Shadow Inventory – to Wreck Havoc Soon!

Posted on April 13, 2009
Filed Under Foreclosures | 4 Comments

Shadow Inventory is a term that refers to unsold foreclosures.  These are homes being held back from the foreclosing bank and not yet placed on the market for sale.  No one really knows how large the problem is the banks and the public are facing.

There are various statistics available from DataQuick, RealtyTrac and also ForeclosureRadar.   In the San Francisco Bay Area 9 Counties it is estimated approx. 35% or more of foreclosed homes  have not been listed for sale yet – representing approx. 20,000 homes and possibly as high as 100,000 homes.   It is possible  that a similar trend is happening in the Vancouver – Portland area.  Perhaps not quite as severe, however.

There are several speculative reasons for this “shadow inventory of unsold bank owned homes”.    The system may be overwhelmed by the amount of homes on the books that need to be processed for resale.  The banks may be holding bank on listing too many for sale – preventing a free fall of home prices.  The banks may be holding back to create an illusion that their balance sheets aren’t as bad as they really are.

In addition to this shadow inventory there is another huge wave of foreclosures to hit the market.  These are homes that have been placed under a moratorium which halted the foreclosure process in order to try work out’s with the homeowners via loan modifications of various types.   In essense this will be a wave upon another wave.. or 2 waves back to back.. whichever way you want to look at it.

Here is a quote by Patrick Newport, a U.S. Economist with Global Insight – a Mass. research firm:

“The problem is that no one knows how extensive (the shadow inventory) is,” “It’s a wild card. If it’s a really big number, you’ll see prices drop a lot more and deeper problems for the financial system.”

Comments

4 Responses to “Shadow Inventory – to Wreck Havoc Soon!”

  1. Vancouver News » Blog Archive » Vancouver Housing Market Update on April 13th, 2009 5:14 pm

    […] glut in foreclosures that the lenders are holding back from the market which are known as “shadow inventory” which could severly impact home prices going forward until the inventory is worked thru the […]

  2. Charles Richey on June 15th, 2009 12:34 am

    I guess that the banks holding these properties off the market are either waiting for prices to go up or they don’t want to further flood the market with more properties and push prices further down.

  3. Richard Stabile Bergen County Real Estate on June 15th, 2009 4:16 am

    It is good that they hold some back and it doesn’t hit all at once. Unfortunately, it will take more time to eat through the pile. We need rates to come down again as they were for a few months. The problem is the government is burning the candle at both ends. They are trying to do thing for the economy and also for they pet ideas. This is stressing the money markets and moving interest rates up. You can’t have it all. I thought that getting away from a depression was the priority. Some people have other agenda’s too. Maybe they will see the light before we can’t reverse the rate hikes.

  4. Mark on July 27th, 2009 9:48 pm

    Thanks for the post on shadow inventory which is a significant problem here in San Diego as well. BofA reportedly has 400 homes on the market, but owns 1600 which have already been sold back to them on the courthouse steps.

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