If you are involved in real estate, then there is a good chance that shadow inventory has become a trending topic during your business meetings, around the water cooler and even at the dinner table at home. If you are just learning of the term, it refers to an inventory shortage that has become quite prevalent. You may be wondering if this is even possible. Better yet, how is it possible?
What is Shadow Inventory?
Simply put, shadow inventory refers to properties that are either not put on the market yet until prices improve or foreclosures that have not been sold yet. This can create a great deal of uncertainty for owners trying to determine when the best time is to sell. Quite often, they are waiting for the market to make a significant of full recovery first; this leads to an inventory shortage.
Also, shadow inventory will often cause reported data associated with housing inventory to actually understate the number of properties on the market.
Is Shadow Inventory Really a Current Problem?
With how low rates have been, one might think that there would be a ton of inventory available. After all, buyers love low rates, right? Well, unfortunately, these low rates are dictated by national and global events. While an economy is bad, people don’t want to buy, no matter how low rates are and sellers certainly don’t want to take a loss on their properties just to move them.
At the national level, there is data that indicates that there are significantly fewer listings. This decline has particularly be seen in broker reports from Cape Coral, Detroit, Las Vegas, Phoenix, San Jose and Seattle.
This data also shows that there is a lower amount of inventory now in most markets than there was a year ago. You may be saying that all the new home construction erecting recently should offset this, right? Sadly, the shortage is so far under historical averages that even new home construction is not absorbing the difference.
Is There Relief?
Distressed properties could prove to be a source of relief. Also, homes that are already in a foreclosure stage and those that are seriously delinquent could help temporarily, but this is not a permanent fix.
HARP and HAMP, two aggressive refinancing programs could help reduce inventory shortage as well. It is suggested that states that will see the fastest depletion of shadow inventory are those where there is already a housing shortage, such as California and Arizona.
Meanwhile, states like Connecticut and Illinois that have decent inventory won’t be so affected. Coincidentally, these are states where home owners cannot be forced from their property without judicial proceedings.
What does this all mean to you? In a nutshell, if you are looking to buy, now is the time. If you think the selection will improve in the future, think again. If you are thinking about investing in properties, this could prove to be a very smart move. As the shadow inventory depletes, your properties could be in very high demand, especially in desirable states like California where the baby boomer population wants to retire and everyone else is moving there for the exceptional schools and endless employment opportunities.
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