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Shadow Inventory = The Mini Bubble = Man Never Landed on the Moon!

By
Real Estate Agent with Keller Williams Premier

I'm seeing more people begin to talk about the perception that due to shadow inventory there's some sort of "Mini Bubble" happening in the real estate market.

To me this sounds like one of those shows that tries to point out the "facts" of how the US faked the moon landings!

Some talking heads seem to think that just because shadow inventory exists, that somehow it will be released in a tsunami that will drive values down to new lows. I can only guess that these people are feeling less relevant having fewer negative things to say about the market to get attention so they need to create this yellow journalism to get their much needed fix of internet hero worship.

Let's begin with the dreaded shadow inventory. Yes, it does exist, and in fairly large numbers. However for the most part foreclosure starts are down, which means there IS and end in sight to the large numbers of distressed inventory that drove the market down. The banks understand that they can minimize their losses if they let this inventory on the market strategically. If you had 50 houses to sell, would you want to sell them all in the same year especially when that year was the bottom of the market?

Moving onto traditional inventory, there is a drastic drop in traditional listings as well. So much so in the Minneapolis and St Paul Metro Area that there is actually a shortage of inventory. Why this is happening is pure conjecture, but my opinion is that there are many homes still underwater or the owners wouldn't gain enough equity to move up as they've done in the past, so we have less actives than for the past 6 or even 7 years - especially when you factor in actives that are under contract with a contingency. These are listings that look active but are awaiting inspection or third party approval (bank approval for a short sale).

Couple the listing situation with the fact that pendings are 20% higher this peak season than they were last year, or the year before, or any year of the crisis except during the tax credit. This is supply and demand.

So why the drastic increase in median and average sale prices over the past few months? Simple: If you have less distressed inventory dragging down the numbers they will shoot up.

This doesn't mean traditional home prices have gone up dramatically. In most cases they're about where they have been for the past 12 months - bouncing on the bottom. Yes, distressed prices have gone up but if traditional prices are flat, how can there be a mini bubble? There's just a great time to buy.

I suppose only time will tell if those who decided to buy in 2012 were speculators or applied sound investment principles.

I look at supply and demand and predict a natural progression towards stability.

Agree or disagree? I'd love to hear sound argument supporting your contentions.

Thanks for Reading!

Nate Gerard

www.NateGerard.com

NateGerard@kw.com

Cell: 612-849-9079

Nate Gerard

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