Shadow Inventory: What is it and Should We Worry?

In a recent article by The Wall Street Journal, called Shadow Inventory: It’s Not as Scary as It Looks, author Nick Timiraos stated that shadow inventory isn’t as scary as it sounds. What does this mean for the recovering housing industry, and home sales going forward?

Shadow inventory refers to the amount of unlisted bank-owned homes (REOs) that are not yet on the market as well as the homes in in preforeclosure that are likely headed to a trustee sale and will become real estate owned properties themselves.

Half million dollar house in Salinas, Californ...

According to the article, there are a few reasons why shadow inventory isn’t as scary as it sounds. Broken down, these are as follows:

  • It’s concentrated in a handful of markets, which means that it isn’t a national phenomenon
  • It is being offset by improved demand, particularly from investors.
  • The housing vacancy rate is low, a product of very little new home construction over the past few years that could counterbalance continued high inventories of foreclosed homes.

As far as actual numbers, there are a wide range of estimates of shadow inventory. A common measure are loans that are either in the foreclosure process or that are three months or more delinquent. These are mortgages that are among the most likely to ultimately become bank-owned properties.

Over the next two weeks, we will be looking at the additional posts linking to this article, further discussing the housing market and what this means for current homeowners and potential homeowners alike. Have more questions? Contact The Mortgage Guys in Atlanta, GA and we can sit down address your concerns about the current housing market and your situation.

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