Florida’s ‘shadow’ real-estate inventory ranks No. 1 in U.S.
Unlisted homes in limbo could threaten Florida’s fragile recovery

Article Courtesy of The Palm Beach Post

By Kimberly Miller

Published April 10, 2011

The forecast could be dim for the Sunshine State as a looming market of distressed and discounted homes threatens a struggling recovery.

According to a new report from the National Association of Realtors, Florida’s “shadow inventory” ranks No. 1 in the nation with 441,461 homes statewide. California is in second place with 227,961 homes.

Shadow homes are ones in limbo — bank repossessions, those with delinquent loans, and ones in foreclosure that are not yet listed for resale.

The size of the shadow is grim news for Florida’s home values, which could take a dive as the properties are listed and start trading hands for cheap.

Palm Beach County’s median home value has proven fragile in the past year, slipping under $200,000 in January before rebounding in February to $205,400.

“That cloud just keeps hanging over us,” said Tim Becker, director of the University of Florida’s Bergstrom Center for Real Estate Studies, referring to the shadow inventory. “The question right now is: When will the homes come on the market and over what period of time?”

Becker said Florida’s shadow inventory is so much larger than other states’ because of the rampant real-estate speculation that occurred during the boom, as well as the state’s judicial foreclosure system.

Florida requires every foreclosure go through the courts, which have a 322,724-case backlog of foreclosures.

“There are only so many cases you can do in a day, only so many you can process,” Becker said.

Adding to the logjam is the robo-signing muddle and collapse of the Law Offices of David J. Stern, which handled tens of thousands of foreclosures in the state.

But not everyone is convinced Florida’s shadow inventory is as colossal or menacing as it appears.

Loan modifications, an improving economy or even fears of lingering deficiency judgments could keep homes from becoming bank-owned, said Stephann Cotton, president of the Stuart-based Cotton & Company real-estate research and analysis firm.

“The shadow market analyzes numbers from the rear, but the market is changing on a daily basis,” said Cotton, whose 2011 market survey found people more positive about real estate, with 42 percent of respondents indicating they are considering buying property.

“If things continue to get better, you will see a reduction in that shadow market.”

Bill Richardson, president of the Realtors Association of the Palm Beaches, has no doubt that the national association’s shadow inventory numbers are correct.

Although the shadow means a “longer and slower road to recovery,” Richardson’s concern over its effect is minimal.

The supply of homes for sale in Miami-Dade County has dropped 18.3 percent from 24,792 in March 2010 to 20,264 in March 2011, according to data from the Miami Association of Realtors.

Also, Richardson thinks the banks will not dump all of the distressed properties on the market at once — a move that would certainly crash prices.

“I think they are doing this strategically,” Richardson said of the banks. “They are not dumb. They know if they release a whole bunch of inventory at the same time, it will drive prices down.”

But national mortgage backer Fannie Mae said its policy is to put homes on the market as soon as they become available.

“Fannie Mae doesn’t have a shadow inventory of bank-owned properties,” spokeswoman Amy Bonitatibus said. “We list properties as soon as they are available to be listed.”

Becker also disagreed that banks have a strategy that will help control price declines.

“The banks I talk to say there is not much deliberation about spacing these things out,” he said. “They just want to get them off their books. The longer they hold onto them, the more it ties up their capital.”