"The Shadow Inventory"

April 27, 2010
For almost a year now, there have been reports of a "shadow inventory" of foreclosed homes. Estimates have run anywhere from 770,000 homes to 7 million. Commentators treat this supposed "shadow inventory" as the other shoe to fall. There is no doubt that there are a large numbers of home owners who owe more than their property is worth. There also seems to be a large number of already foreclosed properties that are still in the lenders portfolio and have yet to be but up for sale.
The fear seems to be that the lenders will suddenly dump all of these homes on the market at under market prices and thereby further lower the value of property. To date, that does not seem to be the case. In fact, in some instances, these properties are listed at current market values. If they are brought to market below what buyers perceive to be "value", there are often multiple bids and the selling price can be higher than the price at which the property was listed.
Whether because of the tax credit monies or because investors are aware that present prices offer good up-side potential, these bank-owned properties are selling as quickly as they come to market, thus they are not swelling the unsold inventory in the market place.
As the real estate market finds its bottom and stabilizes, it will be of interest to watch how lenders do rid themselves of these non-performing assets that are apparently sitting on their books.