Where Did the Shadow go?

Written by: Steve Cook   Wed, March 10, 2010 Beyond Today's News, Foreclosure Situation

With the year nearly one quarter over, inventories give no sign of a large “shadow inventory” of foreclosed homes being kept off the market.

Persistent rumors that “a wave of new properties is headed toward the market, one that is expected to prolong the housing downturn and might even cause prices to dip again” as reported in a lengthy story in the Sonoma County Press Democrat Saturday remain only rumors.

Analysts at RealtyTrac and elsewhere have estimated that there is a “shadow inventory” of 1.7 million to 7 million homes in foreclosure that lenders haven’t yet put up for sale. To put that number in perspective the annualized rate for existing home sales in January was 5.05 million units.  The rumored shadow would equal between 30 and 140 percent of the entire year’s sales.

Nationally, there’s no sign of a shadow inventory coming on market.  ZipRealty’s monthly report on inventories found that the supply of homes available for sale in 27 major metropolitan areas at the end of February was down about 19 percent from a year ago. 

On a national basis, inventories typically rise in February from the January level as owners put their houses on the market in anticipation of the busy spring home-shopping season.  This year was no exception as inventories were up 4.2 percent from January as sellers hope for an earlier and busier than usual spring season with the tax credit extended through April.

Total housing inventory at the end of January fell 0.5 percent to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December. Raw unsold inventory is 9.6 percent below a year ago, and is at the lowest level since March 2006, according to the National Association of Realtors.

In California, site of most of the shadow sightings, inventories of unsold homes are down 20.5 percent from a year ago.  Through January 10, the months’ supply was a healthy 5.8 months, according to the California Association of Realtors.  Prices in California are up 15 percent over 2009.

2 Comments For This Post

  1. Scot Says:

    I agree that there is movement in the marketplace, but do not agree that the shadow market is a myth. Where are you accounting for the inventory levels that most lenders still have on their books and have not passed through the entire foreclosure process. Your data is from NAR, which represents the inventory that is listed by agents. My company deals in the Short Sale acquisition part of the foreclosure market, and most lenders we talk to, all say they have thousands of files that have not been processed yet.

    Always open to free discussion of subjects.

  2. Steve Cook Says:


    Thanks for your comment.

    I don’t deny that many lenders have had foreclosed properties on their books a long time but I do suggest that the huge shadow inventory of 1.7 to 7 million properties first forecast more than a year ago has yet to materialize-and may be a myth. Prices in most markets have stabilized but inventories are still falling. A year is a long time to sit on a foreclosed home without even putting in on the market. I don’t deny that some lenders may be doing so, and that they may have an impact locally, but the shadow inventory is starting to look a little like Chicken Little.

    When it comes to inventories and their impact on prices, I think people ought to be more concerned about pendng supply than shadow inventory. Millions of owners have been waiting for prices to settle and move upward so that they can sell. One quarter of mortgage holders are still underwater, but the 30 percent of owners who have no mortgage and the 75 percent who are above water have been waiting 3 years for prices to improve. As they do, more and more homes wll come on the market and potentially dampen the recovery.

    Yes. my data comes from NAR’s existing home sales, which is based on a survey of MLSs and does not include unlisted properties, whether short sales or FSBOs. The last numbers I saw on short sales (from Campbell Communications/Inside Mortgage Finance, not NAR) put them at about 15 percent of the distressed properties market. You’re right, they are increasing and their percentage of the distressed market rose about 5 percent last year, but they are less than ten percent of all sales and that’s not even close to the kind of numbers being bandied about by the shadow inventory folks.

    In sum, I think that we both agree that there are delayed distress sales out there, whether intentional or not, but at the local level it’s hard to know the scale. Is it a thunderstorm or a hurricane? Nationally there’s no sign of a storm of any sort and as time passes, all signs suggest that there won’t be. But I could be wrong.


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