The current real estate market suffers the effects of a phenomenon called “Shadow Inventory”. Shadow inventory is comprised of the homes that are not currently on the market but are expected to come on the market. Before the financial quagmire became widespread, the Uptown was facing a large supply of new homes or a,” Fore-Shadow Inventory” from the development of new high-rise condos which were subsequently scuttled. Today, though, we have a different sort of Shadow Inventory from foreclosures that have not been executed. The effects of today’s shadow are far different from the previous shadows seen before.

 

 

To get a feel for the magnitude of the current shadow market, tax records were cross-checked with the current listings in the MLS and some interesting results were discovered. The foreclosure classification can be broken down into 6 categories: Bank Owned Available/Sold; Bank Owned Not Listed; Pre-foreclosure Available; Pre-foreclosure Not Listed. There are 11 listings that are on the market currently that are owned by banks with 6 more properties listed as Under Contract. There are 8 listings available that are being marketed as “Pre-foreclosure” with 4 properties listed as Under Contract. This data doesn’t tell us very much though. The Shadow Inventory represents the properties that aren’t on the market. Just how many of those are out there?

 

Currently, the tax records indicate that there are a total of 14 bank owned properties that are not even listed on the market with an additional 27 homes identified as pre-foreclosure. In total, there are 41 homes that the banks have not started marketing or have not taken ownership of yet.

 

 

To understand the magnitude of this inventory it is important to understand the velocity of the homes on the market. In 2009, there were 12 condos sold each month on average. With a total of 56 homes available or becoming available on the market through foreclosure, there is 4.6 months of supply in bank owned homes with 3.4 months of shadow.

 

In normal times, it can be expected to see a small inventory of bank owned homes on the market and to have some shadow market lurking to the side. One of the major problems is that the velocity of home sales has slowed to near record lows resulting in a much higher supply in relation to the actual sales. Magnifying the impact is the tightening standards on condos vs. single family homes.

 

While the shadow of the supply of distressed homes hangs over the market, there is no clear indication as to how long it will take for those properties to be listed or the pre-foreclosures to become foreclosures. The time for foreclosure varies from lender to lender and it appears that there are different time schedules for vacant homes compared to occupied homes. Financial reporting requirements and the reality of diminishing returns provides no real incentive for banks for speed the process along and to realize the losses that will be incurred in the process. Therefore the timing of when the shadow will be realized and absorbed is unclear at this moment.

 

The rewards in the market are to the patient buyers. For the people who are looking to buy a home, there are good deals available from home owners as well as banks. Sometimes the best deal isn’t a foreclosed property because banks are out to get as much money out of a property as possible—just like a home owner. The idea that banks give properties away is a myth, but sometimes banks can sell a home for a much lower price than any home owner would be able to afford. Helping you determine which property is right for you is what a good real estate agent is able to do.