Tuesday, August 12, 2008

MLS listings are missing large amounts of distressed inventory

This article at Sacramento Real Estate Comments is worth a read.

The foreclosure wave has added another way in which MLS listings are not accurately reflecting true resale inventory conditions. Based on our analysis, MLS based listing inventory is significantly understating the extent of foreclosure inventory in many markets. In Figure 19 below, we compare distressed inventory vs. MLS listings in major metro areas across the US. A certain portion of distressed inventory is included in MLS listings – if it were all included we would expect MLS listings to be higher than distressed inventory…


While the article focuses on the hardest hit areas, the inventory is probably true of most of the US. Anecdotally, I know of two multi-million dollar foreclosures that should be in the MLS, but are not. Hence... this hasn't begun.

Bloggers speculate that banks are holding inventory off the books to keep from having to 'mark to market.' The list of banks going deep into unhealthy territory is almost unprecedented. Why almost? The previous real estate mania that led to the "S&L crisis" gives us a clue about what is about to happen. Go to www.bankrate.com and see how well your financial institution is doing. I only know of a few two star banks on the immanent 'watch list.' But if you are banking at a one star institution... Think about getting under $100k. I know too many people still trying to get their insured (through joint accounts) money that was above $100k from Indymac.

Got Popcorn?
Neil

3 comments:

The Anonymous said...

Great find Neil - interesting to see the size of the problem you are dealing with.

Your comment "While the article focuses on the hardest hit areas, the inventory is probably true of most of the US" is, I think, a bit of a streeetch! After all, largely foreclosure free Arlington has falling inventory too.

Local land records indicate Arlington had about 150 foreclosures last year - about 100 sold or are now listed on MLS. So the 50 some odd foreclosures is what the banks are hiding? Hiding from a market which just posted a sizzling 4.3 month absorbtion rate? Hmmm looks to me that this dog wont hunt!

Incidenally, I assume you saw your ole nemesis CRT going crazy the other day on a similar issue about why Arlington inventory is declining. He tore into several of our more prominent bears, yet none of them could really defend their views so they just slunk away quietly.

I assume you were lurking and choose not to weigh in. Probably a wise move...(he ripped into me on a point of law once too)...he knows his stuff and his argument and evidence look pretty flawless.

His argument begs the question - when your big hit comes this fall, next spring, whenever...will there be any inventory (hidden or not) in Arlington left to hit? I really really REALLY hope I am wrong, but right now the answer looks to be not much my man - not much.

BTW - congrats on the new addition to the family! Glad to hear mom & baby doing well.

wannabuy said...

Your comment "While the article focuses on the hardest hit areas, the inventory is probably true of most of the US" is, I think, a bit of a streeetch! After all, largely foreclosure free Arlington has falling inventory too.

Is it really that foreclosure free? I'm quite skeptical of that. I just found FOUR homes in a high end zip where I want to buy that never went into foreclosure; the owners just handed the keys to the bank. So Arlington might not have foreclosures, but what about Jingle Mail?

I assume you were lurking and choose not to weigh in.
No. I was taking my child to the Pediatrician.

Some of the anti-bearish arguments are ones we've heard again and again. Quite bluntly, we get tired of the same argument, so why argue when everyone looks foolish?

will there be any inventory (hidden or not) in Arlington left to hit?
The real estate bulls retreat too much geographically. This is always diffusion in real estate prices. During the last downturn there was little reason for one zip code in LA to drop; but because of how hard the neighboring zip codes were hit it dropped 40% with them.

Got Popcorn?
Neil

The Anonymous said...

"So Arlington might not have foreclosures, but what about Jingle Mail?"

Maybe - I think the reason you may be seeing this (and I hate to keep harping on it) is jobs. Unemployment in DC is at 4.0% - its growing larger mind you but its still one of the best employment markets outside of the farm belt (apparently commodity prices is causing flyover country to stay employed). Anyway, by contrast LA is something like 7% unemployment - thats HUGE!!!

"During the last downturn there was little reason for one zip code in LA to drop; but because of how hard the neighboring zip codes were hit it dropped 40% with them."

Maybe so - but there have to be some breakpoints in that 40% mark -the whole state didnt go down 40% right? Im sure some places it was 35% then 30% then 20% and so on. Diffusion only diffuses so far and Im not optimistic its diffusing far enough.