Shadow Inventory Fades: Home Prices Poised for Growth

by Amy Lillard

(6/18/2012) The nation’s “shadow inventory” is on the decline, and it may be helping home prices in some of the markets hit hardest by the housing slump.

The number of properties pending foreclosure but not yet on the market to sell, called a “shadow inventory” by mortgage officials and experts, is down by 100,000 in the last three months. The shadow inventory total of 1.52 million properties is a three-year low.

Even more telling, this drop in the shadow inventory is a drop of 15% over last year, and is now similar to October 2008 levels. The total value of the shadow inventory is estimated at $246 billion, down from $270 billion last year.

The shadow inventory is made up of homes that are behind on mortgage payments but are not yet listed as foreclosed homes for sale. It includes those who are seriously delinquent (over 90 days), those in some stage of foreclosure, and those held as real-estate-owned assets by mortgage servicers.

The existence of a shadow inventory causes downward pressure on house prices, according to the reporting organization, CoreLogic. Foreclosed properties typically sell at a discount, and far less than the actual value of the house.

In addition, the threat of a shadow inventory has been looming over the housing market for years. Experts were uncertain how much distressed inventory would end up on the market during the initial rush of foreclosures after 2008. Fears that the shadow inventory would be larger than any anticipation made many banks and experts jumpy and predicting of bigger disaster to come.

The decline in the shadow inventory is due partly to banks finally selling off distressed properties. Also, banks may be turning to other alternatives besides repossession, as home seizures are dropping.

With the shadow inventory declining, some of the hardest hit markets, like Arizona, California, and Nevada, are finally starting to see home prices creep up.

For additional reading:

CoreLogic Reports Shadow Inventory Decline: http://www.corelogic.com/about-us/news/corelogic-reports-shadow-inventory-fell-in-april-2012-to-october-2008-levels.aspx