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Investment Property Trends: Housing Market Update


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As I’m sure you know, the US economy continues to stagnate.  Job growth is nil, and the housing market continues to be in the doldrums.  At the moment, the primary concern with the housing & investment property market continues to be the so-called “shadow inventory” which I’ve written about previously.

In a nutshell, shadow inventory represents foreclosure property that has not yet been put on the market…but will be eventually.  This could encompass 4-5 million houses listed at below-market prices, which would not be good since there is already a glut of supply in the market which has been depressing property valuation figures pretty much since the housing bubble burst in 2008.

Now, an S&P report from the 2Q 2011 did project a slight Q/Q acceleration in the time it would take to purge this inventory: specifically, the 2Q 2011 projection was 47 months compared to the projection in the 1Q 2011 of 52 months.  The report also showed that the total value of the mortgages on these houses dropped to $405 billion in the 2Q 2011 compared to $433 billion in the 1Q 2011.  S&P attributed these improvements to a gradually improved economy (oh really?!), fewer defaulting borrowers, and tightened lending standards.

So, although the S&P report from the 2Q was more encouraging than the one from the 1Q, we’re still talking about at least 4 million distressed properties that must be absorbed into the market before any recovery can be reasonably expected.  And unfortunately this number might be on the low side, as there are many more houses that should be in foreclosure, but are not because the banks have slowed down the process in response to the robo-signing scandal.

In the final analysis, the real estate market is no closer to recovery than it was 2 years ago.  And I don’t expect any improvement for at least the next several years thanks to the backlog of shadow inventory, especially since home buyers are aware of it and are holding out to get bargain basement deals.  So, plan on holding for at least the next 5 years before trying to sell property.  Sorry!



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