit the market in Manteca in rather steady monthly numbers that do not show wild swings. When things were selling hot back in  the early part of the last decade, new home buyers and Realtors would have months they sold 120 homes followed by ones they sold 80 homes. It’s amazing how  relatively “flat” the foreclosure numbers are month-to-month that would mean that instead of a constant percentage of those buyers of yesteryear losing homes in a similar roller coaster fashion, that roughly the same amount each month went south.

Now there are a few folks advancing more plausible theories for what is going on.

Banks, again, aren’t stupid. There is a huge growth in rentals. Census Bureau statistics show 685,000 homes were rented out in April, May and June of this year compared to the second quarter of 2011. Yes, banks do not want to be landlords. But a growing number of banks are working with investor groups to package homes into rental properties essentially bypassing the traditional marketing process.

Then there is the issue of the foreclosed homes themselves. Some are beyond saving. But in reality, some are located in the wrong neighborhood.

No offense meant, but in parts of South Stockton just like in parts of Detroit you can’t give some houses away. If an uninhabitable home with 1,000 square feet that needed tender loving care was available just 14 miles to the north in Manteca for $19,000, it would be snapped up before the for sale sign was pounded into the ground. Such homes in South Stockton languish on the market. There is no percentage in banks putting more homes like that on the market unless they want to repeat the Detroit experience. That, in a nutshell, was the dumping strategy that some lenders took a few years back to start selling foreclosed homes in certain neighborhoods for $1.

There is a shadow inventory out there.

Everyone believes it.

But whether it can hurt the housing market or is simply a bogey man is a legitimate question.


To contact Dennis Wyatt, e-mail