Shadow REO: Big Banks Holding Back 90% of Available Homes?

September 11, 2012 in Shadow REO

Shadow REO? Are up to 90% of the homes that are available for sale being hidden? We have been hearing more and more about “Shadow REO.”

Shadow REO

Shadow REO: Big Banks Holding Back 90% of Home Inventory?

REO stands for “a class of property owned by a lender, typically a bank, government agency, or government loan insurer, after an unsuccessful sale at a foreclosure auction.” [1] The reason for all of the  buzz is that there appears to be a large portion of this real estate inventory being purposely held back from the national real estate marketplace, in order to intentionally keep it off of the market, but why…?

Common reasons may include: manipulation of the real estate prices by artificially lowering supply and therefore increasing demand. This type of manipulation would therefore increase the price of the current real estate inventory.  This practice could also help inflate the books of investors or banks that own this “Shadow REO.”

A side benefit is that by holding this inventory back, it could help current home values increase. These values have been down for a long time and this could help many homeowners that are underwater. A few buyers that we have talked to at “Banking Bad” are unhappy about this practice, but many homeowners have not complained as the manipulation may be helping their homes value increase. In the latest year-over-year report on national home prices the average price of homes had increased for the last 7 months straight.  This is fantastic news for most homeowners who are underwater, but at what price?

We would love to hear your thoughts on this trend or practice.

[1] William Roark (2006), Concise Encyclopedia of Real Estate Business Terms ISBN 0-7890-2341-5