The subprime mortgage debacle in ’07- ’08 caused an unparalleled number of foreclosures and disintegration of the housing market. Because of this, lenders were left with significant real estate in their portfolios.
Shadow inventory is a term referring for the most part to properties that are in the process of or have been foreclosed on and haven’t been listed or sold as yet. Many of these homes are not being listed for sale by banks who are waiting for market prices to recover. These lenders are also apprehensive of putting too much inventory on the market as flooding the market would further drive down prices, lowering their projected return on investment.
The good news (for the moment anyway) is that residential shadow inventory as of July 2011 decreased a bit to 1.6 million units, which is a 5 month supply of homes for sale. Before you laugh, it is down from the 1.9 million units (a 6 month supply) reported one year ago. Additionally, there was a decline from April 2011 when shadow inventory was at 1.7 million units.
Will this be a continued pattern? One can only hope… The bottom line right now is that movement or sales of distressed homes is slightly faster than the new delinquencies being taken on by the banks and this is encouraging for the time being.
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