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 The stock market is back to 10,000, the level it reached in 1999.  Sales of existing homes were up a whopping 8 percent, to the highest level seen in 2 years.  The news is abuzz about an extension of the First Time Buyer Tax Credit….But, is it time to “Party like it’s 1999″???

Here is a snapshot of Friday’s real estate news.  You decide.

1. A record number of people snapped up bargains in September.  The median price of a home sold in the US fell to 174,000, down 9 percent from $191,200 one year ago.  Note: The significant price drop could be blamed in part to the First Time Buyer Tax Credit which favors the lower priced homes.
2. Keep in mind that the homes counted as “sold” in September were actually purchased in June, July and August.  No doubt the push to buy this summer had something to do with the expiring $8000 Tax Credit.
3. 70 percent of all homes closed in September were foreclosures or distressed property.
4. 80 percent of the homes closed, were sold for less than $250,000.  The market above $250,000 has stalled and inventory is rapidly growing.  And, the more expensive the home, the slower the market.
5. The biggest sales gains (not price gains) were seen in the hard hit cities of Miami and Orlando.  Sales in Miami were up 71 percent from last year, Orlando 65 percent.  Note: Prices are still falling dramatically in the Sunshine state.  In Miami and Orlando prices declined more than 30 percent from last year;  Tampa prices fell to $133,000, down 17 percent.
6. Sales of existing homes were down nearly 20 percent in Atlanta and Birmingham.  Local Realtors blame job loss for lack of activity.
7. Prices were flat or up a bit in some cities:  Dallas, Houston, San Antonio; Tulsa; Jackson, MS and Washington DC.

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A recent news article by Reuters states that “The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011.”  

Meaning? Half of us will be upside down, underwater, or whatever you want to call it over the next 2 years?  Pretty scary.  How do they know that?   One indicator they use may be the Shadow Inventory of Homes, which will eventually enter the market place over the next 3 years. 

So, what is a Shadow Inventory of Homes and How Does it Affect Future Home Values?  Technically, a property is not in foreclosure until the lenders files against a deliquent loan.   Lenders are purposefully not filing to foreclose, in order to control the present inventory by keeping homes off the market.  This creates a Shadow Inventory of Homes in Default.  Why do they do this?  Simple economics, really.   Less supply creates more demand (ie: higher prices) for the property they already have for sale.

Since, we know lenders are holding back the number of homes that should be in foreclosure, how many “shadow” distressed properties will come into the market in the future?  Truefully, we can’t know the exact number.  That is the reason it is referred to as a Shadow Inventory.  We can all see that the problem is lurking out there, but we can’t identify the exact numbers or the amount of future damage because “only the shadow knows…”.

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Story from Philadelphia Inquirer:

Unoccupied, these homes would be defenseless in a storm; there will be no one to put up shutters, batten down garage doors, and otherwise secure homes. But that’s not all. Nearby homes and their residents would also be at risk from wind-propelled debris.

Lehigh Acres and other communities at the epicenter of the nation’s housing crisis are coming to realize that this year’s hurricane season, which began this month, represents yet another pitfall. Hurricanes could make hazards of thousands of foreclosed-upon houses, and their diminished value could decrease even more.

“Here’s your choice,” said Julie Rochman, president of the Tampa-based Institute for Business and Home Safety. “Spend a little bit of time and money to secure the properties to withstand wind and water, or not do the right thing and have the homes become damaged and are valued less.”

The Associated Press Economic Stress Index - a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties - confirms that some of the areas most likely to be struck by a hurricane are suffering the most in this recession.

In March, there were 281,691 homes in foreclosure in Florida and coastal counties in Alabama, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas, and Virginia.

Lee County, where Manikchand lives, is among the hardest-hit counties in the country. A 22-year-old pharmacy student, he took advantage of a dismal housing market and bought a foreclosed duplex for $36,000.

In coming months, he and millions of others along the Atlantic and Gulf coasts will dutifully track tropical weather forecasts and stockpile batteries, flashlights, and tins of tuna, hoping that hurricanes blow harmlessly out to sea.

But who will secure all the foreclosed homes if a storm does approach? No one really knows.

In some cases, a property-management company hired by the bank could do the work. Or it could be a real estate agent, a homeowners’ association, or even resourceful neighbors who clear debris from yards and board windows.

Yet no state laws mandate who prepares buildings before a hurricane; even officials from the Florida Division of Emergency Management say that securing foreclosures isn’t a concern.

“It’s not an aspect that we really deal with,” said John Cherry, the agency’s external-affairs director. “Our No. 1 concern is life safety.”

Quick evacuation, not securing vacant homes, will be the priority if a major storm looms, others say. But shutterless homes can be a major safety hazard in a hurricane. And a region full of destroyed or heavily damaged homes would depress real estate values even further.

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With news of the financial crisis and the possible federal bailout of US lenders looming over our heads, it comes as no big surprise that August existing home sales were dismal.

In brief, the numbers provided by the National Association are as follows:

• Existing home sales were down another 2.2 percent in August, bringing the drop to 9.7 percent compared to 2007 levels.
• The average sales price of an existing home fell to $203,100 compared to $224,400 one year ago.
• The inventory of existing homes on the market fell in August to a 10.4 month supply.   A slight uptrend from the 10.9 month supply on the market in July.

Falling inventory levels are a bit of good news among all the bad news.   But keep in mind that the slight dip in inventory is not due solely to a growing number of sales.  Cancelations, listing expirations and owners who chose to withdraw their property from the market until activity picks up, also decrease the total number of homes on the market.

The current 10.4 month supply means we are still in a buyers market.   An inventory of 5-6 months is usually a sign of a balanced market, with an equal number of buyers and sellers.

To read the report from the National Association of Realtors, click the link.

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