So, before I attempt to answer that question, what is shadow inventory?
Shadow inventory refers to the housing supply that the banks have foreclosed on ( banked owned properties-REO’s) and are getting ready to foreclose on. According to First American Core Logic, as of September 2009 there was a 1.7 million supply of these homes nationally, as compared to 1.1 million a year earlier.
The important thing to note about this statistic is that it includes properties that are at least 90 days delinquent and have not been foreclosed on, so technically we do not know exactly when the bank will foreclose and where these properties are. This pending supply has been much talked about for the last couple of year as many have been expecting a flood of homes to hit the market.
While it is true that this pending supply will impact our market, it will most likely happen over the next few years, not in a single event as some have been anticipating. If that is how it plays out, the housing market will continue to stabilize and prices will remain level for some time, possibly increase in some areas.
The other thing to think about is that some of these homes will receive modifications or be sold through the short sale process. Currently roughly 25% of our active inventory are short sales, this is down from last year where we were seeing 50-60% on average. So it is encouraging, however I do know there are lots of people who are struggling or are delinquent and they have not listed their homes for sale.
So the answer is that while the supply of shadow inventory seems to be declining, I think our true outlook is closely tied to jobs and the economy. We seem to be in a period of stabilization and will continue to see some ups and downs, however it does appear that we are headed in the right direction.
