Why Bank-Owned Homes Won’t Sink the Economy

Stephen Gandel has an excellent article on (May 23, 2011) pointing out why the hundreds of thousands of bank-owned homes won’t sink the housing market. While banks are more conservative in their selling, he notes, reducing the dynamism of the market, most homes on the market are not in foreclosure or owned by banks.

About 3.8 million homes are up for sale in the U.S. and the high estimate of those owned by banks puts their share at around 20 percent. That’s a lot, but not enough to sink the market. Moreover, the banks won’t dump the homes on the market all at once; it will take years to clear their inventory so the effects on home prices (and personal equity) are likely to be muted.

In short, while the extraordinarily high numbers of foreclosed homes on the market is a drag on the housing market, it’s probably not the most important factor in keeping the housing market from rebounding.