From December to January REO inventory shot up by 51 percent. We already know that Bank of America basically stopped foreclosure filings in December so of course the data became skewed. Banks are taking more of these homes back and we are seeing them filter onto the MLS. The bulk of these homes still reside in the shadow inventory and the public is unable to bid on these places. What this tells us is there is now movement on moving these larger loan balance foreclosures at discounted prices.
California foreclosure filings
The paperwork fiasco put a wrench in the process last year and that is why we saw a dip in actual NODs being launched out to non-paying mortgage borrowers. At a certain point action was going to need to take place and for the last few years many have simply taken a free ride on the banking bailout crest. That can only go on so long. The latest data shows that 24,000 NODs were filed in California in the last month so that is why the red arrow is shown above. It looks like banks are now doing some action on this giant backlog of shadow inventory properties.
This is where I don’t understand the calls for a bottom. The clearing out process is in its infancy. The foreclosures that hit the MLS are underpriced by a significant amount from original loan balances. The way real estate is priced in local markets is typically through “comp sales” so if lower priced homes are hitting the market, wouldn’t you conclude that prices would move lower simply by how agents value properties? Of course this makes calls for bottoms premature.
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