How Will the Shadow Inventory Affect the Massachusetts Housing Market?

By
Real Estate Agent with The Buyers' Counsel

House with a shadowYou see them everywhere throughout Massachusetts.   Homes with overgrown lawns and "No Trespassing" on the door - but no real estate sign in sight.  

These are properties that are part of the, so-called, "Shadow Inventory" which is comprised of homes that banks have taken back after foreclosure and have held onto rather than sell. 

What motivates banks to take such action (or, inaction)? 

While it is possible that they are overwhelmed with a glut of delinquent loans and possibly the lack the staffing or manpower to handle them, it could also be a well-planned strategy. 

In a statement last month, chief economist, Lawrence Yun said: 

"I believe that many banks including Fannie and Freddie, who are also holding onto some properties, are releasing foreclosed properties in a measured way so as to not to flood the market which they perceive then perhaps could lead them to even more drastic price cuts. So they are releasing properties on a measured pace as a business decision to minimize losses."

This seems to be an indication that the policy is well-known if not endorsed by industry insiders. 

So, how will this Shadow Inventory of Homes affect future home values? 

Lenders are purposely making these properties unavailable in order to control the present inventory and to create more demand (higher prices) for the homes currently on the market.  It is also keeping them from having to show a loss.   

Some estimates have claimed that there are as many as 700,000 of these shadow homes but, truthfully, we can't know the exact number.  

While foreclosures are uppermost in the minds of economists, another part of the Massachusett Shadow Market is the number of homeowners who have held off selling during the housing market's downturn.  With the market stabilizing, they may soon be getting ready to sell

Over the past few months, low mortgage rates, high measures of affordability, and an $8,000 first-time home buyer tax credit, have helped pave the way for stabilization in house prices.  As a result, things have been looking up according to the S&P Case-Shiller Home Price Index. 

But, these unaccounted for "Shadow Inventories" could throw a wrench into a significant recovery. 

How much of a pall do you think these shadows will cast? 

Related Posts:

Massachusetts Housing Market Showing Signs of Recovery

Sales are Up at Luxury Home Builder 

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Rainmaker
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Ellen Crawford
Crye-Leike REALTORS® - Alpharetta, GA
Alpharetta Real Estate Agents & Alpharetta REALTOR

I would bet any money that the politicans leave them off the market until after elections.  It is the same all over.

Sep 01, 2009 03:36 PM #1
Rainmaker
889,505
Sussie Sutton
UTR Texas Realtors - Pearland, TX
UTR TEXAS Realtors - Rep for buyers and sellers.

I had either read or heard a news report on this post... however I don't remember it being called "Shadow Homes" good definition thou... But I do think the banks ARE holding back. Sounds like a good business strategy for the banks.

 

Coming to you from Texas

Sep 01, 2009 05:49 PM #2
Rainmaker
403,659
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Ellen:

That is quite possible since an additional glut of foreclosures would be a further drag on the economy and that would not help any incumbent candidates.

Sussie:

If you Google "Shadow Inventory" you can find a lot of references to this subject, some focusing on the foreclosures that are being held back and others using this term to describe potential home sellers who have been holding back from putting their homes on the market.  As to the banks' strategy, it is allowing banks (particularly the ones who have received government TARP money) to not have to show a loss on their books right now.

Thank you both for your comments.

 

 

Sep 01, 2009 11:55 PM #3
Rainmaker
1,164,479
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

I guess it depends if they stagger the sales or just dump them all at once, which would not make sense, and certainly further depress the market.

Sep 02, 2009 06:27 PM #4
Rainmaker
403,659
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Jane:

From what I have read there is a three-year plan for putting these properties on the market. You are right, if they dumped them all at once it would be devastating.  Still, I wonder about the deferred maintenance problems that will be caused by having so many properties sitting around vacant. In many parts of the country they have to be winterized so that the pipes won't freeze. Then, you will have properties sitting through the winter with no utilities. 

 

Sep 02, 2009 11:50 PM #5
Rainmaker
1,164,479
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

You are right.  Hey, a new job opportunity - an army of house sitters.mu

Sep 03, 2009 05:09 AM #6
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Claudette Millette

Buyer, Broker - Metrowest Mass
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