What is the shadow inventory?
Ok, first, lets define “shadow inventory” The term describes houses that are in some stage of repossession, but have not yet come to market for resale. It includes houses that are in default but not yet foreclosed, and houses that have been foreclosed but are not yet for sale.
How big is the shadow inventory?
Nobody seems to know, and that’s the scary part. What we do know is that after the robo-signing scandal that broke in September of 2010, the banks slowed way down on taking houses back. The defaults continued to pile up, but the banks slowed or stopped the repossessions while they reviewed and revised their procedures. The net effect is a huge backlog of houses that are going to have to be foreclosed and re-marketed, but aren’t a part of the for-sale inventory yet. In otherwords, a tidal wave of distressed inventory just over the horizon.
Which brings me to an article that was published in Realtor Magazine on July 14, 2011. The article, titled One Million Foreclosures Delayed Until 2012, spells out how this shadow inventory of un-foreclosed homes will continue to depress the market. Click on the link above to read the full article.