This kind of crap is why I'm still telling folks back home to avoid buying investment properties just yet.  Even though the property bubble is fully deflated in many areas, ongoing loose lending practices are providing an artificial price support in the sense that they prop-up the buying power of shaky borrowers.  At some point this quasi-stimulus will end and I fully expect there to be a 2nd leg down in the US property market.  

Probably not bad advice! In fact very good advice if we are to believe the references I will mention later.

 I'm no financial expert but try to read as much as I can from a variety of sources to (try to) understand all the financial commoditiies and how the economy works.  One clear probllem in business as a shareholder, a potential buyer of a company, homebuyer etc. is the imperfect and asymetric information (where different people know different things) as described by Joseph Stiglitz. and lax, poorly applied or non-existent banking and financial institution and Stock Market regulation.

Not only are loose lending practises providing artificial price support but it is reported that banks are keeping many of the properties off the market as well to give a supply side support to prices.

"Here's another stunner from the Wall Street Journal. The  article is titled  "Number of the Week: 103 Months to Clear Housing Inventory" by Mark Whitehouse. Here's an excerpt:

"How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20 per cent from a year earlier....

“Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30 per cent from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses."  ("Number of the Week: 103 Months to Clear Housing Inventory" Mark Whitehouse, Wall Street Journal)

Got that? There's a 9-year backlog of distressed homes.  The banks are deliberately fudging the numbers to hide how bad things really are. The number of homes in late-stage foreclosure is not 1.1 million, but nearly 6 million--- 5X more than the banks are admitting.  Housing will be in the doldrums for a decade or more. It's shameful that people can't get basic information like this to help them make their investment decisions. The banks couldn't pull off this type of information warfare without the help of government officials pulling strings from inside. Bernanke and Geithner must be involved.

So, what's the objective?

The banks are trying to keep prices artificially high to avoid writing-down millions of mortgages that would force them into bankruptcy. It's called "extend and pretend" and it’s poisonous for the broader economy because it distorts prices and keeps a broken banking system in place that can't perform its social purpose.

WSJ housing editor James R. Hagerty verifies Whitehouse's claims and fills in some of the blanks.  Here's a clip from his article:

"To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.

Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30 per cent of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6 per cent in a normal housing market." ("Foreclosure Estimate Falls", James R. Hagerty, Wall Street Journal.)

Why would Barclays think that only 1.6 million "distressed" homes would be sold in 2010, when they openly admit that there's 4.6 million homes already in the foreclosure pipeline? What does Barclays know that the public is not supposed to know"? (A Lost Decade Ahead for Housing By MIKE WHITNEY:http://www.counterpunch.org/whitney05102010.html)

So again; good advice!

There's another aspect to the "shadow inventory" problem.  Homeowners who are *not* in default and want/need to sell but can't because they're so far underwater on their mortgage.  These guys are mostly off the radar because they're current with their payments.  As prices (eventually) make a real recovery, I expect a lot of this inventory to appear on the market which will present a considerable drag on further price appreciation.

I suspect a lot of these properties are serving as rentals at the moment.