The Shadow Inventory: What Banks are Hiding in the California Real Estate Market

November 18, 2010

As I wrote yesterdays Blog update I knew that what I had been seeing first hand in the California Real Estate Market was something that has never been seen before. Not even in the late 1970’s and early 1980’s, the last time we saw the real estate market crash did we see such a devastation of the real estate market as it is manifesting today.

In the 1970’s and 1980’s we didn’t have government intervention under the guise of compassion, meddling in the housing or banking markets. Back then the Market was allowed to work and by virtue of no intervention, the market took care of the bubble that burst.

Sure we were in a deep recession, unemployment was at 17%, inflation was out of control, interest rates hit all time highs and credit was tight, but back then there was NOT a shadow inventory of foreclosures to exacerbate matters. Back then the rules were simple. When you were 90 days behind on a payment you were in foreclosure and if the mortgage remained unpaid a notice of default was sent out and the house went up for auction. As such, the house became a part of the general real estate market and landscape and was liquidated.

Did real estate values drop? Yes, but the market was allowed to do its job and the market absorbed them and there was no protracted and artificial “shadow inventory” of houses that no one knew about.

So what is this “shadow inventory” of houses that everyone refers to? The conventional definition is simple and refers to the houses that are technically in default (meaning mortgages that are 90 days past due), but no notice of default has been issued by the bank and as such no auction date has been set.

Today there are actually two “shadow inventories” that are dooming the Stockton Real Estate market to a protracted recovery.

Shadow Inventory I: This is the “Shadow inventory” that everyone refers to in today’s housing market. They are the houses that have yet to be foreclosed upon. These are the houses that the banks have not collected a mortgage on for upwards of 36 months. Since the banks have not yet foreclosed on these houses they are sitting as an unknown number of houses that have yet to reenter the market place. As such they are either being lived in rent free by the current mortgage holder or a renter that is paying the Mortgage holder while the mortgage goes unpaid.

This is all occurring, thanks to “new and more compassionate government policies” that some would call government intervention and manipulation that has virtually changed the banking rules. These new rules have made it easier for banks to hide unpaid mortgages on their books, and since Banks are not required to foreclose according to any particular time frame, that means that they can carry unpaid mortgages apparently as long as they chose to do so. As a result, the market cannot deal with this inventory until the bank actually forecloses and acknowledges the bad debt.

Shadow Inventory II: The second “shadow inventory” that no one is talking about are all of the houses that have been foreclosed upon but have dropped out of the market because they did not sell. Every month, I see hundreds of withdrawn or expired listings of Stockton real estate that is Bank owned that have disappeared from the real estate market. The only reminder that these houses exist is denoted at the bottom of a comparable market analysis while attempting to research another property in the neighborhood.

In the Stockton Real Estate Market alone there are hundreds of these houses that have been foreclosed upon, that have not been sold and are NOT currently listed for sale by the Bank directly or in the Realtors Multiple listing Service. Most of them are vacant, boarded up and in such a state of disrepair that they make up a huge second “shadow inventory” and they are contributing to dropping home values in Stockton.

It is estimated that Americans have lost close to $7 Trillion in home values and equity over the past four years and I don’t expect that we have hit the bottom. While many are projecting a real estate recovery in 2012, I don’t believe it so long as the supply of foreclosed properties is hidden and excluded from the market itself.

Brace yourself as home prices in Stockton Real Estate will continue to tumble.

Peter Westbrook is the owner of Westbrook Real Estate Investments and can be reached at 209-481-7780

At “Westbrook REI” and “I Buy Houses Stockton“, we are the best at what we do because we work at it every day. We understand that a commitment to customer and a commitment to our business only happens with hard work. We have years of experience and a plan that we follow. We are a real company with real people that are committed to helping you achieve your goals.

We buy houses in Stockton, CA and its surrounding areas in Lodi, Woodbridge, Acampo, Lockeford, Linden, Ripon, Manteca, Modesto, Ceres, Tracy and Sacramento CA. If you need to sell your house fast in [market], call us… we’d love to make you a fair no-obligation no-hassle offer. Take it or leave it. You’ve got nothing to lose, but we’d love to earn your business. 🙂

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What Customers Say

The City of Stockton was getting ready to tear down my old house. I was no longer able to maintain the Stockton House and after years of trying to keep up with code violations, needed repairs and vandalism, I finally called Peter

Westbrook. He came right out and told me what he could do. He contacted the city and county and even cleaned up the property before he bought it. He paid the back taxes for me and gave me an advance on the purchase of the house. Without his help I would have lost everything. I called real estate agents and other investors but no one wanted to help and no one offered to pay as much as Peter Westbrook. He completely remodeled the house and I smile every time I go by. Thank you Peter.

Leonard S

We inherited our parents house with one of our brothers living there . The property taxes had not been paid and it was in Tax default. We called Peter Westbrook and he found that the title was still in our parents name, so the Stockton House never went through probate. Peter also found that there was an old auto loan that had a lien on the

title and an old bankruptcy ruling to take care of that lien had never been filed with the courts. Peter handled everything including paying the back taxes, paying for the hiring a Probate Attorney and filing the probate and paying for and hiring a Bankruptcy Attorney to finalize the removal of the lien. He was patient, understanding and he took care of everything including evicting the tenants that were living in the house. We talked to real estate agents and other I buy house people. None of them had the answers for our situation. Without peter we would have lost everything. We got paid cash.

Steve H

We inherited my parents Stockton house with a mortgage. We decided to rent it out. The tenants destroyed the house. I didn’t know what to do, I didn’t have the money to fix it and the city had already issued code violations.. I called an “I Buy Houses Stockton Sign” on a telephone pole and Peter Westbrook answered. In 4 days he paid the bank and bought my house. We would have lost everything if it weren’t for Peter Westbrook.

Mike B

I inherited my mothers house with a mortgage. When my husband and I lost our jobs, we got behind in payments. Then the Bank posted a default with a auction date we didn’t know what to do.

We didn’t have the $15,000.00 and we only had two weeks to do something. We called Peter Westbrook and form the beginning he was confident he could stop the bank. Within 4 days he bought the house with cash, paid off the bank and stopped the Foreclosure. Without Peter we would have lost everything.

Brenda T

I saw a sign on a telephone pole and against my better judgement I called. The last thing I expected was a person answering the phone. I was surprised, Peter Westbrook answered the phone. I had a lot of questions and Peter had the right answers. My mother needed to get as much as possible out of the house and we had talked to several real estate agents and they all wanted to sell it cheap and wanted a 6% commission. They all told us unless we put thousands of dollars into it could not be sold for what we wanted. Not Peter. He made a fair cash offer and since then we have sold him another house. Peter and the title company handled everything. I couldn’t be happier and I would recommend Peter Westbrook to anyone.

Cathy W

I needed to sell my Stockton House. I called a phone number I saw on a sign and talked to Peter Westbrook. The City of Stockton said that they were going to take away my vacant Stockton house, knock it down and send me the

bill to do it. I did everything that I could to try to make them happy. A neighbor offered to buy the house and then Peter offered me twice as much. He did everything he said he would do and I just had to go to the Title Company and sign the papers. He did all of the work and now the City of Stockton is his problem. Thank you Peter.

Ann C

I inherited my Fathers Stockton house. The front porch was falling in, the walls had holes from being vacant and vandalized. The City of Stockton fined us, red tagged the property and forced us to put on a new roof so we had to get loans and we still couldn’t rent it out.

I called one of those “I Buy Houses” signs and Peter Westbrook came out and made a cash offer. The House closed escrow and we got our money for a house we though was worthless. Thanks Peter!”

Broderick R.

“Our Grandfather passed away and my brother, sister and I inherited his Stockton house. He was a junkman and hoarder. He was also 90 years old and had not made a repair to the house in years. He had garage sales almost every day. The house and the yard were full of junk. We tried to get everything out so we could just see the house. We had family and friends come over on the weekends but the cost and effort was consuming all of our time.The house was a mess.

I called Peter Westbrook and he made us a cash offer for the house and he said he would take care of all of the clean up. Thank God I called. The City had issued code violations and fines on the property and even before we closed escrow Peter and his crew had the house and yard cleaned (4 large Dumpsters later) . I recommend Peter Westbrook to anyone that has a problem house. They were fast and professional”

Connie J.

“I had tried to sell my Mothers Stockton house for two years. Realtor’s told me to tear it down. I didn’t have the money for that and my Brother and his family were living there. Peter Westbrook made me a cash offer and closed escrow with my brother still in the house. Peter Westbrook is my savior. I don’t have to worry about the house any more. If you have a Stockton house that has become a burden and you don’t have the money to fix it to sell it, call Peter Westbrook.”

Rosemary R.

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