After dozens of lookers and no buyers, Dixon Whitmire of Summerville decided to take his house off the market until real estate demand improves. Real estate professionals worry that homes like Whitmire?s, along with foreclosures owned by banks, comprise a ?shadow inventory? of homes that owners would like to sell.
Dixon Whitmire would like to sell his house in Summerville and move closer to friends and work in Mount Pleasant. But with housing prices in a slump and buyers scarce, he decided to pull his home off the market and wait.
"I had 45 or 50 people come and look at the house, but no offers materialized," Whitmire said. "With the market being what it is, I would have had to lower the price more than I was comfortable with in order to sell."
Whitmire, 36, is employed and pays his mortgage on time, but the real estate industry nonetheless fears homeowners such as him: those planning to put their homes back on the market at the first sign of rising prices.
The inventory of homes listed for sale has been falling, but there is widespread concern in the industry that a hidden reservoir of homes, known as the "shadow inventory," could flood the fragile market and harm the prospects for a recovery.
The shadow inventory includes foreclosures that banks haven't yet put up for sale, and homes owned by people like Whitmire, representing pent-up demand on the selling side.
"The problem with the shadow inventory is, no one really knows how large it is," said Doug
Holmes, an agent with Carolina One Real Estate who analyzes sales market statistics for CharlestonRealEstate Stats.com.
And there's no way of knowing if these properties will dribble onto the market slowly or hit the market in a disruptive rush.
Off the market
National real estate research firms say the shadow inventory includes foreclosures and bank-owned properties that haven't been listed for sale, as well as homes owned by borrowers who are least 90 days behind on their mortgages.
Holmes and other real estate and banking professionals say it also includes homes that owners listed for sale but pulled off the market when it became clear they wouldn't fetch an acceptable price until the market improves.
"You have all these people who would love to sell their house, and they are part of the shadow inventory," Holmes said.
Bryan Crabtree, a Mount Pleasant real estate company owner, thinks owners who are waiting for prices to rise will be waiting for years.
"For sellers, you're stuck where you are for about the next 36 months," Crabtree said. "If you think you're going to do better next year or the year after that, you're not."
Crabtree, who operates a Weichert Realty franchise and hosts a local real estate radio program, said he has handled many short-sale deals, where banks agree to let a borrower sell a home for less than the mortgage balance.
He believes residential prices have stabilized in the Charleston market, and it's safe for buyers to get back in and take advantage of record-low mortgage rates.
For sellers, it's a different story.
Indeed, the median price of a residential property sold in the greater Charleston area hit a post-recession low of $181,600 last year, and economists see little change in prices this year.
Statistics from the Charleston Trident Association of Realtors suggest that homeowners like Whitmire are far from alone, in waiting and hoping for the market to improve.
"People have given up and taken their homes off the market," said Holmes of Carolina One, who also teaches math at College of Charleston. "Demand hardly changed at all over the last four years. However, inventory has recently seen a dramatic drop. I'm glad to see inventory down, but I'm discouraged by the reason."
Last year in Berkeley, Colleton, Charleston and Dorchester counties, residential real estate sales increased by 530, but the inventory of homes for sale declined by 1,789.
Those numbers support Holmes' premise that most of the reductions in inventory have come from listings being taken off the market.
Underwater loans
For individual buyers and sellers, the real estate picture can look radically different depending on what part of the region they are looking at, and what price range.
File/AP
"If you want to buy an average, nice house in Dorchester (District) 2 schools, you're going to find 40 to 50 choices, while in Mount Pleasant you might find three or four choices," Crabtree said. "The inventory and the foreclosure numbers are so high there (in Dorchester County), it just pushes everything down."
Realtors will tell you that any house can be sold if the price is low enough. The rub is that many homeowners are "upside-down" and are stuck with mortgages that exceed the value of their homes.
Some of them could be trying to wait out the market rather than selling now and having to dig into savings to pay off a big loan balance.
The national real estate analysis firm CoreLogic estimated that 15.7 percent of South Carolina residents with mortgages were upside-down on their home loans in the 2011 fourth quarter. That's better than the national average of 22.8 percent for the same period.
"There are lots of people stuck upside-down in their homes, and that will keep things from bouncing back quickly," Crabtree said.
Slow, incremental growth seems the best that real estate agents and sellers with a home to sell can hope for in the near term.
At a Charleston Trident Association of Realtors event this month, Joseph Von Nessen, an economist at the University of South Carolina Moore School of Business, predicted that residential sales would rise just 2.7 percent in the Charleston area this year with little change in prices.
Supply and demand
The reason the industry is so intently focused on the number of homes up for sale and the looming shadow inventory go to simple supply and demand.
"The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults," said Mark Fleming, chief economist for Santa Ana, Calif.-based CoreLogic.
When demand outstrips supply, prices and sales tend to rise. When the reverse is true, prices fall and the excess supply must be reduced.
The number of homes for sale in the greater Charleston area nearly tripled from 2005, when real estate sales were soaring, to the summer of 2007, when the market was collapsing and 11,500 homes were for sale.
The inventory has been declining ever since. About 6,600 homes were on the market at the end of January, a big improvement as far as balancing supply and demand, but still far more than the current pace of sales should support.
Real estate experts consider an inventory equal to roughly six months of sales to be healthy. That would be about 4,500 homes for the local area.
If falling inventories have been the bright spot, it's easy to see why the size of the shadow inventory is the big fear. Prices in the Charleston area continued to fall through 2011, and sales rose only modestly, so it remains a fragile market even as some are growing more confident that it's hit bottom after a long downturn.
A smaller shadow
CoreLogic estimates there were 1.6 million homes in the national shadow inventory as of October, down from 1.9 million the same month in 2010. About half of these are clustered in a half-dozen hard-hit states outside South Carolina.
At that level, there's one home in the shadow inventory for every two homes listed for sale nationwide. The inventory has been declining, CoreLogic said, because so-called distressed properties are being sold at a slightly higher rate than they are being added to the shadow inventory.
In March last year, National Association of Realtors research economist Selma Hepp said there were more than 30,000 properties in South Carolina in the shadow inventory, enough to satisfy demand statewide for 18 months. There are no statistics kept for the Charleston area.
What is known is that the percentage of mortgage loans in South Carolina that were delinquent by 90 days or more and headed for foreclosure stood at 2.76 percent in the 2011 fourth quarter, an improvement over the previous quarter, said Rhonda B. Marcum, the Mount Pleasant-based executive director of the Mortgage Bankers Association of the Carolinas.
In the Charleston-North Charleston-Summerville area, 3.84 percent of loans were in some stage of foreclosure in November, according to CoreLogic. That's slightly higher than the national average.
"We've got a lot of stuff that's getting clogged up in the system with foreclosures," Marcum said. "That's all going to come back on the market at some point."
Distressed properties are already a large part of the market. Foreclosures and short sales accounted for more than 22 percent of residential deals in the Charleston area last year, according to Holmes' statistics.
"There won't be any quick fix for this," said Holmes. "Any increase in price will result in more inventory coming onto the market, keeping prices down."
The big question for the real estate market is, will banks and individual sellers rush back into the market if prices tick up?
"Common sense tells me that when banks look at properties they have in their inventory, especially those in the same neighborhood, it would make no sense for them to put them all on the market at once because that pushes prices down," Marcum said.
Reach David Slade at 937-5552.
Source: http://www.postandcourier.com/news/2012/mar/04/shadow-inventory/
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