Sep 3, 2011

Shadow Inventory - Recovery in sight

The housing market will recover when we eliminate most of the current shadow inventory. Shadow inventory is the number of foreclosed properties currently owned by banks (or will be owned in the future) that are empty and are not yet for sale. The speed at which these homes come on the market and are sold will determine the speed at which the housing market recovers.

The latest S&P Shadow Inventory Report reports that the shadow inventory is decreasing. The report also indicates that the number of people falling 90 days behind on their mortgages has decreased dramatically. That means that as we sell off distressed properties, the end to the housing crisis gets closer.

One of the biggest challenges to the real estate industry throughout the rest of the year will be this shadow inventory coming onto the market. These distressed properties have been tied up in the court systems in many states while paperwork has been reviewed and corrected. Banks are finally fixing their processes and most states are clearing the way for the banks to resume repossessing these properties.

As these foreclosures come on the market, the prices of all properties in an area will be adversely impacted. Since there is a finite number of home buyers in any market, some of those buyers can be expected to purchase these distressed properties because they can get them at discounted prices.

The more important factor in the slow housing recover is that the sales of these foreclosed properties will become part of the comparable sales used by appraisers to establish value on all homes. It will take some time to recover from the negative impact they have on all valuations. [where: 75230]

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