'Bloated inventory': RealtyTrac counts 750,000 foreclosed houses for sale

The slumping real estate market is "bloated" with foreclosed houses for sale, with a total of 750,000 foreclosed houses for sale across America, RealtyTrac reported today. The real estate firm estimates that one out of every six houses for sale in America is a bank-owned foreclosure.

"The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale," said James Saccacio, CEO of RealtyTrac. "RealtyTrac now has more than three quarters of a million properties in its active [real estate owned] database, a number that represents approximately 17% of the inventory of existing homes for sale reported in June by the National Assn. of Realtors."

Though pre-foreclosure filings such as notices of default do not necessarily lead to outright foreclosure, most recent statistics show a rising probability that homeowners who fall behind on payments will ultimately lose their homes to foreclosure. RealtyTrac today noted: "a higher proportion of properties that enter the forecosure process are ending up repossessed by lenders."

The inventory problem is so acute that Fannie Mae -- owner of 54,000 foreclosed houses -- is considering bulk sales of foreclosed houses to investors, according to the Associated Press: "To speed up the disposition of the 54,000 foreclosed properties it owns, Fannie Mae is opening offices in California and Florida and is considering selling those properties in bulk to investors. 'I do not think this is a time to be holding onto [foreclosed properties] hoping for a better day,' Chief Executive Daniel Mudd said last week."

In its monthly report on foreclosures, RealtyTrac said total foreclosure filings -- including notices of default and bank repossesions -- rose 8% from June to July, and 55% over the last year, to a total of 272,171 filings.  California accounted for 26% of those filings, with 72,285 foreclosure filings in July, a 5% increase over June levels, and an 85% increase over July 2007 levels.

-- Peter Viles

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com 

Comments

[mucker]

During the last housing meltdown in the 90's HUD auctioned off foreclosed properties one by one allowing ordinary people to get into homeownership and stimulating the recovery that got turned into the debacle of today after they began using auction companies to create auction fever with hundreds of people bidding in hotel meeting rooms. So now they want to cut right back to that scene. Investors and $7000 loans from the IRS are not the solution. Affordable houses are.

[Tim K.]

Regarding Fannie Mae's "bulk sale" - how exactly does this work, and who could actually make a profit buying and selling these homes?

If they are talking about selling them in groups of 10 or so, and they are priced cheaply enough that refurbishing and renting them out makes sense, I can imagine some landlords might take it up, but I have a hard time figuring out who would jump in and do this - presumably you'd need to buy these properties with cash.

It just doesn't seem to make much sense selling them in bulk - the highest payer is probably a resident-owner, so why use a middleman when your goal is to maximize recovery of money?

[jaded]

what's the deal with banks moving so slowly on selling foreclosures? A friend of ours has been in negotiation hell with a bank over a foreclosure he bid on months ago. And a realtor we worked with advised us to skip short sales altogether because the banks sometimes take months to even respond to an offer.

Banks seem to think that it's still a seller's market.

[amir]

Most late payments will eventually turn into foreclosures. I bet the statistical average is more than 90%. That means that we'll be facing months and years of more foreclosures coming our way.

Whether the banks sell the homes direct or to investors is not important. Most investors will try to buy at 40 cents on the dollar and quickly flip at 50 cents on the dollar. Regardless, it will create a surge in inventory and further decline in prices. All Fannie is doing is outsourcing the sales part of the transaction, because they're overwhelmed with the quantity.

Of course, some investors might want to turn into landlords and put many houses for rent. That is a different model. If they do that, expect a drop in rental prices. Supply and demand work in all markets.

[Lou]

I'm not sure that I agree that auctions are a bad thing. If you're saying that the auctions of the 90's is the cause of the current mortgage mess? Hardly. 100% financing, Option Arms and excessive loans made with No Doc and Limited Doc qualifying are the true culprits. People stopped looking at their homes as a place to live, and instead looked at their homes as piggy banks. I don't feel one bit sorry for the speculators who bought 3, 4, or 5 houses thinking they would flip them and make a killing.They gambled and lost.

[Rob]

Okay, if some corporation or investment firm comes in and bids 40-50 cents on the dollar for these in bulk, how does that translate to individual sales?

Are the sales prices...can the sales prices affect individual sales or comps? Are they required to be disclosed?

Any expert out here know....?

[Doug in Toronto]

Time for a little math. If you assume that Realty Trac's numbers are valid, and that each of these 750,000 homes had 2.2 inhabitants (some households have kids / other family and some don't), you come up with 1,650,000 people impacted (forced to move out) because of foreclosures. According to the 2007 estimate of the US Census Bureau, that implies that the number of impacted people is greater than the population of 12 states and the District of Columbia. It's greater than the populations of North and South Dakota combined. So, where are all these people going? Are they renting, moving in with friends, buying smaller homes, living in trailers or public parks? They have to be going somewhere. I'd like to see some research into that issue.

[E]

Doug in Toronto...

I'd be willing to bet that most of the people that are being foreclosed on are just joining the rest of us...you know...the class of the "great unwashed dirty renters". Or they are just staying in their house payment free like the deadbeats they are.

No big deal.

[Gary Noel]

I think it is fitting that the banks now own these houses. The banks borrowed money from investors, lately many of them foreign, or created money with the help of the Fed to finance developers. The developers bought politicians to force through land use decisions and hired lawyers and PR firms to Slapp and ridicule environmentalists and the part of the public who objected to the decisions. Then they financed the wage slaves who were willing to dramatically lengthen their period of indenture (and usually the indenture of their wives also) in order to have their piece of the 'American Dream.'

It could be that a lot of the foreclosures are wage slaves who have decided that living out in the middle of the desert and having to commute an hour or more each way is not their dream and have to decided to revolt. Clearly the Fed is doing it's best to help the banks put down the revolt but high gas prices and the growing reluctance of the foreign investors to help out could spell doom for the banks.

Only long term solution for the housing crisis is to rethink how we develop. It can no longer be arrogantly car centric. Hate to sound like a tree hugger but development is going to have to be multi-use clustered development, public transit, greenbelts and embedded wetlands. Only war to put down the revolt and restore order.

[Steve]

If Fannie & Freddie auction the homes, I think at best it's $0.22 on the dollar given that's what investors paid for Merrill Lynch's debt just couple of weeks ago. Given the investors are more savvy than those working for Fannie & Freddie, My guess it's probably close to $0.15 on the dollar.

Just think, $1,000,000 home will be sold for $220,000; $500,000 = $110,000.

Toronto, most of those homes were bought by flippers. Thus they were empty to begin with. Thus, the number impacted or displaced is actually much smaller.

[sheila]

if they are only gonna get 50 cents on the dollar, then why the hell aren't they reworking their loans with current "owners" at that rate?

clearly, nearly all of the people being foreclosed on could afford their houses if they were half priced!!! it would lower comps immediately by 50%, so all the Bitter Renters could get their cheap houses, plus would keep people where they are living, which is better for everyone.

this looks like another move to benefit Big Corporate RE Investors at the cost of the individual and the taxpayers... how many hits are we little guys supposed to take in this endless stream of corporate welfare?

[Yellowbird]

Why is it that every time the republican theft machine is done with our treasury, they throw housing into crisis as they are leaving office? Is this their final insult to us? A get even?

Why does anyone vote republican? Do they hate all their neighbors? Or just the ones that don't go to their church or bar?

What is wrong with these people?

[JasonSellsDallas.com]

I'm a real estate agent in Dallas and specialize in bank foreclosures and REO properties. I can tell you from first hand experience a short sale or foreclosure is a nightmare to deal with and 80% of your average retail consumer home buyer cannot handle the additional stress that comes with the process. Some banks such as CountryWide Aka BOA, has started asking anybody that wants to submit an offer on a foreclosure to pre-qualify with them before they will consider an offer. So you have to pre-qualify regardless if you already have or not with them to even submit an offer. They will then take 2 to 4 weeks to respond and the answer could very well be a no!

[Foreclosure Houses]

@ Doug...
Your math is exactly right. Something with those numbers published here cannot be correct. I cannot believe either that close 1.5 Million people have to live on the streets. It would be interesting to see in a few month what happened to those people...

[Vince]

"So, where are all these people going? "

Probably quite a few of them were never there to begin with. Many of these homes and condos were bought as second homes/investments, and no one lived in them. When people did live there, they just move in to apartments, or with other family.

[Jimbo]

Great, great. Bring in "skilled workers" instead of hiring our own homegrown skilled workers who are being laid off in droves. Sell off properties in bulk to institutional investors (usually foreing multinationals) instead of making housing prices affordable for regular Americans.

That solves everything, doesn't it? Just give the country away and make its citizens serfs!

Yep, the rich get richer, the poor get poorer, and regular joes get screwed coming and going. Welcome to the USA, Inc.