You 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?
Copyright 2009 - Claudette Millette, President,TheBuyersCounsel - 800-392-1446, E-mail
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