There has been
much in the news lately
about the mysterious "shadow inventory" of homes looming
in the background that could (further) threaten
the housing market. What is this mysterious
"shadow inventory"? Is there a "shadow inventory"
at all? And if
there is, how large is it?
Shadow inventory is a concept that
is not accurately quantified. Analysts vary on
whether there is such a thing, and if there is, the extent of this
inventory as a problem.
Last month Foreclosure
Radar reported "No Shadow Inventory of Bank Owned Homes",
while Amherst Securities Group issued a report stating "...
a seven-million-unit housing overhang is likely to set
in...". Barclays Capital estimated 2.6 million loans in the
process of foreclosure, another 2.5 seriously delinquent,
about 2.2 million new homes will likely hit the distressed
market in the next 12 months plus 2.1 million in the
following 12 months - a total of 9.4 million units.
So just what is this "Shadow Inventory"? As
used by analysts, shadow inventory is inventory looming in
the background, not
included in current homes for sale, but will soon come to light.
The inventory remains hidden because of the following:
1. Action taken by the government - such as
moratoriums on foreclosures and loan modification programs.
Data suggest these well meaning schemes only delay
foreclosures, it does not prevent them. This inventory will
eventually come to light.
2. Inaction by banks - fueled by a fear
that flooding the housing supply will result in reduced
prices and increased loan losses.
Foreclosures have been delayed where lenders already
have a substantial number of vacant, unsold REOs.
Borrowers, although delinquent on their loans, are
presumably tending their properties saving the banks
maintenance and repair costs. However banks cannot continue to
carry these non-yielding assets on their books and this
inventory will also eventually come to light.
3. Inaction by home owners who would like to
sell but await the favorable market they believe will come
soon. Some of these may be forced to sell in the short term,
but long term this inventory will also come to light.
4. Thousands of newly built and uninhabited
homes. In Miami, Fort Lauderdale and Pam Beach Florida the
estimate of uninhabited condos tops 40,000 units.
We believe there is a problem, and there will
be a muddled medium-term
housing market. The current lull presents an opportunity, if
it will be necessary to sell your home, to do it now.
There is substantial downward pressure
on higher priced homes (which will trickle down to all
homes). This year our team
has represented more buyers - 40% more - than any other agent
in the county in transactions over $500,000. We
have a substantial number of buyers looking for fairly
priced homes, so call us if you have a home you would like
to investigate selling.
