Not by a long shot are we over and done with declining property values. Foreclosure filings in Miami Dade County continues to rise and it seems another wave of foreclosures will hit the real estate market again. Foreclosures were stalled earlier this year and at the end of last year due to the investigations initiated by Attorney Generals in all fifty states as a result of fradulent filings and the now common term “robo-signing.” As a result, moratoriums were implemented. But now, the housing market will face another wave of foreclosures, and that’s due to “shadow inventory.”
Shadow inventory is the term used to describe homes that banks have taken back through the foreclosure process and were not able to sell at auction. According to a recent analysis by the Miami Herald, it is estmated 200,000 or more homes in Miami Dade County could be part of “shadow inventory.” These homes are almost always distressed homes, which means once these homes hits the market, it will continue to drag down home values in the surrounding areas. Simply put, there is too much inventory and not enough demand. However, banks may purposefully be slowing down foreclosures to stablize the market. For example, if banks were to flood the market with 200,000 homes overnight, that would of course continue to reduce property values, if not, the total collapse of the real estate market. Slowing down foreclosures or slowly releasing their “shadow inventory” back into the market, may stabilize property values, albeit, temporarily. Banks eventually have to rid themselves of all of their inventory and it seems that day is years away from happening. Of course, banks have rejected any ideas of principal reduction for homeowners, even when the reductions are controlled through the bankruptcy courts, but it may very well be the only solution for banks, as “strategic defaults” continues to become the norm. Realistically, until foreclosures and inventory is reduced significantly, prices will continue to drop. It comes down to basic economics- the law of supply and demand.