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Jason Carlson, Renter in Phoenix, AZ

Is it true that many banks are holding on to their real estate inventory till after the election?

Asked by Jason Carlson, Phoenix, AZ Fri Aug 31, 2012

I've been told by many friends and some realtors that many banks are holding on to their real estate inventory until after the election, which has artificially increased home prices since there are not as many on the market.

Help the community by answering this question:


I'm obviously not a real estate agent in the Phoenix area or even Arizona for that matter, but the question is general in nature so I thought I would chime in since the inventory in our market has pretty much disappeared this year.

I don't think it has anything to do with waiting until after the election and has more to do with:

1) More Government changes in Housing Programs that always seem to create a delay when things are changed up and the banks compliance departments have to figure it all out. FHA, Fannie Mae and Freddie Mac along with HARP, etc, etc, etc... just had major changes back in June/July. (Listing a lot of short sales in Las Vegas, it certainly delays approval times.)

2) More investors coming to the Phoenix market since the Las Vegas inventory available for sale has been decimated due to a new Nevada Law that started up last October making it much harder for the banks to foreclose on properties. I saw somewhere that properties purchased by investors in the Phoenix market has gone up 10% year over year. I'm not exactly sure about this number since I don't spend time evaluating Phoenix but I do know of investors that have been looking down south of Las Vegas due to our inventory shortage. Perhaps your inventory is shrinking because there have been more sales taking place.

3) The FHFA sold off a bulk of FHA, Fannie Mae and Freddie Mac owned homes off to institutional investors earlier this year. Once again, not sure if they had one of these sales for Phoenix homes but I know they did in Las Vegas, LA and parts of Florida. Secretive details on locations, how many, prices, etc.. All we really know at this time is that it was done.

4) Controlling Supply where there is demand to raise prices. There is a lot of controversy over this whether the banks are doing it or not. I kind of lean more to the side that they are since I know of several empty homes that are bank owned but not up for sale. Besides that, I know for a fact that Bank of America is asking short sale agents to raise list prices on our short sales because they know of the shortage in inventory. (This has happened to short sales I'm involved in three times in the past month. They are very well aware of the inventory shortage.) Also...

In April of 2009, a change in the Mark to Market Accounting rules were made which basically made it so that the banks do not have to report the true value of the asset secured by a mortgage until they actually transfer title (sell) the home. Before then, the banks had to report a more accurate value as soon as it became a non-performing (owners stopped paying their mortgage) asset. No longer the case... So basically, they don't have to report a loss on the books until they actually sell the home.

I would put money on it that if you mentioned anything mentioned above to the friends and some Realtors that have told you that the banks are holding on to their real estate inventory until after the election, they would have no idea what you are talking about.

(By the way, The Federal Reserve meeting this month and deciding if they are going to do a QE 3 has a much bigger impact on real estate and banking then the election.)

1 vote Thank Flag Link Sat Sep 1, 2012
Hard to tell. Everyone hates banks, so negative rumors about evil intent are easily leveled at banks, and people are eager to believe them. Banks do a lot of things that appear really dumb. Sometimes they are dumb, sometimes they aren't, and the bank has a good reason to do what they've done. With this question...we will never know! Even if the market gets flooded with foreclosures on November 5, there could be a lot of reasons for that other than the election...
0 votes Thank Flag Link Mon Oct 8, 2012
It's clear that there is a concerted effort on the part of banks and the current administration to create an artificially low level of inventory before the election. The billions of dollars in bailout money did not come without any strings attached, banks are happy to comply. The deadline for banks to foreclose on those not making payments on their mortgages will be when rates go up. When interest rates do go up sales prices will have to come down, just use a mortgage calculator to do the math for you. Higher rates equal higher payments. Sellers including banks will have to bring down selling prices to adjust for affordability. Wages have not gone up but have gone down. The Fed is now expected to keep rates low until the end of 2015. They keep moving the goal post for this purpose.
With the media touting a bottom in housing, a temporary bubble will negatively affect those homeowners squeezing themselves into a home now. I guess the administration justifies this based on the fact that inflation will ultimately level things out.
In the meantime, here in Orange County, CA the houses in the 400K range are for the most part horrible, socioeconomically speaking. I'll wait.
0 votes Thank Flag Link Mon Oct 8, 2012
I don't know if they are waiting on the election or what, but I often get inquiries on properties that have been foreclosed but are not on the market yet. I hadn't thought about the election, but I do know it can be aggravating when I have a buyer seriously interested in a house in a certain neighborhood, the house is bank owned, and we can't find a listing agent!
0 votes Thank Flag Link Sun Sep 2, 2012
The number of pending foreclosures is very low right now compared to where it has been for the past couple of years. Also, banks are able to get good money for the properties right now with bidding wars and home prices going up quickly in the Phoenix area. I do not believe that there is a large shadow inventory, and have read several news articles that such speculation is totally false.
After the housing market crash several years ago, you could drive down just about any street and see a lot of boarded up or vacant houses. When I drive around now, I don't see very many vacant houses at all, which is another reason why I don't buy into the "shadow inventory" theory.
0 votes Thank Flag Link Sat Sep 1, 2012
To further discuss shadow inventory....Shadow inventory is the number of homes that are in the foreclosure process. This mean's that the homes already have a foreclosure date posted on the tax records. Additionally, the shadow inventory are homes that have been foreclosed on but have not yet been listed for sale. These numbers are down dramatically and our real estate market here is on the mend.
0 votes Thank Flag Link Sat Sep 1, 2012

Inventory in the Phoenix market is at a low level due to a number of reasons, a small contributor is shadow inventory. Most of the true experts that really track the data for this market state that the actual shadow inventory is less than 1 months supply. Most actually think it closer to a 15 day supply.

Bill is correct in that Arizona has a very efficient foreclosure process that is utilized 99% of the time and as such most of the homes hit the market pretty fast. A lender can foreclose in 90 days in Arizona versus months to years in a few states that force them to utilize a judicial foreclosure process. The judicial states can have huge shadow inventory due to the process be so lengthy.

We are seeing some great homes in the market right now, it takes some effort to locate the correct ones and be diligent but its possible.

We have a number of clients that are paying hundreds less per month after they purchase than when they were renting, have you run the numbers?
0 votes Thank Flag Link Fri Aug 31, 2012
I think it is kind of speculative at this point as to what the banks actually have in inventory. There are some people who say they have quite a few and some that say they don't have very many. I can definately see it being a little slow due to the election.
0 votes Thank Flag Link Fri Aug 31, 2012
Hi Jason:

The number and extent of conspiracy theories is truly amazing. With this one, I can't even figure out the motivation...(is it suppose to be pro-Obama or pro-Romney? What benefit would it have to the banks to do so?)

Arizona is a "Non-judicial" foreclosure state, meaning banks can process them without having to go to court. This accelerates the process tremendously here in Arizona, so that everything I have read indicates we do not have much of a "shadow inventory" waiting to be dumped onto the market. Much of the lower end of the market got, and is being, absorbed by investors. Many other homeowners, unfortunately, are unable to sell due to being underwater so there is a constraint on houses coming onto the market. At the same time, you still have many new people coming into the market, wanting to buy their first home--to take advantage of great interest rates, etc.

In my humble opinion, these are the reasons why there is such low inventory in the Phoenix area, not some hidden agenda by the banks. Or, is it just me???

Bill Parker
NMLS #223607
0 votes Thank Flag Link Fri Aug 31, 2012
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