[xtypo_dropcap]O[/xtypo_dropcap]ne can almost hear a sigh of relief from the real estate sector when positive reports regarding housing sales and prices are released.
The Royal Bank of Canada (RBC) recently announced that U.S. property sales bounced back in November with 5.5 percent more properties sold than in October.
October was a daunting month for the U.S. real estate sector, with housing sales sliding down by 10.7 percent over the prior month.
The November monthly housing results suggested that housing sales statistics “continued to provide evidence that the market, while still operating at historically low levels of activity, continues to stabilize in the fourth quarter of 2010,” according to RBC.
Under-Reporting Shadow Inventory
Property inventory is called “shadow inventory” in real estate terms because the true number of foreclosed homes is not known. Apparently, neither the private sector nor public entities collect foreclosure information from small lenders in rural areas.
“Nobody knows how many rural homeowners are facing foreclosure or have lost their homes during the housing crisis because we don’t collect data from small lenders or lenders that operate exclusively in rural areas. Nor do we know trends in defaults and delinquencies,” according to a recent article on the Real Estate Economy Watch website.
In 2010, an estimated 2.25 million home foreclosures were reported to the U.S. Federal Reserve System, while the numbers will increase to more than 4.25 million in 2011. But, as discussed, these numbers are incomplete, as rural area foreclosures are not reported to the Fed.
The Fed depends on numbers that are collected under the power of the Home Mortgage Disclosure Act (HMDA). In 2010, under HMDA, about 8,124 mortgage lenders disclosed 19.5 million loan packages, which are used to assess the availability of loans to the public, without any lenders from the rural areas providing input.
“HMDA exempts lenders that operate exclusively in nonmetropolitan areas and lenders with assets less than $39 million in 2010, 70 percent of which are headquartered in rural counties and likely represent one of the only sources of credit in some communities,” according to Real Estate Economy Watch.
Estimates are that in 2009, more than 80 percent or more than 3,000 lending institutions were located in rural areas and owned fewer than $250 million in assets in total. Therefore, these lending institutions did not need to report housing foreclosures to the Federal Reserve, HMDA, or HUD (Department of Housing and Urban Development).
Additionally, many premanufactured houses, which should be included in statistics reported by HMDA since 2002, have dropped off the radar screen. Credit risks for such houses are greater than for homes built from scratch, yet foreclosures are under-reported.
It is hoped that the Dodd-Frank Wall Street Reform and Consumer Protection Act will provide relevant foreclosure and other real estate statistics to the public. Signed into law by President Barack Obama on July 21, this act contains a provision that calls for the creation of a default and disclosure database to be controlled by HUD and the Consumer Financial Protection Bureau (CFPB).