Shadow Inventory

| Tuesday, March 13th, 2012 | No Comments »

Shadow inventory does not refer to the supply of eye shadow behind the various cosmetic counters at Nordstrom. Well, I guess I don’t know that for sure but the type of shadow inventory I’m referring to has to do with real estate as you can obviously imagine. In a nutshell, shadow inventory refers to the homes that are currently going through the foreclosure process but have not been reclaimed by the bank and put up for sale. Although it can also refer to regular homeowners who are waiting for market conditions to improve before putting their house on the market, I’ll save that topic for another day.

What does shadow inventory have to do with the price of rice? Well I’ll tell you so not only can you sound super smart at your next dinner party, but so you can educate yourself if you think you’ll be in the real estate market sometime soon. Shadow inventory has a pretty big impact on the housing market, especially with pricing since most bank owned homes are sold at a discount. In fact, most experts agree that prices won’t start going up until all the shadow inventory has cleared out. It makes a lot of sense if you think about it.

Most banks don’t move through the foreclosure process very quickly so by the time a borrower stops making payments to the time that that homes goes back to the bank and on the market can be an extremely long time, years even. Sometimes just the foreclosure process itself is slow or sometimes the banks can’t take on more inventory. There is also the delay in getting a home ready to put back on the market because many of these homes have been neglected, vacant for too long or purposefully damaged. It’s a big. giant. headache in a lot of ways and who’s to say when it will end. For one, there is no clear number of the amount of homes currently considered to be shadow inventory but it seems that people can agree it’s in the millions. Two, nobody knows if this will happen gradually or all at once. Either way, it will most likely drive prices down which is good for all you buyers out there but not necessarily great for you sellers.

The bottom line: now seems to be a great time to sell. You have a lot of buyers wanting to take advantage of the low interest rates and there isn’t a whole lot of regular inventory out there to choose from. Most people are trying to stay away from short sales because of their uncertainty and well-priced, non-distressed homes are being snatched up fairly quickly. If you are thinking of selling, let’s get my sign in your yard!

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