Shadow Inventory Comes Out of the Shadow
An article in Wall Street Journal today gave one of the most credible estimates of shadow inventory yet. According to estimates from LPS Applied Analytics, U.S. lenders have accumulated a shadow inventory (homes owned by the lender but not listed on the market) of 1.1 million foreclosed homes.
These numbers are reported to be up 20% over the previous year. There are many reasons why banks have yet to release the homes to the market but a worst case scenario would be if the homes were released all at once.
The population in the six-county Denver Metro area is about 2.4 million which is about 0.8% of the U.S. population of 310 million. As a rough approximation it seems reasonable to estimate the shadow inventory of Denver Metro at around 8,800 homes.
In 2005, a total of 49,700 homes (single family combined + condos) were sold in Denver Metro. In 2009 a total of 37,339 homes were sold. If all the shadow inventory were released at once, we could sell what we sold in 2009 in addition to the 8,800 shadow inventory homes and we would still be under the sales volume of 2005!
In other words, from the perspective of prior markets the shadow inventory in Denver is probably not that big after all. If all the homes were released at once it would definitely create excess inventory and shift away from a seller’s market to a buyer’s market. However, the shift would be temporary as most of the homes would likely be absorbed in 6-9 months.
What is really going to happen? It’s anyone’s guess how it may all play out.
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John Thomas MSEE, MBA
(m) 720-771-5594 (e) john.thomas@e3greenhomes.com
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John: Whenever there's a story about shadow inventory the numbers just seem to get bigger. I haven't read todays Journal yet. Have to look for that story.
John, I'm glad you're keeping us apprised about shadow inventory. If the banks can help the real estate industry to get these homes sold reasonably, then the dusty properties on their books will get unloaded. My concerns center around appraisal values more than anything else.
Not sure about shadow inventory. The stuff I see here that goes REO is typically listed within 30-60 days. They have been playing procrastination games on foreclosures which has controlled our inventory so nicely here that we have a MAJOR shortage and stabilization + slight appreciation too.
The last major dump in July 2008 caused big time depreciation so I think they learned their lesson. HOWEVER word on the street is that they aren't going to monkey around with foreclosure process anymore. I guess some major servicers will mean business. Either you want to loan mod, short or get out!
I did get a call from a major REO servicer on Saturday asking if "I was ready". I signed up with them in fall of 2007 - never heard from them till saturday - so maybe I could be wrong.
Sorry for being frank but that is just my humble opinion :)
I really wish I could say I'm surprised, but unfortunately, I'm not. But I am surprised that the banks didn't do everything they could to get these properties off their books when the government was bailing them out! That certainly happened in our area. Although, with the economy being this bad, I guess they could have amassed a whole new pile of foreclosures by now =/