What is Shadow Inventory and why should I care?
Depending on who you talk to this term has different meanings. As a general rule it is considered houses that are waiting to come on the market. And when they come on, the question becomes how much impact will they have on prices. It’s basic supply and demand – if supply suddenly increases by a dramatic amount, choices are increased, selling competition is increased, and prices will generally decline.
If you are contemplating selling, this is probably something you do not want to hear but need to.
One source of this shadow inventory is the banks and lending institutions. Over the past several years we have seen many sellers trying to out from under on mortgages by trying a “short sale”. (A short sale is when the mortgage holder agrees to take less than the mortgage value of the property to settle the debt.) These homes were on the market – listed in one form or another. Those that sold and closed, get removed from the inventory. Those homes that don’t usually fall into foreclosure.
Once the bank forecloses, it is usually months before the home makes it back onto the market place. Why? According to Dr.HousingBubble.com ..” There is speculation surrounding why this is happening. Lenders are overwhelmed and simply do not have the human capital to handle the glut so goes one theory. Others speculate that lenders are simply too incompetent to have a system in place to handle the mess they created. There is truth in both of these scenarios….”
Here in Naperville, I have become involved with listing and selling REO’s (bank owned properties) and what happens is that post-foreclosure the home sits – redemption period, then sometimes effort is made to get it market ready with repairs, and then sometimes it just sits. I have properties I have been babysitting for months waiting for the ok from the lending institution to list and put the home back on the market.
How many are there in this mode in the Naperville and greater Chicagoland area? I don’t have a number and wouldn’t want to speculate. I do know that they can’t be held off the market forever. At some point the banks will realize they are not in the business of holding on to vacant properties and they will hit the market. And there will be an impact.
[...] breakdowns fill in your info in the table to the right. AS promised last month, the issue of Shadow Inventory was discussed in another [...]