Shadow Inventory-Threat or Non-Threat?

Real Estate Broker/Owner with StoneCrest 01704912, Cal Bar 242498 is reporting that shadow inventory which once was a major threat to housing recovery is receding. According to a Lender Processing Services report from their August Mortgage Monitor, shadow inventories have now fallen to its lowest point in 4.5 years.

What is Shadow Inventory?

Shadow inventory refers to real estate properties with mortgages held by banks that are either in the foreclosure process but have not yet been foreclosed upon or that have been foreclosed on and sold back to the banks but that have not been resold as an REO (real estate owned) property yet.

Shadow inventory in the past years has been listed as an uncertain number and different reports have placed the numbers anywhere from 2 million to over 7 million properties. The fear was that the banks would release their shadow inventory into the market all at once which would flood the local markets and further cause prices to fall due to a massive amount of inventory without equivalent buyer demand.

Shadow inventory can make it difficult for a depressed market to figure out when they will have a full recovery. Banks were holding onto their shadow inventory because they did not want to resell these homes in a depressed market as it would affect their ROI (return on investment). Now that prices have increased the fear of course remains that the banks may try to capitalize on the recent increase in prices, especially in certain areas, by releasing their shadow inventory. This would create a surge in inventory and without the appropriate amount of buyer demand would then push prices back down.

Shadow Inventory Down

LPS reports that shadow inventory now represents 2.66% of all homes with a mortgage in the country, compared to 4.04% a year ago. Mortgages that are 30 days or more delinquent on their mortgages but not yet technically in “foreclosure” was at 6.20% in August which is a decline of nearly 10% since August 2012.

The states with the highest percentage of non-current loans were; Florida with 16%, Mississippi 15%, New Jersey 14.9%, New York 12.7% and Maine 12%.

However, Report Doesn’t Address Shadow Inventory of Already Foreclosed Upon Homes

However this report appears to only address shadow inventory as homes that are late on payments but have not yet been foreclosed upon and not the shadow inventory of homes that have already foreclosed but the banks are still holding onto and have not released into the market to sell yet. This number still seems to be unknown and a potential threat.

Continue reading our StoneCrest realty Blog for the full article on if shadow inventory is still an issue.


Sources: Lender Processing Services and “One-third of Shadow Inventory Cleared in Last Year,” Mortgage News Daily (Sept. 26, 2013) and Housing’s “Shadow Inventory” Still Haunts Banks, US News (June 28, 2013).


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Experienced Sacramento Real Estate Attorney and Sacramento Realtor

Sarah Litchney is a licensed California Attorney, and Sacramento Realtor with StoneCrest Realty. StoneCrest Realty is a full service residential and commercial real estate brokerage.  Click the link to view the StoneCrest Realty blog.

Her practice centers on transactional real estate work. She represents developers, investors, and individual buyers and sellers and their funds in a wide range of matters including acquisitions, dispositions, development, leasing, financing, short sales, general real estate transactions and foreclosures. Her clients range from individuals, investors, corporations, and institutions across all asset classes of real estate, including residential, multi-family and commercial.

Contact Sarah Litchney by calling 916.378.5760.
Attorney, broker at StoneCrest Realty. DRE License # 01704912.

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