by Lon Welsh, Owner, Your Castle Real Estate
Some real estate experts fear Shadow Inventory will force the housing market into another recession. “Shadow Inventory” refers to foreclosure homes owned by lenders or about to acquired by lenders through foreclosure that have a high likelihood of coming onto the Denver real estate market this year. They are homes that may be currently in default or owned by the Banks. Or, hey may or may not yet have a Notice of Election and Demand from a Public Trustee but are in defualt.
Today’s Wall Street Journal depicts the potential size and the scope of the shadow foreclosure real estate market for homes across the United States. That economist pegs it at 1.1 million homes. The Denver metro area is about 0.8% of the overall US population, so a ballpark estimate, we would have about 8,800 of those homes. That’s only a rough guess of course.
We sold 49,700 resale homes, not counting new construction, in 2005. This declined to 37,339 resale units sold in 2009. In the unlikely event all the shadow market homes were dumped on MLS tomorrow morning, we could sell what we sold in 2009 AND all of the shadow homes and still be under the sales volume in 2005!
Here’s another, more realistic way to look at it. Most of the shadow homes will likely under the median sales price for a single family home in Denver. That’s $210K for a detached home and about $165K for condo or townhome. For this least-expensive half of the market, we have 2.3 months of inventory for detached single family homes (six months is normal). There are only 4.3 months of inventory for condos. Blended, it’s 2.9 months of inventory, a pretty strong seller’s market.
The tax credits have decimated our inventory at this low price point. If you dumped all 8,800 shadow units on the market tomorrow, we’d increase to 8.7 months of inventory. That is a slight buyers market. More likely, the shadow market will be trickled slowly onto the MLS over months, if not years.
So, maybe those experts who have predicted a dire housing marketas result of shadow inventory are overly pessimistic.
Chicken Little might be wrong about the shadow inventory market. The sky won’t be falling anytime soon on our Denver real estate market.
4 Comments
I’m with you Lon. This shadow inventory may keep prices depressed but is unlikely to trigger another real estate recession. Short sales and REOs are about 30% of the single family home sales in my market. I expect this to stay the same through 2010. People need jobs to turn my market around.
I agree Wayne. Until employment numbers improve and we put people back to work, this risk will remain high. I have confidence in the free market system, but fear the positive employment numbers we have seen may be short lived as seasonal work expires at the end of the summer. Only time will tell.
I agree with you here. One the one hand the thought of so much property entering the market is worrying. However, my experience is that most banks understand the possible disadvantage of flooding the market. Most banks in the UK do not want to repossess to find that the property merely stays in the market for months on end. This is really the last resort in the Uk market. In Spain where we work there are a large number of distressed properties available for sale. The Banks here however are playing hard ball and looking for top prices. Distressed properties in Spain are often more expensive then normal resales. Bizarre!
Theer does seem to be a lot of concern about shadow inventory and the effects on the market. What I’m seeing in Indianapolis are banks releasing homes slowly and the good ones are moving quickly. The amount of bank owned properties has greatly reduced over the past year. Much can be attributed to the tax credit and time will tell whether unemployment will stifle real estate sales.