What is shadow inventory and does it exist
November 20th, 2009 Categories: Real Estate News
SAN DIEGO- I had a client earlier this year that kept holding out for the release of the shadow 
inventory another REALTOR told him existed. They said that the banks were holding back foreclosed homes hoping for a better market to release them into, thus creating what became called shadow inventory.
The reason for his procrastination was that the banks could only hold on to these properties for so long and then they would have to release them losing on their gamble. The subsequent release of all these foreclosed home would flood the market and cause prices to tumble. The kicker, and I swear this is not embellished at all, was that he believed the first wave was going to hit April 1. I asked him if he ever really thought about the significance of the date, April Fools Day, and that he may want to base his buying strategy on a more accepted process, like looking at the sold market and judging homes based on that information. Needless to say, I moved on and as of four weeks ago this well qualified buyer still has not pulled the trigger.
Today while walking my dog I ran across a neighbor who also is in the business and the topic of “shadow inventory” came up. Her belief is that there really is a surplus of homes the banks are holding back hoping to create a better market.
Today it was reported that the California median home price is at its highest in approximately a year and the National Association of REALTOR’s economist predicts a home value increase of 4% in 2010. Could the banks plan be coming together?
ForeclosureRadar.com announced the results of a study last month that essentially moved all of this to the urban legend category.
Results from their study show bank’s inventory of foreclosed homes peaked in September of 2008 at 155,269 homes. Since that time this inventory has shrunk by approximately 41% or 4.77 months of inventory. Remember anything under 6 months is considered a seller’s market, so they are operating under favorable terms to get these homes on the market now. Additionally, I am seeing about 10% decrease in new listings in most areas I cover, so the competition is decreasing.
The numbers in this report specific to San Diego county were consistent with a 41% decrease as the number of homes in inventory fell to 914 down from 1552.
The report said California has 4.77 months of repossessed inventory to sell and it takes them seven months to repair, list and sell a foreclosed home. Taken together, these statistics indicate that banks are selling foreclosed houses as fast as they can.
"Bottom line —- there is no ’shadow’ inventory of bank-owned homes being intentionally withheld from the market," the report said.- www.nctimes.com
Happy house hunting.
My brother has been sitting in his condo up here in N. Cal for over a year and a half without paying ANY mortgage. He bought at the peak – $180,000 – and his condos are now going for 60,000.
How is this possible? Why won’t the bank foreclose?
This is the “shadow” that keep me on the sidelines.
[...] or it could just be the banks just are not foreclosing on distressed properties. Some believe the banks are hoarding homes they have already foreclosed on anticipating listing them at some future date when the market is [...]
[...] DIEGO- I still hear quite a bit of chatter regarding the real estate boogieman known as “SHADOW INVENTORY”. This boogieman is singlehandedly going to plunge the San Diego real estate into pricing depths [...]
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