Shadow inventory refers to distressed homes that are not yet on the market. This includes homes where the owner is over three months behind on mortgage payments, homes in foreclosure and homes that the bank owns but has not yet listed.
According to Corelogic, shadow inventory is down about 18.2% from one year ago. Nationally, foreclosure inventory is also down about 29% from one year ago. Homeowners that are delinquent on their mortgages are what creates the shadow inventory problem but this number has significantly decreased in the past year, with owners delinquent over 90 days down by 22.7%.
January 2010 was the height of the mortgage delinquency period. Right now the number of delinquent loans is still 1.4 times higher than the period of 1995 – 2005, but it is down significantly from the peak.
What does this mean? Lower shadow inventory means less distressed properties coming on the market. Distressed properties bring home prices down, so with less of those properties, prices can rise easier.
What is shadow inventory? Shadow inventory is real estate properties that are either in foreclosure and have not yet been sold or homes that sellers are holding back on selling until the market improves. If all the shadow inventory were released at once the market would be flooded with homes and drive the market way down. According to Standard and Poor’s, it will take about 46 months to clear the current shadow inventory. Once the majority of these homes have been released the market can really begin to stabilize. Shadow inventory is always coming onto the market but for the first time since 2007, the rate has slowed in the first quarter of 2012.