Bank Manipulations of Foreclosure Inventory and Negative Equity Influence

Almost all of the upward pressure on real estate prices is due to the extreme drop in inventories. This decrease in inventory is related in part to the banks manipulating their foreclosure property inventories to slow their entry into the market and reap better prices when they’re finally sold. Nationwide, the average number of days for foreclosure properties held by banks before sale has skyrocketed to almost 900 days.

A momentum shift in national real estate markets is attributed to two major factors:

1. FHA loans have become much more expensive, creating lower demand among the working families those loans were created to help.
2. The FED manipulation has resulted in mortgage rate increases that rose sharply in the last few weeks.

The banks can continue to manipulate pricing somewhat for as long as they have a significant portion of the housing inventory tied up in their foreclosures. This situation is aggravated by the continuing problem of negative equity. While the percentage of homes with negative equity (underwater mortgages) has decreased to an overall 15%, areas like Nevada are still suffering with that state showing 32% of home mortgages underwater.

It’s nice to read that there are fewer homes in negative equity situations, but with roughly 7.3 million homeowners still underwater and owing more on their mortgage than their home is worth, there is little positive news for increasing inventories to soften price increases. While many homeowners are pleased to know that they are not as deeply underwater as they were a year ago, it doesn’t matter much to inventories. If your negative equity position improves from -$95,000 to -$72,000, you’re still not in a position to sell, even if you want to badly.

Where are mortgage rates, inventories and prices going in the near future? It’s impossible to predict with certainty. The banks will continue to drip out their foreclosures to keep inventories low and upward pressure on prices. However, with increasing interest rates and higher costs for FHA loans, there is a negative impact on retail buyers re-entering the market.