While I’m questioned about Arizona’s “shadow inventory” much less frequently than in years past, this subject still crops up.  People remember the claim that banks were going to unleash untold numbers of homes on the market at once, or they hear about it from some real estate news source again, and fear there is an ominous sharp turn ahead in housing.   I’ve explained many times that Arizona fairly efficiently moved the foreclosed homes back to owners,  and there simply is not a secret cache of bank owned properties.  As The Cromford Report explains below, Realty Trac gave rise to this rumor, and based their projections on very faulty data gathering:

 From The Cromford Report:

January 10 – “For several years from 2008 through 2013 a large number of people spread false fears based on the concept of a huge “shadow inventory”. Most of them based their fears on data supplied by RealtyTrac® which came from their database of bank owned homes. No-one seemed to question the accuracy of this database. In fact the database was inaccurate to a degree that is almost beyond anyone’s imagination. RealtyTrac made two enormous errors when compiling this data:

• they failed to remove homes which sold to third parties at the trustee sale
• they failed to remove homes that were resold by the banks to third parties

This is probably due to laziness, because doing this takes a lot more effort than acquiring the trustee deed data from the counties. Even now the RealtyTrac REO database is still at least 90% incorrect – in Phoenix more than 9 out of 10 homes in that list are NOT in fact owned by banks. Many have never been owned by banks. Many people still believe banks are hiding homes, but in fact they disposed of them long ago, or never acquired them in the first place.

I have not seen a single apology from anyone for falsely alarming the public by blindly accepting and passing on the bogus data given to them by RealtyTrac. The concept of shadow inventory just seems to have faded away. This was very similar to the earlier fears of the so-called Y2K disaster which failed to appear and was quickly forgotten

These days similar bogus information is being spread about “Wall Street Landlords”. As an example there is this report from RealtyTrac® themselves. This analysis is fundamentally flawed and the obvious flaw is stated quite clearly by RealtyTrac: “First, we looked at all institutional investors — which RealtyTrac defines as any entity that purchases more than 10 properties in a calendar year.”

This is a patently stupid definition. In many places, and particularly in Phoenix, they are hundreds of local entities who buy 10 or more properties in a calendar year. The vast majority are no more part of Wall Street than I am. More than 95% of entities that buy more than 10 properties in a calendar year are NOT institutional investors. These include entities such as cites, homeowners associations, developers, banks and utilities as well as dozens of active local investors.

2014 was an unusually slow year for investors, but there were 436 entities that acquired more than 10 real estate parcels in Maricopa and Pinal County during the year. There was only 1 institutional investor actively buying in Greater Phoenix in 2014 – Blackstone purchased a few dozen homes and all 10 of the other institutions picked up no more than a handful. So many of the institutional investors failed RealtyTrac’s test while most of the entities they counted as “Wall Street Landlords” were in fact nothing of the sort.

It dismays me that the media laps up RealtyTrac releases without the slightest effort to verify the bogus information. My advice is that if you wish to correctly understand what is happening in real estate, please take no notice at all of any report from RealtyTrac or any reporter who lists RealtyTrac as one of their sources.”