The New Threat: Sidelined Home Sellers

July 30, 2010 No Comments »

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By now, you’ve probably heard about the shadow inventory.

You know, the millions of homes either in the process of foreclosure, or already owned by the banks, which have yet to be placed back on the market.

If put on the market, these homes would obviously increase the housing stock and weigh down home prices, exacerbating an already fragile recovery (that’s if we’re actually recovering).

In fact, a recent study indicated that it would take 1.35 years to sell the seven million strong shadow inventory assuming no other properties were on the market.

And I’m not even sure if that factors in the terrible re-default rate expected on loan modifications, which is as high as 75 percent by some estimates.

Sidelined Home Sellers

As if that weren’t bad enough, a new threat has emerged, so-called “sidelined home sellers,” those who have been waiting out the storm to list their homes.

The new worry is that once things do turn around, these sellers will flood the market in the hopes of dumping their properties for an actual profit, or at least not a loss.

At the same time, applications to purchase homes are at their lowest level since 1996, so even if inventory is low, it’ll take a lot longer to clear it.

The only sliver of “good news” is that many homeowners are still in negative equity positions, so they can’t sell. Let’s just hope they continue making mortgage payments.

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