Will banks flood home market with foreclosed homes?

Q: What's your take on this silent inventory of homes that banks are supposedly sitting on? Do you think we're going to see thousands of homes not currently listed for sale flooding the housing market this year? If so, what will that do? -- Wendy D., Las Vegas

A: This has become a hot topic in the real estate industry.

The short answer to your question is that no one knows for sure when, how or if this so-called shadow inventory of homes may hit the local housing market and exactly what kind of impact it may have.

For one thing, it's difficult to generalize about what the banks may or may not be doing, since each bank and lender operates in its own way.

We got a glimpse into this issue last month when Bank of America announced it plans to release about 6,000 of its bank-owned homes for sale here in Nevada this year. Bank officials suggested they would release these foreclosed properties gradually, listing about 500 per month statewide. This is part of this so-called shadow inventory of homes that banks have been holding while they consider loan modifications, negotiate short sales or consider other options.

No word yet on how many other banks may follow suit or how many homes each of the dozens of lenders doing business here may sell this year.

In any case, I tend to agree with other longtime Realtors and housing analysts who believe demand for homes here in the Las Vegas area -- especially at our current bargain prices -- is so strong that we should be able to absorb these bank-owned homes over time without seeing too much of an impact on home prices.

To put this in perspective, the Greater Las Vegas Association of Realtors reported that 46,879 existing homes were sold here in Southern Nevada in 2009. That's a huge spike from 28,618 total sales in 2008. In fact, 2009 trailed only the record sales year of 2004, when we sold 71,963 existing homes in Southern Nevada.

We expect housing sales to continue at a similar pace in 2010, with the number of homes listed for sale continuing to stay relatively stable or decline gradually as it did during 2009. We're also expecting home prices to remain fairly stable.

I think it's also interesting and positive to note that the number of local home sales involving bank-owned properties has been declining in recent months, with the number of local homes being sold in short sales increasing at a nearly corresponding rate.

This tells me that banks are becoming more willing to work out short sales and more efficient at facilitating them as opposed to foreclosing on the homes owned by borrowers who can't make their payments.

Local Realtors are not alone in our generally optimistic outlook for the local housing market over the next year or more. Lawrence Yun, the chief economist for the National Association of Realtors, recently projected local home prices to increase over the next year.

Likewise, Dennis Smith, the president of Home Builders Research, recently predicted a slight increase in local home prices in 2010. Smith added that "the only thing that could change this is a flood of (foreclosure) inventory, the silent inventory everybody talks about."

Such hedging is understandable since we have one of the five highest foreclosure rates in the nation.

But I see our housing market gradually improving to the point where we can manage this shadow inventory without any dramatic impact to local home sales and property values.

For more information about such issues or about the GLVAR, consult a qualified local Realtor or visit lasvegasrealtor.com.

Rick Shelton is the president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for 20 years. GLVAR has 13,500 members. To ask him a question, e-mail him at ask@glvar.org. For more information, visit lasvegasrealtor.com. Questions may be edited for space and clarity.