The topic of a real estate shadow inventory is often mentioned when people find out I am a Realtor. They talk about the secret stash of homes bring held by banks like it is an alien abduction story. I can’t blame anyone as US banks have done little to promote warm-fuzzy feelings like trust, honor, or honesty.
The Big Question: Is There a Real Estate Shadow Inventory in Greater Phoenix?
Before we look at answering this question I think it best to look at where we get our information and is there evidence to back up our conclusion. We work with a number of data sources when analyzing the market and doing our somewhat famous real estate market reports. We say somewhat famous as our articles have been used on MS Money, News Channel 12, Time Publishing, and re-posted on hundreds of sites around the world.
Back to our information sources. We use the following
- Arizona Regional Multiple Listing Service: The primary data source for homes sold through Realtors. Some say this accounts for a bit over 90% of residential transactions.
- Maricopa Country Tax Assessors Office: When you buy or sell a property the deed is recorded here.
- The Cromford Report: The brain child of mathematician and real estate guru Mike Orr. Mike offer detailed market data, graphs and information to subscribers. There are literally thousands of up-to-date graphs, charts and other metrics on the Greater Phoenix housing market. Plus, Mike Orr is a true math and computer geek who hold a Masters degree in math from Oxford University. His data and insights have proven incredibly accurate.
- rbiExpert: Another subscription data source. This one is provided by Real Estate Business Intelligence. They are a big real estate data firm specializing in the eastern US and who has recently branched out into Arizona.
- Realty Executives Phoenix: Our brokerage is among the most successful in the US and the office we manage is the most successful of all Realty Executives offices in the US. We gather much insight from the 800+ agents with whom we work.
In analyzing the question Is there a shadow Inventory in Greater Phoenix we look at a number of factors such as:
- How many homes do banks own in Greater Phoenix.
- How many bank owned homes are currently on the market in ARMLS.
- How many months of supply do bank owned represent. Are these homes for sale? Are they already under contract? Are they currently not for sale?
- How many homes are on the verge of foreclosure.
Let’s look at the number of homes banks own in greater Phoenix as of September 1, 2012. How on earth could anyone know this number? It is actually not that hard as every home in Maricopa County has to have it’s deed registered with the tax assessors office and ownership info is included on the deed. We are fortunate because Mike Orr actually follows this data stream on a daily basis. We can do the same by doing search query’s of the tax records too. According to Mike Orr there are approximately 4985 bank owned homes listed on the tax records. We did some poking around ourselves and found Bank of America owns 1066 properties and Wells Fargo shows up with 504. Our numbers are from a search on September 25th, 2012.
How many bank owned homes are for sale on ARMLS. This is an easy search to run as we can specify to show bank owned homes only. As of September 1st there were 862 single family homes active on ARMLS. Another 876 single family bank owned homes were under contract as of September 1st. We ran a search while writing this article and found there were 1050 bank owned homes for sale on ARMLS today, the 25th of September.
How many bank owned homes are currently not for sale? We could also ask, how big is the shadow inventory in Greater Phoenix? Drum roll please… there are approximately 3247 bank owned homes not currently on the market in Greater Phoenix as of September 1, 2012. Some might say 3247 is a lot of homes held by the banks but not on the market. I guess if this was Snowflake or Winkelman Arizona it would be. However, in Greater Phoenix this is a drop in the veritable bucket. Mike Orr’s stats suggest it is about a 1/2 month supply and in our current low inventory market it would be sucked up pretty fast. In fact, some say many of these homes will come on the market as the buying season starts back up in October 2012.
How many homeowner in Greater Phoenix are currently facing foreclosure? According to statistics found on the Cromford Report and delivered at a recent talk by Mike Orr, foreclosures are down 69% from the height of the market and trustee sales are the lowest since September of 2007. There are currently about 14,000 people facing foreclosure. This is down from about 19,000 in January 2012. Not all of these homes will not go to trustee sale. Some will be sold as short sales, some of the people will catch up on their payments and many of these homes will be sold to 3rd party buyers at trustee sale and not taken back by the banks. Thus, there is no big glut of bank-owned homes looming on the horizon. Additionally, in a normal market about 8000 people are facing foreclosure at any given time.
Where is the dreaded shadow inventory many like to talk about?
Clearly the numbers do not support a shadow inventory in the Greater Phoenix market. This doesn’t mean there it doesn’t exist… just not in our market. In fact, statistics would probably show several states like Florida, New York, Illinois and other states that use judicial foreclosure may indeed have a shadow inventory. The foreclosure process in judicial foreclosure state simply take a long time. To get a sense of things, in New York they processed about 3500 foreclosures in 2011 verses Arizona where about 60,000 homes when though the trustee sale process. Thus, judicial foreclosure states simply take a long time to process and can create a shadow inventory.
We hope this info has been helpful and will make you a better informed person. You’ll be the one at the water cooler or party who can re-educate people with the truth about the dreaded shadow inventory.
The Urban Team at Realty Executives
7600 N 16th Street, Suite 100
Phoenix, AZ 85020