16 Responses to “So, Where’s the Boston Condo ‘Shadow Inventory’?” »»

1. Mike
   Comment by Mike | 01/25/10 at 6:26 am

   Hi John –

   As a strong proponent of the “shadow inventory” theory, I will be dismayed to find I belong in the tinfoil hat crowd and that the theory is bunk. However, I fully acknowledge it is a possibility. Winter RE activity seems to be pretty thin, so statistics can get moved about quite a bit from the small volumes. My guess is that any meaningful, measurable increase in inventory caused by “shadow inventory” is not going to show in the slow winter months. I expect that where it will show up is this spring.

   Historically, inventory has increased in early spring as sellers look to minimize the time they have to show their properties by putting them on in the highest volume months. Putting a property on the market in November knowing you’ll have little foot traffic and just be racking up DOM is probably not a popular strategy. My expectation is the normal spring inventory increase will be proportionately larger than it has been in past years – if March inventory traditionally rose by 10% in prior years, perhaps this year March inventory will rise by 20%, or 30%.

   I think Jan and Feb volumes are too low for those statistics to “prove” anything in either direction – we’ll likely have to wait until March. I expect a pretty decent inventory bump then.

   But I”ll keep my tinfoil hat out just in case it doesn’t materialize.

   Mike

2. condobuyer
   Comment by condobuyer | 01/25/10 at 6:45 am

   Actually, there might not be a huge flood of foreclosures BUT it will be slowww at the upper end. That’s what I think… Also, didn’t the foreclosure activity get impacted by all the potential ARM resets…well aren’t ARMS resetting at reasonable rates right now b/c of low interbank rates, etc…?? Just a thought.

3. Rhea
   Comment by Rhea | 01/25/10 at 7:38 am

   There is indeed a shadow inventory. I don’t how much of a shadow inventory in terms of Boston condos in particular, but it does exist. Check out this video. http://www.youtube.com/watch?v=stVgR0SeiQo&feature=player_embedded

4. Bobby
   Comment by Bobby | 01/25/10 at 7:50 am

   Yes! I have tracked down countless bank owned properties all over Boston proper. I have emailed, faxed, called, banged on doors, sent messages by carrier pidgeon, even by donkey if need be to get some information on how when or where my clients might be able to move on these properties and I never hear anything back. Something does not add up. I can’t imagine the banks want to sit on a fallow property that has such huge potential for cashflow for months on end

5. JohnG
   Comment by JohnG | 01/25/10 at 8:43 am

   The four unit condo building next to me is 100% vacant. Although one unit just sold and they are gutting that unit.

   I am told they have been looking for all cash offers.

6. Laura
   Comment by Laura | 01/25/10 at 8:44 am

   I think 45 Province, W and The Clarendon will have Short Sales or Auction foreclosures. lol
   45 Province
   Condos Sold: 15
   Average Sales Price: $1,501,817
   Median Sales Price: $1,304,000
   Average Price per Square Foot: $1,008
   Percentage of Building Sold: 15 / 138 = 11%

   Clarendon Back Bay
   Condos Sold: 9
   Average Sales Price: $1,131,333
   Median Sales Price: $1,060,000
   Average Price per Square Foot: $1,063
   Percentage of Building Sold: 9 / 103 = 9%

   Boston W Hotel & Condos
   Condos Sold: 8
   Average Sales Price: $581,250
   Median Sales Price: $560,000
   Average Price per Square Foot: $807
   Percentage of Building Sold: 8 / 123 = 7%

7. Laura
   Comment by Laura | 01/25/10 at 8:47 am

   Mary, I love to hear your thoughts?

8. John Ford
   Comment by John Ford | 01/25/10 at 8:50 am

   Laura, sorry, your numbers are wrong on all three buildings.

9. John Ford
   Comment by John Ford | 01/25/10 at 9:02 am

   JohnG, Just curious, which Boston neighborhood is this condo bldg located in?

10. John Ford
    Comment by John Ford | 01/25/10 at 9:23 am

    Hi Mike, Thanks for your comment. Looking forward to March to see if your analysis holds up.

11. JohnG
    Comment by JohnG | 01/25/10 at 12:55 pm

    Wonderful, fun and friendly, Brighton.

    (I had to pump it up because I know there are lots of city snobs on this site, Ha Ha)

12. Jeff Persons
    Comment by Jeff Persons | 01/25/10 at 2:08 pm

    Sure there is a shadow inventory, but in Back Bay so few owners lost their jobs, I think the foreclosures that will take place will slowly seep properties into the inventory over a period of time.

    Back Bay is an expensive neighborhood and baring any terrible exogenous events it will probably stay that way.

    Maybe because its the best neighborhood in the world’s best city for medical, academia, high tech, biomedical, etc.

13. pain in the
    Comment by pain in the | 01/25/10 at 3:09 pm

    Bobby,

    When banks sell a property for less than the loan amount, they have to take a loss on their books. As long as it sits fallow they can claim the value is equal to the loan amount. For example, the bank loans 1mil on a place and then has to foreclose. If prices had dropped 10% since the sale and they only get 900K, they have to take 100K loss. This is a compounding loss as they now have less money to lend. By just letting it sit there and rot, they can claim 1mil in assets. I, of course, don’t know what the situation of the places you refer to is, but it could be an explanation.

14. Mike
    Comment by Mike | 01/26/10 at 4:12 am

    Pain in the, lenders are actually supposed to take write-downs as the value of the loans decline, recognizing losses as they occur. I agree, there’s a lag between when the decline happens and when the bank is forced to record it, and selling a property may accelerate the recognition of that loss, but they do have to write down properties. OREO (other real estate owned) is a category of assets that is closely watched by auditors and bank regulators.

    Usually banks take forever to sell properties not because of the accounting, but rather because they don’t have staff whose job it is to focus on selling the properties – dedicated workout groups take a while to hire and train. Until they are put in place, the sales are handled by someone as an adjunct to their regular job, so they get little attention. Plus, banks may not have clear procedures for how to sell a property, so it takes forever for the bank employees to figure out what they’re supposed to do in a sale situation.

15. Bobby
    Comment by Bobby | 01/26/10 at 7:11 am

    Hmmm… Yes that all seems to make sense. Some of the properties I talking about are in great locations. Off St.Botolph, Union Park (the good end of it) and so on.

16. pain in the
    Comment by pain in the | 01/26/10 at 2:20 pm

    I agree with you Mike but they still have have the property on the books as an asset for appraised value. Once they sell it, they have to put deal with the actual value. If a bank fears that the sale price is less than they the appraised value, it is probably better to list it as an asset.

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