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.