The ‘Mortal Enemy’ of Home Prices: Excess Housing Inventory
According to Gary Shilling an Economist, housing prices are still set to fall another 20%. He states this even though the most Economists believe that the housing market is on an upswing. The main reason for his belief in the housing market is the excess inventory still out there. As we learn with supply and demand, when the supply goes up beyond demand, prices drop. And with banks still holding on to huge amounts of foreclosure inventory, when they get released it will cause the housing market to drop.
“Shadow inventory refers to the number of distressed homes that have not yet been listed by a realtor but are expected to hit the market soon; a number of the properties are in the process of foreclosure or are seriously delinquent or behind with loan payments.” In fact I know of people who are currently delinquent on their homes well over a year and still living mortgage and rent free in them.
The banks are doing this, because if the foreclose on those properties, then they have two choices, put them on the market and over inflate it, in order to sell them at a discount price, foreclose and let the property sit empty and let nature damage it.
This is why Shilling believes this increase is just a head fake because of the over 1.5 million excess available properties out there. “He says speculators and investors are snapping up homes and hoping to flip them as a profit but new home owners "are the foundation of the market" he notes.” And even with mortgage rates at near all-time record lows, there just are not enough new home owners out there.