Your Exceptional Life

Our economy is based on a system of capitalism.  We know that it’s driven by a function of supply and demand  If there is too much supply, the prices go down.  If there is too much demand the prices go up.  Currently, yes, it’s been 10 minutes, there is more demand than supply so the prices are not only stabilizing but they’re moving up.  I know that’s not what the newspapers, television and radio is telling us.  It is what’s happening on the ground. 

Reading that, it could be argued that the mortgage crisis is over and we can all join hands and start singing “Happy Days are here again”.  We’d be premature.  I’ve been watching the so called “shadow inventory” for over six months now.  The San Francisco Chronicle wrote about it back in April 2009.  Here’s a little slice of ugly from last April as shown in that Chronicle article. 

Chart from 4/8/2009 SFGATE

Quite honestly, I can’t figure out what the motivation is.  In an effort to answer that question I did a little research.  First, let me define the “shadow inventory”.  This is the property that is in the process or has been foreclosed upon and is either in the possession of, or should be in the possession of the lender who had the original loan on it but has not shown up on the marketplace.  That is, houses in default or owned by the banks after foreclosure but not for sale.  Research by Amherst Securities estimates are as high as 7 million properties nationwide.  Read the report here.  The numbers are staggering.  Currently in Contra Costa County there are 6331 Notice of Defaults filed, 4824 properties up for auction and 5649 bank owned properties throughout the county.  Total=16,408.  The homes that are either on the market or pending in Contra Costa County currently equals 6978.  Houston, we have a problem.

There has been thousands of conversations throughout the real estate community regarding this phenomenon and what the solution might be.  One Realtor opined that the  bank had already taken it’s write down and they were good holding on to the property until the market came around.  Others, including myself just scratch our heads.  You know when you have to do something you don’t want to and you keep thinking about it and mulling it over and pacing the floor and avoiding it?  Then you’re finally forced to do something and when it’s all over you sit there and think “Why did I put myself through all of that?  Why didn’t I just bite the bullet and get it over with?”  That’s what I think the banks are doing.  I think the management of these banks don’t want Wall Street to see them taking a second beating on their watch so they’re sitting on their hands and doing nothing.  Maybe the next guy up for retirement will pull the trigger on the situation. 

The market is currently artificially stabilized.  Is the artificial stabilization by the banking industry and more right than the artificial stabilizing by the Government?  Not in a free market.  In a free market it has to behave as it’s going to, and we, as members of a capitalist society have to ride it out, whatever “it” is.