Las Vegas Shadow Inventory: Episode #255

Hello. Welcome to Todd Miller TV. Today’s episode is about the shadow inventory in the Las Vegas real estate market. There has been a lot of conjecture about how many houses are in this so-called shadow inventory.

For those of you who don’t understand what shadow inventory means, what they’re talking about are homes that we know are probably going to come on the market because they’re in some type of foreclosure but they haven’t been foreclosed on.

There are all these conspiracy theories about why the banks are holding on and they have all these political reasons. But usually life and business are much more simple than what people make them out to be and in this case, there are a couple of different factors that have caused the banks to stop doing this.

One is some local legislation here in Nevada. It has changed the process a little bit and then the other is the National Mortgage Settlement that we had back in January. It has just caused a little bit of a delay in their process but one of the indications that we have here leading forward which is September of 2012 is that it’s going to start picking up and we’ve seen like every month an increase in the number of foreclosures filings.

Over the last few years, we’ve had about 3000 a month and then all of a sudden we’re down to like 500 which is much less but every month in the last four months, it has increased from 500 up to 1000. They’re saying within a couple of months we will be back at 3000 to 4000 a month which means that spring there will be a ton of properties on the market.

So you could see where this is going. If you were in the real estate market a couple of years ago, you probably heard that Wells Fargo was going to dump a bunch of properties. It never happened. So this 30,000, 50,000, 70,000 whatever number it is, shadow inventory, we really don’t know what’s going to happen. We don’t know that it’s going to blow out and all hit at once. We don’t know if it’s going to take five years and no one will notice.

We do know a couple of things. First of all, we know that buyer demand is up here in Las Vegas. It’s up tremendously. We have more people trying to buy and we have more sales. There have been more sales in the last year than we’ve had in eight years. So it has been pretty incredible. We know there’s a temporary shortage on the market. Everybody can see that.

The other thing we know is the fundamentals haven’t changed very much. We still have very high unemployment and the economy is a little bit weak and there are not a lot of people who here in town are purchasing properties, but a lot of investors and then some first time home buyers are buying.

So as far as the shadow inventory itself, what’s going to happen to that, the truth is nobody knows. We know that there are still foreclosures. We still get REO assignments every month. We have for the last six years. We’ve gotten REO assignments. Do we get as many as we got 2008, 2009? No. But we’re still getting them on a regular basis.

We expect this to continue for four, five more years and we do expect to see new properties in the market, whether there will be a ton next spring which is the big prediction that a bunch of people have gone on camera on the news and said, “Next spring it’s going to be a mess again.” So we will see if that happens.

Very hesitant to listen to those predictions because so many other things change. Like when ’82, ’84 came out, all these predictions happened including my own prediction. But then after all these predictions were made in January, the mortgage settlement happened with the states and that completely changed the playing field because all over the country they said, “Hold on, we’re going to stop foreclosing for a while and try to get loan mods and refis and principle reduction,” and things like that and that has caused this mess.

So anyway, I just thought I would share that with you. It’s sort of my thought on the shadow inventory. I personally don’t think it’s a big deal. We’ve always had a shadow inventory even when there was no REO. Why? Because there’s always a group of people who are like they’re six months up from moving and they haven’t told anybody. So that’s a house getting ready to come out on the market or some people are going to get divorced and that’s a house maybe that’s going to come out on the market.

So we’ve always had people getting ready to list a house. So the fact that you’re looking ahead over the next two or three or four years of properties and calling it this big number and then it gives you the idea it’s all going to hit at once I think is a little bit of folly.

So anyway, that’s my thought on that. So I thought I would share that with you. That’s my update for today and hope to see you on another video. Thanks.