Good News, The Shadow Inventory Is Shrinking!

By
Real Estate Agent with Joe Manausa Real Estate 8508880888
https://activerain.com/droplet/kps

Real Estate Shadow InventoryMy REALTOR® friend Barry Rose read yesterday's article in REALTOR® Magazine about the real estate shadow inventory and wondered what I thought. The number of homes in the shadows, as measured by CoreLogic, is falling. They basically calculated the number of new foreclosure sales and compared it with new lis pendens filings to see that the rate of sales was higher than the rate of new filings. But I think we should take a broader look.

First of all, the term "real estate shadow inventory" is generally used to define the group of homes in distress that are not currently on the market. The term was coined to acknowledge that homes for sale in the MLS are not the entire supply side of the housing market. There is a group of homes that cannot be exactly measured, but are known to be "needing to be sold," and thus the term "shadow inventory" became popular to describe these homes.

I think the term "real estate shadow inventory" should be standardized by our industry and used when discussing ALL of the homes that need to be sold, but which are not yet on the market. These homes are "hidden in the shadows."

Long-term readers of the Tallahassee Real Estate Blog can remember me writing about this several times in the past, and if you want to get up to speed on the real estate shadow inventory in Tallahassee, just follow this google search for a list of quite a few articles on the housing shadow inventory in Tallahassee.

Reduction Of Real Estate Shadow Inventory

The real estate shadow inventory in Tallahassee appears to be mirroring the findings from CoreLogic, though our shadow inventory has only fallen 16% (compared to the national figure of 22% found by CoreLogic).

Homes In The Real Estate Shadow Inventory

This graph shows Tallahassee currently has a minimum of 5 months worth of supply in the real estate shadow inventory. Unfortunately, this is compounded with the same amount or more in recently failed home sellers, plus the 11+ months of supply of homes for sale in the Tallahassee MLS, it is safe to say that we have more than 2 years worth of supply of homes. This is bad news for home builders (and our local economy) as we will not be needing to build any new homes for several more years.

Tracking The Real Estate Shadow Inventory

The following graph shows a picture of the data I used to determine the current state of the real estate shadow inventory in Tallahassee. It is important to note that this information is very accurate, though it does not include any homes that entered the shadow inventory prior to 2008 (meaning our shadow inventory of homes is most likely a little larger than my findings show). For the purposes of our analysis though, it paints a very clear image.

Real Estate Shadow Inventory Growth

The graph above shows the "hidden math" behind how CoreLogic and my results were found. The blue bar measures the total number of new foreclosure filings each year (lis pendens filings), the red bar measures the number of transfers from individuals to lenders (foreclosures and deed-in-lieus), the green bar measures the number of foreclosure sales (lender to individuals), while the purple bar measures the number of individual to individual sales (pre-foreclosures and short sales). Finally, the black bar shows the impact on the number of homes in the real estate shadow inventory.

I agree with REALTOR® Magazine and CoreLogic, this is indeed good news. But as CoreLogic concluded in its report, there are a lot of bogeys out there still to be encountered. Property values are falling, thus homeowner equity is falling. This means a higher difficulty in selling homes, and home sellers make up more than 1/2 of the buyer pool, so it is a self-fulfilling problem in that our buyer pool continues to shrink while the potential for distressed home sellers grows. This problem is not going away in 2012!

If REALTOR® magazine would address the issue of failed home sellers, I suspect we might even be able to get NAR off of the "things are wonderful" reporting track. And if our industry leaders would paint a more accurate picture, we most likely would see better decision making by the banks (read that as they would accelerate the process for short sales) and better support from our political "leaders." The issue of the real estate shadow inventory will be with us for several more years, and the market would be best served by decisive actions by those that control the banks and our government (soon to be one in the same?).

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Rainer
86,629
Diane Grady
Endless Summer Realty - Saint Augustine, FL

I am hoping that you are correct but maybe that is just for your area?? I continue to hear that a massive amount of foreclosures will come on the market next year. Election years are always tough for Real Estate but I believe that this one will be really difficult. Hopefully the investors will get off the bench if another round of foreclosures comes up. I think that many of us are on the fence about the future... 2012 will certainly be interesting!

Sep 29, 2011 01:19 AM #1
Rainmaker
1,160,912
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Thanks Diane. Actually, my area reported worse than CoreLogic's findings nationally. I agree with you that it very well could reverse as banks robo-signing issues are now behind them.

Sep 29, 2011 01:25 AM #2
Rainer
93,232
Michael L. Brownstead
Keller Williams Realty - Allen, TX
ABR, GRI, MRP, SRS, 1SG US Army (Ret.)

Great posting, thanks for sharing this information, I really appreciate it. Have an awesome day in real estate!

Sep 29, 2011 01:57 AM #3
Rainmaker
1,160,912
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Thank you Michael, you have a great day too!

Sep 29, 2011 01:59 AM #4
Rainmaker
1,526,995
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Excellent report as always but I just don't trust any of the stats that come from CoreLogic. I've found for my area they have counted our foreclosures here 2 to 3 times based on their methods. Once for LisPendins, then once again when actual foreclosure begins.

Sep 29, 2011 09:29 AM #5
Rainmaker
1,160,912
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Thanks Lyn. My data is not from CoreLogic, and I agree with you about trusting their reports. But I will say that my findings for Tallahassee fits very well with their findings for the US.

Sep 29, 2011 10:57 AM #6
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Rainmaker
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Joe Manausa

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