All about the Shadow Inventory
By Sarah Parr
Recent statistics show a good trend for the United States housing market. A Corelogic report from last week illustrates how the shadow inventory of homes has decreased 28 percent from when it peaked in 2010. As of January, the shadow inventory contains about 2.2 million housing units, or in real estate terms, nine months of supply. CoreLogic gauged data on very delinquent homes, properties in foreclosure and homes held as REOs (real estate-owned) by mortgage servicers but not yet listed on multiple listing services (MLS) to figure out the shadow inventory figure.
What comprises the shadow inventory?
When banks hold onto homes and don’t put them on the market, they become a part of what is known as the shadow inventory. Other properties in the shadow inventory include homes that people are waiting to put on the market because they want to wait for optimal prices, and “zombie foreclosures.” These properties are vacant, as sometimes people anticipate foreclosure and abandon the home.
How it’s formed
RealtyTRAC states that the finalization of the National Mortgage Settlement in April 2012 contributed to the growth of the shadow inventory because of a 59 percent spike in properties in some stage of foreclosure. Under the settlement, banks and lenders have been obliged to work with homeowners on loan modifications, preventing foreclosure and keeping these homes off the market. The states in which the shadow inventory grew are mostly judicial process states since these states are more prone to having a buildup of foreclosure cases in their courts, as St. Cloud foreclosure lawyers would tell you. Foreclosure cases in these states on average take much longer to process.
How it impacts real estate
Experts in the real estate field initially feared properties in the shadow inventory would be listed simultaneously, leading to a decrease in properties values in certain communities. Though, according to Reuters, properties in the shadow inventory have been listed in small batches, and the low inventory has actually caused an increase in prices in some areas. Investment firms have also helped diminish potential flooding of the market by purchasing some of the shadow inventory, according to a TIME article. Investors buy out distressed real estate when it first hits the market. They often beat individual buyers with cash offers, sometimes before properties are listed.
Florida has 16 percent of the nation’s shadow inventory. As foreclosures are settled and the banks release some of these homes, the housing market will have a nice increase in supply.