Brace for More Foreclosures Thanks to "Ghost Inventory"

• January 27th 2009

by Will Smith

The foreclosure situation in the U.S. may actually be worse than most people think. According to a recent article from CNNMoney.com, “ghost inventory” or foreclosed and distressed properties that banks have repossessed but have not yet put back on the market, may be making things seem better than they are because the properties do not appear in the multiple listings service. Because they are not accounted for they do not have a deleterious effect on the foreclosure stats. So, the statistics of available housing inventory could be significantly underestimated, painting a rosier picture of the market than is actually true.

The size of this ghost inventory is unknown, but foreclosure listings site RealtyTrac conducted an experiment in California, Maryland, Florida, and Wisconsin in an attempt to get a more realistic picture of the nation’s foreclosure situation. The site compared the number of foreclosures listed in each state’s MLS to the number of foreclosures RealtyTrac has in its own database, which is based on local courthouse records and considered more comprehensive. RealtyTrac found that only a third of the foreclosures it has in its database appeared in the multiple listing service. If what RealtyTrac found for these four states is true for all fifty, then two-thirds of the 860,000 repossessed properties in 2008 are ghost inventory. That is well over half a million properties that are not accounted for.

So, why does this ghost inventory exist in the first place? The backlog of foreclosed properties is so acute that banks are just overwhelmed.

“I think banks are dragging their rears about doing just about everything,” Orlando real estate broker Eve Alexander said in the CNN article. “They have so much going on, and there’s so much red tape and the people don’t care, nothing gets done.” There is also speculation that in some cases banks are not relisting the properties because they don’t want to flood the market.

Unfortunately, with over three million foreclosure filings in 2008, the problem of ghost inventory will likely get worse before it gets better.

Keep reading at CNNMoney.com.

This article originally published at https://dc.urbanturf.com/articles/blog/brace_for_more_foreclosures_thanks_to_ghost_inventory/485.