Foreclosure Glut Pushes Prices Down

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A recent article in the New York Times supports what I have been saying for a long time…the housing market is going to get worse before it gets better.  The banks are so overwhelmed by the volume of foreclosures that the inventory of distressed houses that will have to be sold is backing up.

This backlog is sometimes referred to as “shadow inventory”.  It consists of houses that are stalled somewhere in the foreclosure process, but will come to market sooner or later.  The danger to the banks, and the housing market in general, is that if a lot of these distressed properties hit the market all at once, it will push prices even lower, and erode consumer confidence even more.

The article states that in Atlanta, lenders are taking back eight houses for every one they sell.  Can you imagine!

An under-reported result of all of this is that rents are rising.  Most of the houses in the “shadow inventory” are vacant.  The people that used to live there have still got to live somewhere, and most of them have become tenants.  This has created more demand for rentals, and is driving rents up.  Good news for landlords, bad news for tenants…until you consider that most of these folks can rent a house similar to what they used to own for less than their old mortgage payments!

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