Lane Hornung says the feared shadow market has been replaced by low inventory.

Just a few months ago, one of the big threats to the Front Range housing market appeared to be that a “shadow” market of homes would darken the prospects of a recovery.

Last June, one national report even predicted that the Denver-area housing market could see its inventory of unsold homes rise by a third, as banks unloaded foreclosed properties on their books that aren’t currently on the market.

Instead, the opposite happened.

The number of unsold homes on the market began an unprecedented drop, so by the end of January a mere 10,443 homes were competing for the market. That was the lowest inventory number since 2001, when there were 9,540.

At the same time, the number of homes being placed under contract in January rose almost 11 percent from January 2011, resulting in a weekly sales rate of 7.71 percent, according to an analysis of Metrolist data by independent broker Gary Bauer.

In January 2011, the weekly sales rate was 4.06 percent. Another way to look at it: Your chances of selling a home this January was almost twice as strong as in January 2011.

Last month marked the first January that the weekly sales rate, a leading indicator of activity, had ever topped 7 percent and the highest weekly sales rate in any month since 1990.

The weekly sales rate metric is truly one for Denver’s housing history and a worthy jumping off point for InsideRealEstate’s monthly question-and-answer session with Lane Hornung, co-founder, president and CEO of 8z Real Estate and COhomefinder.com

John: Lane, what do you make of this super-low inventory and the resulting super-high weekly sales rate?

Lane: There is no question. The inventory is as tight as a drum.

John: What has been the reaction by the house-hunting consumer.

Lane: That is really interesting. What I am starting to hear back from brokers is that the lack of inventory is actually slowing down the sales rate.

John: But the sales rate was as high as it has ever been in a January.

Lane: I know. I think we would have seen even more under contracts with a bit more supply. Let’s say we could add 10 percent to the supply of homes, the number of contracts would rise. I do not think it is unreasonable to think that one out of every 10 prospective home buyer is unable to find a home that meets their needs and they can afford – or they are out-bid.

John: So with such a low supply, and demand picking up, many consumers can’t find their dream home?

Lane: Right. A lot of folks now are on their third, fourth or fifth attempt to buy a home. In some cases, depending on the neighborhood, they are getting out-bid, time after time.

John: That’s not true across the board, is it?

Lane: No. It’s still a bifurcated market. For every market where sellers are getting multiple offers I can show you a market where there is 28 months of inventory. If you look at the entire market, in aggregate, there is about a four-month supply of unsold homes, that means there are some neighborhoods there is only a one-moth supply. And it’s not just along the Front Range. I was talking to a broker in Greeley, and do you know how many homes there are there under $60,000? Zero. Sixty thousand dollars doesn’t sound like very much money, but a couple of years ago you would have had your pick in that price range. No longer.

John: In the Denver area, despite the low supply and strong demand, the numbers still aren’t showing an increase in average and median prices.

Lane: I think that is a function of the mix of homes being sold. At the lower-end, I would be very comfortable in saying that we have seen appreciation in home prices. As in Greeley, I think some lower-price points have disappeared, simply vanished. A big part of that is investors are snapping those homes up, knowing they can rent them out and immediately cash flow. In some places, 25 percent or 35 percent of the market is coming from investors. In very high-end neighborhoods, I would say for the most part, there is zero impact from investors. It is just not the product-type, on average, that investors are interested in.

But I do think we are very close to seeing year-over-year appreciation. Eventually, the law of supply and demand will work as advertised. I think we will see year-over-year appreciation in the Case-Shiller report very soon.

John: Is the threat of a shadow-market behind us?

Lane: It still could happen. The threat isn’t gone yet. I wouldn’t hold your breath and I think with every passing month without it happening, it will become a bit more unlikely. The truth is, right now, I think there are a lot of Realtors and a lot of buyers, who wouldn’t mind seeing a bit of a shadow market to give people more choice in buying a home.

John: Thanks, Lane.

8z Real Estate is a sponsor of InsideRealEstateNews. A monthly conversation with Lane Hornung is one of the features of IREN. To learn more about 8z Real Estate please visit this link.

Related Posts:

• Hornung: Buyers need to buyer’s market at the door
• Hornung: Time to buy is a personal decision
• Case-Shiller: Denver No. 3
• Hornung: A tale of two markets
• Home inventory plunges 30%

The Denver-area housing is facing more than a three-year supply of distressed properties that are not yet on the market, according to an analysis by Standard & Poor’s Rating Services.

Denver’s 38-month supply of “shadow inventory,” however, is 27 percent lower than the 52-month supply for the 20 metropolitan statistical areas tracked by the closely watched S&P/Case-Shiller Home Price Indices. New York was No. 1, with a 146-month – or more than 12 years – of inventory.

Standard & Poor’s defines the shadow market as outstanding properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments. It also includes properties that are currently or recently in foreclosures and real estate owned, or REOs, which are foreclosures that already have been acquired by the lenders. Nationally, Standard & Poor’s values the shadow market at $433 billion at the end of the first quarter, down from $450 billion a year earlier. A report released in the fall of 2009 by the Amherst Securities Group, estimated that the Denver area could face almost 14,000 shadow-market homes hitting the market.

Standard & Poor’s used CoreLogic numbers that showed Denver had an “original loan balance” of $13.7 billion of distressed properties. A spokeswoman from Standard & Poor’s said she did not know what time period the loans covered and CoreLogic did not respond to an answer in time for this article. However, based on earlier press reports, it appears that CoreLogic was tracking loans made from 2004 to 2006, the period that set the stage for the worst housing crash since the Great Depression.

Denver facing $3 billion in shadow inventory

In any case, Denver has dropped its current balance on that amount to 21.7 percent, which equates to just under $3 billion. Only Las Vegas and Phoenix, two of the hardest hit cities by the  housing collapse, have dropped their balances to lower percentage levels. However, Denver’s supply of shadow market at the end of the first quarter was 22 percent higher than a year earlier, when it had a 31-month supply. Only Tampa, Minneapolis and Detroit showed smaller percentage increases in their year-over-year inventory levels. Overall, inventory levels are up 33 percent from a year ago.

“These distressed loans continue to loom over the housing market and threaten to further depress home prices,” according to the Standard & Poor’s report. “Though fewer additional loans are currently defaulting, the overall volume of distressed loans remains huge. Low liquidation rates over the past two years allowed the shadow inventory to grow; distressed homes have remained tied up in foreclosure proceedings. The shadow inventory will continue to jeopardize the housing market’s recovery until servicers are able to speed up their liquidation rates. However, if and when that happens, an influx of homes will likely enter the market, increasing supply and driving prices down further.”

Where’s the beef?

Peter Niederman, CEO of the Kentwood Co., agreed if a large number of homes came on the market quickly, it would drive down prices, especially since sales volume is so anemic.

However, the unsold inventory of homes in the Denver area at the end of April was 19,553 barely higher than in January, although there is usually a seasonal increase as buyers enter the spring and summer selling months. Indeed, it was the lowest inventory level for an April since 2002.

“I keep hearing these pundits saying there is a 3 million or 4 million shadow inventory out there,” Niederman said. “If it is true, where are they?”

Data contradictory, anti-intuitive

Economist Patty Silverstein said that it would be useful to get a handle on the housing market lurking in the shadows.

“I guess the bottom line is, why do we care? I think it is especially useful if you want to place your home on the market. The price you set for your home in part would be baed on homes that might be coming on the market,” said Silverstein, principal of Development Research Partners and the consulting chief economist at the Metro Denver Economic Development Corp.

Silverstein said if Standard & Poor’s is correct, Denver’s housing market is in for a long haul.

“My initial reaction is if the 38 months is correct, that seems like a very long to clear the market,” Silverstein said. “That is the bad news. The good news, if you can call it that, is that we are in better shape than most other areas.”

However, that the three cities with a smaller supply of homes than Denver are Detroit, Las Vegas and Phoenix is a head-scratcher.

“I’m puzzled by that,” Silverstein said. “Intuitively, I would have thought those markets would be seeing a slower recovery and would have higher inventory levels.  Detroit, for example, is suffering from out-migration. They have more people leaving than new entries into the market.”

In fact, a great deal of the real estate information being released, locally and nationally, is perplexing. For example, Silverstein said she considered the shadow market to be homes held by banks that they have not yet placed on the market. The line of reasoning is that they would rather keep the homes off the market until they could sell them later at a higher price, knowing that if they swamped the market with homes, it would have the opposite effect, driving down already depressed prices. Yet Standard & poor’s appears to be taking a broader view of the shadow market by including homes in which the owners are 90 days delinquent on their mortgages, she said.

“it seems if you are looking at Case-Shiller, or the National Association of Realtors, or Metrolist, or assessor’s data, they are all tracking different things and many times seem to be conveying contradictory messages,” Silverstein said. “I think it is really challenging to understand where we are in this real estate cycle.”

Related Posts:

• LIVE Urban plans version of Amazing Race
• Home sales sizzle in March
• Case-Shiller: Denver in positive territory
• Case-Shiller: Denver No. 2
• Hornung: Shadow fears displaced by low inventory

No slump in sale prices

Gary Bauer, the independent broker and business consultant who prepared the report based on Metrolist data, said it may be too harsh to describe November as a home-selling  turkey. After all, the average price of a single-family home at $281,466 is 6.5 percent higher than the $256,498 in November 2009, and the median price is up 7.3 percent to $233,990 from $218,000. The price increases are primarily due to the fact there are few super low-priced homes on the market, as well as more activity at the middle and upper-end of the market, Bauer said.

“I guess it depends on how you define turkey,” Bauer said. “This is not the worst November on record (a dubious distinction that goes to 1990, he said.) And I really expected it to be worse than it is. It was better than I expected.”

Several factors bode well for a better December and beyond, he said.

Job growth in the Denver metropolitan area seems to be moving in the right direction, cash registers are ringing at restaurants and many retailers, and some neighborhoods – such as Highland and Washington Park – are bucking the overall downward trend in the market, Bauer said.

That is not to say that November was high-flying, by any metric.

“The seasonality hit us extremely hard in November,” Bauer said. “Consumers do not have home purchases anywhere on their radar screens. But in a way, I think that is very positive. Consumers are focusing on what they can touch and feel, rather than on any arm’s length transactions. They are taking care of their families and getting back to basics.”

For seasonal reasons, sales almost always drop in November from October. And the 16.3 percent month-over-month decline in under contracts was much smaller than the October-to-November drops of 29.9 percent  and 19.2 percent, respectively.

Supply rising

Bauer, however, was surprised that there were 20,392 unsold homes on the market, a 12.9 percent increase from November 2009,when there were 18,061 unsold homes on the market. There were 21,851 unsold homes on the market in October.

“I would have thought more people would have started to take their homes off the market,” Bauer said. “Some of the increase in inventory may be because of bank-owned and real estate owned properties being put on the market.”

The increase in inventory could result in falling prices, said Jeff Thredgold, chief economist for Vectra Banks. “Supply and demand does work sometimes,” Thredgold said. “Increasing the supply can put some downward pressure on prices.”

On the other hand, the rising supply can be misleading, because not all of the homes on the market are competitive, said Kentwood’s Cryer.

“When you’re driving around looking at homes in the $350,000 to $400,000 price range, you would be surprised how many are in terrible condition,” Cryer said. “”Six or seven out of every 10 will have some fatal flaw.” The lack of choice of choice properties come at a time when prospective buyers only want the cream of the crop, he said. “No question that expectations are extremely high,” Cryer said.

Shadow market lurks

On the other hand, Cryer said there may be thousands of unsold homes waiting in the wings that aren’t being reflected in the data. He recently attended a presentation by Ryan Lantz, whose company, Claremont Information Systems has developed a subscription service called Short Sale ProLogic  to help Realtors and others identify short sales, indicates the so-called “shadow market” of available homes waiting to hit the market. Their data indicates that the shadow market could increase the supply on unsold homes by more than 70 percent in its 10-county market, Cryer said. (For an earlier story about this company,  please visit Short Sale Software Aimed at Realtors.)

“Could you imagine the impact if it is even 40 percent? What would happen to car dealers, if their supply of unsold cars suddenly jumped by 40 percent?”

Economist Thredgold said that the Denver-area’s economy has not bounced back as quickly as some other areas, which is one of the reasons that demand for housing remains soft. But more than anything it is being buffeted by macro metrics.

Thredgold said uncertainty on a number of national  issues are making consumer reluctant to shop on the dotted line, including:

• Tax rates
• Health care
• The ability of Democrats and Republicans to work together

“Even thought mortgage rates are still extremely attractive, despite recent increases, people are keeping their money very close to their vest, so to speak,” Thredgold said. “Plus, for many people, they have a house to sell before they can move up to a bigger one. And it is difficult to sell a home right now.”

Jason Miller, principal of Milan Realty, said the market should “see a small bump in December under contracts and Janury sales, because of the big jump in mortgage rates from 4 percent to close to 5 percent today,” as some buyers get off the fence in fear that rates will rise more.

Running on empty

Still, Miller said the November home sales activity numbers were so gloomy, he finds it hard to believe anyone could a positive spin on it.

“It looks to me like we have run out of qualified buyers,” Miller said. “To have mortgage rates at 4 percent and November sales the weakest since November of 1991, this is very weak. Condo sales are down 38 percent year over year, tell us there are very few first-time buyers.”

Miller takes no pleasure in being negative on the market.

“I wish things were better,” Miller said. “I just like to call things like I see them. Buyers deserve to know both sides.”

Year	Under Contract	Closings	Average Price Single-family homes	Median Price Single-family homes
2002	2,022	3,641	$273,304	$222,500
2003	2,074	3,676	$283,517	$229,500
2004	2,786	4,545	$289,934	$236,500
2005	4,709	4,225	$309,030	$248,250
2006	4,266	2,843	$306,982	$245,000
2007	4,007	3,482	$297,812	$229,500
2008	3,637	2,920	$242,557	$195,000
2009	3,444	3,599	$265,498	$218,000
2010	3,101	2,666	$281,466	$233,990

Related Posts:

• Sub-$300,000 sweet spot for home sales
• Home sales fall 28%
• Under contracts plunge 41 percent following end of tax credits
• 2009 Denver home market: At least it's not Vegas
• Under contracts drop by 30%, but homes prices up

The median, or middle, price of a home jumped to $224.800 last month from $197,800 in December 2008. The percentage increase was the largest of at least other metropolitan statistical areas tracked by the NAR. Unlike the S&P/Case-Shiller report that will be released on Tuesday, the NAR report does not include only major markets. It also includes markets such as Pittsburgh and San Antonio, for example.

Sales volume, however, dropped by 10.2 percent in the Denver area.  Only Indianapolis, with a 13.1 percent decline, showed a bigger percentage drop, according to the data released by NAR.

Denver was not on the list, but the information it compiles for the Denver MSA was released to InsideRealEstateNews.com.

“I can give you unpublished data on Denver,” said NAR spokesman Walter Molony. He said the NAR publicly released month-over-month data on various cities depending on the sample size of the MSA and how comfortable NAR felt with the data. The NAR also noted that their data may show different results than local data because of geographic areas and housing types included. An earlier report by independent broker Gary Bauer, based on Metrolist data, showed a slightly smaller percentage increase in the median price of a single-family home sold. Bauer’s report showed the median price of a single-family home closed in December at $221,000, up 13 percent from December 2008.

Molony also cautioned about reading too much into monthly data for any metropolitan area.

“Month-to-month data can be quite volatile,” Molony said. “We prefer quarterly data. We will be releasing quarterly data on Feb. 11. That will be more in-depth and you should find that more valuable.”

When I told Chris Mygatt, president of Coldwell Banker Colorado, about the data, he noted that is a bit of a higher December vs. December 2008 gain, based on local Metrolist figures.

He said the increase last month was due to the mix of homes being sold. For most of 2009, so many distressed properties were being sold that they were driving down the overall average and median prices, he said.

“It is interesting,” Mygatt said about the NAR data. “We know in the last four months we have been seeing some increases in the average price of a sold homes.”

But he said that is a trend that may not last.

“If  you look at the big picture in Denver, we know that banks are sitting on a record number of homes that are not being listed on the market and are not currently being sold,” Mygatt said. “That has resulted in a decreasing inventory and when demand came on strong, we saw prices at the lower-end move up, along with some movement at the upper end.  What I really fear is when and how this  ”shadow market” of unsold homes held by the banks are delivered to the market. If they let them out one at a time, by dribs and drabs, it won’t have much of an impact. But if all of a sudden they drop thousands of homes on the market, we are going to be in trouble. That will cause a big drop in prices.”

Source: National Association of Realtors

Contact John Rebchook at JRHOOK@gmail.com or 303-945-6865.

Related Posts:

• Shadow market poised to increase Denver housing supply by 78 percent
• Denver’s drop no bubble
• Home sales drop, prices up
• U.S. home sale drop in line with Denver’s
• Million-dollar homes show life; most sales still below $300,000

Yet, as of today, HUD has 300 homes listed for sale in Colorado. And some of them are not on the open market. Some of the homes are first offered to non-profit groups, as well as teachers and others before investors or owner-occupants can bid on them. Weld has the most foreclosures listed at 41, while Adams and Arapahoe counties each have 38. El Paso County had 37 and Denver 30. A number of counties only had one foreclosure listing, including Archuletta, Chaffee, Huerfano, Kit Carson, Montrose, Otero and Rio Blanco.

Backlog?

And while it has sold 2,542 homes to other buyers so far this year – some of them acquired last year – it appears that HUD must have a backlog of homes that it owns, but they are not actively marketing.

“That is the insanity of it,” said Bobby Burnett, owner of Keller Williams Realty – DTC.  “I don’t think they want to put all of this stuff on the market at once and just saturate it. I think they are just sitting on it. That is my opinion.”

If that is the case, he has mixed feeling about it.

“It’s not a bad thing,” Burnett said. “If you dropped another 2,300 homes on the market at once, it would have a very negative impact on prices and the market. The only bad part of is that the longer the property sits there, it deteriorates more, and hurts the value of that property and the surrounding neighborhood.”

Shadow Market

Also, the homes that HUD appears to be sitting on, are part of a “shadow market,” that next year could swamp the market, driving down prices, he warns. Banks, by some estimates, likely own thousands of more homes that they have yet to offer to buyers. (For more on the shadow market, please visit my previous blog on the subject.)

It’s a far cry from the late 1980s, when HUD used to buy thick weekly special sections in the Rocky Mountain News and Denver Post, listing all of its homes for sale, noted Nickolas Terry, a broker with RE/MAX Leader.

During that foreclosure crisis, caused by an exodus of jobs from Colorado when the energy market collapsed and over-building in anticipation of a boom that went bust, HUD became the largest single landlord in the Denver area.  The foreclosure crisis was known as the “death spiral” and in some cases HUD would pay buyers $500 to take houses off its hands.

Steve Cramer, principal of Exit One Realty, said from the time HUD acquires the homes until the time it hits the market, is not a speedy process.

Cramer said that HUD gets the title of a home with an FHA-insured mortgage from the lender, after it has been sold at a public trustee auction.  Then, a company called Michaelson, Connor & Boul, (better known as mcb Colorado), which has a contractual relationship with HUD, inspects the property. A FHA appraisal is needed to determine the asking price, and the home is winterized. Then, mcb doles out the homes to 16 designated brokerages (including his) by ZIP Code, he said. The listing broker only receives $100 per home, he said, but the broker who brings a buyer can typically expect to make $1,300 to $1,400 on each home sale, Cramer said.

“From the time HUD takes possession until it is put on the market can sometimes take four to six months.”

Related blogs:

HUD foreclosures drop by 15%

Drop in HUD prices probably a quirk

FHA loans soar

County	HUD foreclosure listings
Adams	38
Arapahoe	38
Boulder	4
Broomfield	2
Denver	30
Douglas	6
Eagle	2
El Paso	37
Elbert	3
Jefferson	18
Kit Carson	2
Mesa	16
Pueblo	25
Rio Blanco	1
Weld	41

.

Related Posts:

• HUD foreclosures drop by 15%
• HUD foreclosure sale prices drop, but Realtors don't buy it
• FHA loans soar in Denver, Colorado
• Give me land…lots of land
• $100 downpayments for HUD homes

Home closings nationally are up 10.1 percent from October and a whopping 23.5 percent from October 2008, according to the National Association of Realtors. By comparison, home closings were down 7.6 percent in the Denver area from a year earlier and were up only 2.9 percent from September.

But I would consider this a bullish sign, if I were either looking to buy a home, sell a home, or if I were in the business of selling homes.

The reason is mathematical.

Everything reverts to the mean. That is, whether you are talking about stocks or housing, things have a way of settling down to whatever is  “normal” for that market, despite short-term spikes up or down.

What I think that is going to mean (no pun intended)  is that home sales are going to pick up in Denver and fall nationally.

And don’t forget, Denver’s economy often is counter-cyclical to the national economy.  That  economic-sword cuts both ways – we’re often down when the nation is up, and vice versa.

Another reason to bet on Denver’s housing market recovery is that it and Colorado have one of the best “balanced energy economies” of traditional and  alternative energy companies in the nation, as Tom Clark, of the Metro Denver Economic Development Corp., points out. The  Denver-area should become a magnet for high-paying jobs in the alternative energy sector,  especially since the Golden-based National Renewable Energy Laboratory, the nation’s premier renewable energy research outfit,  is in our backyard.

Also, mortgage rates remain near their historical lows, if you have the credit and work history to qualify. That mortgage rate window won’t stay open forever.

Still, there are storm clouds dampening Denver’s housing market. A declining workforce even as unemployment rates drop, is not encouraging. The area, and much of the country, is bracing for another wave of foreclosures due to more people losing their jobs. And lenders may have thousands of foreclosed homes waiting in the wings that have not yet been put on the market,  creating a shadow market, as I reported earlier.

Kentwood Co.  broker Tom Cryer says this reminds him of 1989, a prime time in Denver to find bargain-basement-priced homes. He thinks people who don’t buy today, will wish they had by 2012, when he thinks a  Denver-area housing recovery will be well on its way.

I don’t think I would bet against him.

Contact John Rebchook at 303-

Related Posts:

• Exclusive: More than a million Denver-area home sales over 35 years
• NREL Forum a hidden economic gem for Denver economy
• Permanent loan modifications up 45% in Colorado
• Dawning of the age of "rational apathy"
• Tom Clark focuses on housing in monthly report

RE/MAX, based in the Denver Tech Center, is working with HEART Financial Services of Northbrook, Ill. to create a pre-foreclosure or short-sale strategy that they hope will make it easier for families to sell their homes and avoid the trauma of a foreclosure.

“It’s unfortunate that the short s\ale process has been so difficult to navigate in this marketplace,” said Dave Liniger, Chairman and Co-Founder of RE/MAX International. “We’ve been working hard to promote streamlined short sales to provide both significant benefits to lenders, and a welcomed opportunity for homeowners to get a fresh start.”

At-risk homeowners who do not qualify for a loan modification will now have a viable alternative, and will not be forced into foreclosure.. Lenders that offer loan modifications to their at-risk borrowers will be invited to participate in this new short sale program.

Trained customer service representatives will provide detailed short sale information to all homeowners who cannot obtain a loan modification or do not wish to retain their property.

If a homeowner believes that a short sale might be appropriate, they are directed to a secure Internet Website where they can obtain more information, and select a real estate agent in their community who has received comprehensive training on the shortsale process. RE/MAX has designed this online database to assist homeowners with short sale information and easy agent referrals, and will use the closing management services Integrated Asset Services of Denver.

“It’s been our experience that many homeowners aren’t even aware that Short Sales are a reasonable alternative to foreclosure,” says Jerry Alt, President and Chief Executive Officer of HEART Financial Services. “Each month we speak with thousands of homeowners who can’t qualify for or don’t want a loan modification. For the most part, when we refer them back to the servicer for a potential short sale, we lose the opportunity to help the borrower while we have them on the phone. Now, we can offer these homeowners some hope and a more efficient process to list and sell their home.”

The number of homeowners who could rely upon a short sale may be in the millions. According to RealtyTrac.com, July, August and September had the highest foreclosure numbers on record and some analysts  say there is a “shadow” inventory of foreclosed properties as high as 7 million, which could start hitting the market in a few months. Earlier, InsideRealEstateNews.com reported that the shadow market could increase the Denver-area supply of unsold homes by 78 percent.

Out of all the applications reviewed for a loan modification, less than 50% are successful. And a high percentage of successful loan modifications eventually re-default.

“We have been talking to numerous industry leaders, legislators and Administration officials trying to draw attention to the Short Sale situation,” says Liniger. “It’s just not possible for the housing market to recover fully until the inventory of foreclosed properties is significantly reduced, and short sales offers one practical way to help do this.”

There are over 11,000 real estate agents in the United States who have received the Certified Distressed Property Expert professional designation. More than  60% of those are affiliated with RE/MAX. In addition, the National Association of REALTORS  also offers a similar Short Sale, Foreclosure and REO (SFR) designation. Agents who have received special Short Sale training like these designations could be selected to participate in this new short sale program.

Short sales can occur when a lender agrees to accept a sales price for a home that is lower than what the homeowner owes on the mortgage. The short sale transaction is more complicated than the average real estate sale and consumers are urged to deal with agents who have specific training in the process.

HEART Financial Services will begin offering the newly developed short sale process to the loan modification applicants of their clients within the next few weeks.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

Related Posts:

• Colorado No. 10 for foreclosures
• 3rd-party foreclosure sales 30% of Colorado market
• RE/MAX trains agents to help combat foreclosures
• Colorado No. 12 in foreclosures
• Liniger fan of new short-sale guidelines

The shadow market in the Denver area is 13,888 homes, according to the Amherst Mortgage Insight report released by Austin-based Amherst Securities Group, which puts the total inventory – including the shadow market – at 31,618 unsold homes, based on data from Trulia.com. The shadow market, as defined by Amherst, are homes that are in or facing foreclosure, but are not yet on the market. Others also include homes that are being rented, often for less than the mortgage amount, because the owners are unable to sell them for a profit, but plan to sell them when they think the market is starting to recover.

“We keep hearing about this shadow market, but this is the first real quantification I have heard of,” said Tom Cryer, a broker with the Kentwood Co. “This report takes the shadow market from being something of an urban myth, to something that really exists. I do not see anything that could dispute it.”

If the shadow market could add almost another 14,000 homes to the Denver-area market, that could slow the recovery of the low-end homes that seem to be stabilizing and even appreciating, Cryer said. In August, there were 24,648 unsold homes on the market in Denver area, 20 percent fewer than a year earlier, according to a separate analysis of Metrolist data by independent broker Gary Bauer.

One way to look at it, is that the shadow market would bring the supply more in line with its historical levels.

Rinner: Inventory low in Denver

“But we have such a low sales rate,” that people are not putting their homes on the market, keeping the inventory low, said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range.

Nationwide, the shadow market is 7 million homes, equating to a 1.35-year of inventory, according to Amherst. “The single largest impediment to a recovery in the housing market are the number of loans that are either in delinquent status or in foreclosure, destined to liquidate,” according to the report. “This creates a huge shadow market,” the report notes.

More bad news could be on the horizon, despite recent positive trends, such as reported in the S&P/Case-Shiller report, which found that most of the 20 statistical areas had shown a month-to-month increase from July to August. The Amherst report analyzed the 20 cities in the S&P/Case-Shiller report, including Denver. It found that only six cities – led by Las Vegas, had a larger shadow market, as a percentage of the total inventory, than Denver. In Vegas, the total shadow market accounts for a 315 percent increase over the number of actual listings.

Shadow market growing

And the shadow market could become an even larger problem. The Amherst report notes that “to the extent that there is more home price depreciation (causing higher volume of defaults), the problem could escalate.”

Rinner, of the Genesis Group, a local company that tracks housing along the Front Range, said the report “makes a strong case that the other shoe (of foreclosures and depressed pricing) is waiting to drop. “However, he added you always wonder how good the research is of “experts from looking from afar.”

Still, the report attempts to quantify the shadow market, which is valuable for predicting the direction of the market.

“Probably the most interesting thing to come out of it, is that we do have an excess supply that isn’t frequently recognized,” Rinner said. But he said there is a saving grace, which may help to mitigate the blow of the shadow market.

“We do have a pent-up demand,” of buyers who want to take advantage of low-interest rates and low home prices, he said. Even though unemployment is high by historical standards, 93 percent of the people in the Denver metro area still have jobs, he said. The main thing that keeps people from taking advantage of the housing market is concerns about their jobs, he said. “Over time, as that starts to go away and people feel more comfortable, and unemployment starts to fall or stabilize, people will start entering the market again,” Rinner said. “The excess supply will get used up.”

On the other hand, as the Denver-area population ages, that older demographic is not as likely to move as quickly as younger buyers who are forming and growing families, he said. However, as builders construct greener, more sustainable homes, and owners retrofit homes with green features, that could increase the demand, he said.

Amherst, in its report, said that more needs to be done to lessen the impact of the shadow market.

“We believe that the housing overhang is the single large issue inhibiting a housing recovery,” according to the report. “We are concerned that, in light of this overhang, the housing market , stabilization is temporary based on seasonal factors, and prices can deteriorate further. We believe a more permanent stabilization must await some resolution of the shadow inventory.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

Related Posts:

• Exclusive: More than a million Denver-area home sales over 35 years
• Denver ties for top city in Case-Shiller report
• Home sale sweet spot below $300,000
• Spring home sales likely to surge
• Historical Denver home prices, adjusted for inflation

There appears to be a “shadow” market of homes, both distressed and otherwise, that are not on the market yet, and could ultimately delay the housing recovery.  A survey by Zillow.com in May, for example, found that 31 percent of those polled would consider putting their homes on the market, if conditions were better. That could lead to a flood, maybe even a tsunami, of new homes on the market. Also, it is widely believed that banks are not putting all of the homes they have repossessed on the market, as they hope for a better price.

Ed Jalowsky, owner of Hottest Homes Realty, said he is certain that a shadow market is looming.

“I think so,” Jalowsky told me.  “Here is why. First of all, a lot of the financial and social economic indicators have not stemmed the flow of the hemorrhaging of job losses. Earlier this year, the unemployment rate was 7 percent and now it is hitting 10 percent. It already is 12 percent in California. And if California goes down the drain, so does the rest of the country. We don’t have any real economic news that things are getting better.”

And banks are loathe to complete the foreclosure process, because they figure that Uncle Sam might ultimately pay them 50 cents on the dollar for their loans, while they’ll only get 30 cents on the dollar in the open market.

“But Denver may be a bit counter-cyclical,” Jalowksy said. “We have been down this road longer than the rest of the country. We were way ahead of the curve for the downturn, and should be way ahead of the curve for the recovery.”

Lydia Lin, owner of One Realty Inc.,  said she has had several clients who wanted to put their homes on the market, but when she researched their neighborhoods to see what they could realistically expect to get, they decided not to sell them.

“No one wants to bring $20,000 to the closing table,” Lin said.

But a few clients have thrown in the towel, because they realize that it may be several years before they can expect a rebound. One client who moved to Washington, D.C., is getting set to put his house in Mayfair on the market. At one point, another Realtor told him he could get $730,000 to $750,000, but Lin said it probably will hit the market around $590,000. Unfortunately, he spent a lot of money renovating a house and didn’t spend his money wisely. It would have been less expensive, and a better investment, to scrape the house an add a basement, she said.

On the other hand, she plans to soon list a home near Sloan’s Lake for about $259,000, and she thinks it is possible bids will come in higher than that. The home has been appraised at $270,000.

“You can’t find anything from Federal to Sheridan for less than $275,000,” Lin said. “And I’ve seen some bungalows near Lowell (Boulevard) and 32nd Avenue sell for $400 per square foot. It’s all about supply and demand.”

Jack O’Connor, a owner of RE/MAX Professionals, said he doesn’t think there is a shadow market of foreclosed homes in the Denver area.

“A bank would have no reason to “hoard” homes priced in the $100,000 range, because they could put it on the market and probably immediately sell it for more than the asking price,” he said. “And for the expensive foreclosures, the banks are doing everything to work with the homeowners, because they are so difficult to sell.”

O’Connor said that what is perceived as banks keeping homes off the market is actually a case of under-staffed lenders just learning how to handle the record number of  mortgages delinquent or in default. At th4e same time, more states have adopted rules and laws that are protecting consumers, “which elongates the front-end of the foreclosure process,” O’Connor said.

The so-called shadow market is not going to darken Denver’s real estate prospects, he said.

“The Denver market should continue to rise for the next 24 to 36 months. Denver is easily well beyond the bottom.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

Related Posts:

• “Hot chicks of real estate”
• Shadow market poised to increase Denver housing supply by 78 percent
• Luxury prices up
• Buyers pay $64 million for luxury homes
• 8z broker: Buyers need to move quickly