Inventory has been dropping over the past few years, but millions of homes are still in the shadow inventory across the country. The term "shadow inventory" is often heard in the world of real estate, but what does it mean? Shadow inventory refers to all the homes not currently on the market but have been listed for sale or are being held as rental properties.
This number can be surprisingly high, and according to some experts, could make up a third of all housing stock.
It's made up of bank-owned properties, short sales, and foreclosures. The definition of shadow inventory can be a little murky because it can vary from lender to lender as to what they consider to be "actively" being marketed. Shadow inventory affects prices because it increases supply while demand drops. The market is slowly recovering, but this problem still plays a role in keeping costs low.
What is Shadow Inventory?
Shadow inventory is all the housing that is not currently on the market but has been listed for sale or held as rental properties. It's made up of bank-owned homes, short sales, and foreclosures. Shadow inventory is the unabsorbed supply in the market. While shadow inventory has declined, it still plays a role in keeping housing costs low.
If the shadow inventory matches the current inventory levels, it could take around twelve months to clear the market. This is a massive problem because it will keep prices suppressed for an extended period. In some markets, shadow inventory is becoming a more significant issue as more and more homes enter foreclosure.
If you are worried that shadow inventory affects your community, talk to your local realtor and see what's happening in your area. They will give you more information on how the market is changing and what that means for prices. You can also keep an eye on the market yourself by checking out websites.
What Causes Shadow Inventory?
A few different things cause shadow inventory. The first is the housing crisis that began in 2007. This led to a massive increase in foreclosures and short sales. As these properties hit the market, it created an oversupply of housing and drove prices down.
There is also a significant amount of properties sitting in banks owned by loan servicers. These homes were given default notices, but the borrower has not yet followed through on the foreclosure. This number continues to increase as more and more borrowers stop making payments or can no longer afford them after a job loss or an illness in the family. If you're having trouble keeping up with your mortgage, you can work on modifying the loan to make it more affordable for you.
The other reason for shadow inventory is the slow economic recovery. Even though the economy is improving, many people are still struggling financially and can't keep up with their mortgage payments. This has led to more and more people giving up on buying a new home.
How Can Shadow Inventory Affect House Pricing?
Shadow inventory doesn't have as much impact on prices as actual inventory does, but it still has a significant effect. As more and more homes enter the shadow inventory, the supply increases while demand drops. It takes longer for these homes to hit the market, so the oversupply will continue to affect prices.
When the market is healthy, this isn't as much of a problem, but when demand is low, and inventory is high, it causes prices to drop. This issue has been plaguing the market for years and doesn't look like it will be going away anytime soon.
The market is slowly recovering, but this problem still plays a role in keeping prices low. In some markets, shadow inventory is becoming a more significant issue as more and more homes enter foreclosure. This can have a ripple effect throughout the community because
To help manage the shadow inventory in your community, make sure enough people know about it and how it's impacting local prices. If sufficient demand is not met with supply, the housing market will continue to struggle. You can also put pressure on lenders to fix the situation by modifying loans.