9 Years' Worth of Homes

Economic theory has it that prices tend to rise when demand exceeds supply. But when the potential inventory of homes for sale by banks -- which is aside from the properties that homeowners and builders might also be looking to unload -- is equivalent to nine years' worth of demand, as detailed by Real Time Economics in "Number of the Week: 103 Months to Clear Housing Inventory," that suggests those who see signs of a recovery in the residential real estate market should probably be thinking about checking into rehab:

103: The number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales.

How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.

Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses.

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Comments

[Mar]

I live next to a town home community built in the 1950ies. These are really nice brick homes with slate roofs, well-maintained yards, usually 2 bathrooms and 3 bedrooms. They were going for around 90K in 1990 (wish I had bought there then!) but are now listed anywhere from $240-270K (except for a couple short sales that are in the low 200's. Their listing prices haven't dropped that much from the height of the housing boom, BUT there are currently 12 out of 487 townhouses listed for sale. It used to be that these places hardly ever made the listing service because they sold via word of mouth. Some of these homes have been on the market for 3 months or more. Even more discouraging, during today's neighborhood yard sale, several homeowners were talking about not listing their homes because there were too many on the market already.

Yep, there is a LOT of inventory out there and it's not going nearly as fast as it once did.

[W.C. Varones]

The only reason to buy real estate right now is if you fear/expect dollar collapse. I do, and I did.

[Luke]

why would you buy real estate looking forward to the event of a dollar collapse? it isn't liquid, is hard to sell. I'm not following the rationale.

Banks will still make money having their trading arms bet against any brief uptick in the housing market--the old fashioned way like Goldman Sachs and betting on it to plunge.

Anyone who buys now --with a 9 year supply and more to come--I can't see how it will benefit the buyer. Enlighten me.

[ForWhat]

We are buying a house, Rent keeps going up, its unsustainable.

[Luke]

what about tax increases? our suburb just raised them another 10%! I just don't see how one is more beneficial than the other. One ties you down and you can't unload. The other gives flexibility but you don't own it. Maybe if you're young it makes sense to own, but if older it just doesn't seem to make sense.

[dearieme]

"I can't see how it will benefit the buyer. Enlighten me." One justification could be that virtually everyone is going to lose a great deal of wealth, but that you'd lose less wealth in propery than in a fiat currency. A counterargument would be "Depends on the property!"

[W.C. Varones]

Luke,

It's about letting inflation erode the value of your mortgage. Buying with a 30-year fixed is like shorting 30-year Treasuries.

More thoughts here:

http://www.wcvarones.com/2010/01/how-i-learned-to-stop-worrying-and-love.html

[ForWhat]

5000 or Less/Yr taxes Versus 1500+/Month in Rent....Do the Math

Just in case you don't recognize what is going on with property: The feudal aristocracy is re-taking possession of all the land. Soon only the landed gentry will own property and most Americans who are presently "homeowners" (meaning people who live in houses owned by banks) will find even their sharecropper status taken away.

The objective? A PLANET where 95% of the human population live and work as slaves while 5% live like kings.

Otherwise known as feudal lords and serfs.

That is the world our children have to look forward to.

[W.C. Varones]

Anon 11:02,

Get thee a government cubicle job with retirement at full pay at 55. Government workers are the new feudal overlords and private sector schmucks are the new serfs.

[Bill]

Get a Land Patent then you actually own your land. Then you don't have to pay property taxes/land rent. Go to teamlaw.org and find "Do You Own Your Land" on the left side. Stop bitching and start researching. While you're at it, google the americans bulletin and find out how to really protect yourself.

[Rocky]

WC Varones: In the past decade, while the religious crazies were busy trying to put a stop to gay marriage, the public employee unions were enhancing their pay and benefits. I guess the country gets what it deserves.

[Luke]

god knows i am trying! so far i've only found that I'm qualified but not the most qualified and thus not passed up the food chain.

I am so leery of real estate. Especially at my age! I just got foreclosed upon at age 58, having been "eliminated" (per MBA jargon) two years ago and unable to secure employment similar to what i've done in the past. So now I while away my hours holding two minimum paying jobs until I "supposedly" get social security. I know I am not the only person in this situation. Unless you have a "real" job, real estate is an oxymoron. I prefer to convert my FRN into silver or gold--portable, convertible, and a known hedge against zimbabwe ben.

My family despises me. I despise myself. I am such a loser, the "L" designation is way beyond my capabilities. I only hang on because the thought of winning the lottery! makes me giddy.

[Bret]

Hey Rocky
Hang in there - you are NOT a loser....keep your faith, do the right thing and great things will happen to you!

[marilyn parker]

Need advice. My husband wants to sell our 4000 sq foot beautiful home,rent, and place our equity in gold and silver. His thinking is that $ invested in a home will not have the liquidity when the dollar is destroyed and we need something to barter with. My rational is too buy light, $200,000 range,which there is still a market for and is holding it's value, not have a house payment, and invest the left over dollars monthly in those commodities, maintaining our quality of life. We still have a family of four. What say the experts!

[laura]

I am running for State Rep or perhaps Governor of Michigan. I will be declaring mortgage foreclosure FREEZES throughout the state and debt elimination of up to $300,000 per individual. Then I will - as this crisis hits - do "belt-tightening" to eliminate public education as we know it and replace with internet and community learning centers privatized. I will thereby eliminate property taxes and declare them illegal making for airtight private property ownership that I will not LET ANYONE cross the line to violate. NO ONE!! Then, I will declare the right of the State to coin commodity for trade in the default of the Federal Reserve and DC in maintaining sound currency.

I will at least SPEAK the MESSAGE so that people STOP blaming themselves and TAKE ACTION and STOP THIS CRIMINAL PONZI SCHEME THEFT OF THEIR PROPERTY!!!

Where are the people and why are they accepting this??

That man who is 58 and lost his home - Washington DC and the BIG BANKS are responsible for collapsing this economy and creating these ponzi schemes. They are criminals and they stole your house and property. You are the victim of a criminal ponzi scheme and have nothing to be ashamed of.

Well, as I say, even if I don't win -- I'm going to SHOUT THE CRY for stopping the criminal ponzi scheme at the state line.

Take POWER BACK!!

[W.C. Varones]

Marilyn,

Opinions are like you-know-what, but I'd downsize the house, put the equity in gold & silver, but still buy a cheaper place.

Property is not liquid, but it's a place to live (and store your precious metals and food and survival gear).

[ForWhat]

Where do you stash the gold and silver? Do you bury it?

[roger]

Home is a place to live not a commodity for speculation or to use as an ATM machine, NO DEBT gives a great feeling of freedom, and a united family,reasonably secure is the best environment anybody can offer his/her children.
The world is Royally screwed up and maintaining ones sanity takes effort,
so I chose my values carefully, makes for a happy retirement life.

[Rocky]

Bret, I think you confused me with Luke.

An older acquaintance of mine told me many years ago that she survived WWII in Nazi occupied Europe by converting her wealth into precious stones, which she used to bribe police, border guards, government officials etc. Real estate would have done her no good.

On the other hand, new 2 bedroom houses in my suburb were going for around $3,800 + the cost of a building lot, back in 1938 (according to a local history booklet). At the height of the boom in 2006, they were going for close to $700,000.

Of course, there is always Marilyn Monroe's advice: "Diamonds are a girl's best friend."

[W.C. Varones]

ForWhat,

I'd recommend safe deposit boxes until it looks like the stuff is really hitting the fan, then I'd bury it.

I'd still trust bank safe deposit boxes for now.

[Tyrone]

Diamonds??

Demand Collapses Downward. What is at the bottom of the inverted pyramid?
http://3.bp.blogspot.com/_cvdgPlEKW9k/ScgeU-Vds3I/AAAAAAAAAV0/sHdGJGjyqz8/s1600-h/Inverse_pyramid_of_John_Exter.png

[August]

I like camping with a view!

[robertsgt40]

Buying a house now is like buying a stock just before it tanks. Houses are a commodity. As the economy continues to tank(by design), you better have a job or you'll lose the house, equity(if there is any left)and destroy you're credit...if not get a 1099 from the feds. I sold my house in '06 just before the royal flush. Will never own again.

[tommus]

Now is not the "best" time to buy real estate, but is not a bad time to buy either, especially if you have some dirt that you can turn into soil. Plant fruit trees, plant a garden, get some chickens, install some alternative energy equipment, water catchment, wood stove, become a little more self sufficient. This stuff takes years to get together, so start now. If you are looking to buy for an investment, buy farmland an hour or so from a good size city, and lease it to an organic farmer.
If you wait till the "bottom" of the market to buy, you will have gotten a real deal on your house but that's all you will have. Or you may be able to buy a cheap house, but only with a 25% interest loan...
Besides, now that the banks are backed by the gov't, they can sit on these foreclosed properties for decades and keep their balance sheets fluffed while the real economy crumbles.
On the other hand, you could adopt a semi-nomadic lifestyle. Be creative and open to change.

[Rose Jones]

This is not an accident. See Alex Jones's material. Then enjoy every day, spread the word, raise a garden, raise your children, enjoy your community. Save what you can, love as much as you can and share as much as you can.

[max]

And to think that the very-soon-to-be-retired baby boomers are wanting to change their major investment, real estate, into wealth, over the next 5 to 10 years, in a sudden rush for the exits.

On top of the present disaster?

Yeah! Armageddon! Unimaginable Armageddon!

[Clevelander]

Well, what you say might be true at an aggregate level...Something like, hey, one of my legs is on the gas, the other inside the freezer, so on average, I am ok.

But real estate tends to be quite local. So, there will be good neighbourhoods where prices rise and others where they fall.

[kyle]

I never thought my active duty military job would pay off. Retiring soon after 30 years as a Navy Diver and find myself laughing all the way to the bank, 75% of my base pay for life with COLA raises each year, TRICARE health care for life at about $400.00 per year, CSRC or Combat Related Service Compensation. Total compensation package is worth around 100k per year and I was an enlisted man. Add to this is the sociaI security I receive in a few years. I have seen the world on the taxpayers dollar and have more great memories than any man deserves. If you or your kids are eligible join now and persevere, it pays off in the end. I am 51 and if I had joined at 17 could have retired at 37 or anywhere in between 47 depending on the percent of base pay compensation I desired. I have decided to vacate the U.S., heading for Thailand.....no property taxes, beautiful women, great people, cheap housing and food, just surprised more people have not decided to leave the country where you actually can get $1.00 worth of goods or services for $1.00. Real estate prices in Thailand continue to rise and I would rather be dodging bullets in Thailand than financial ruin in america!