Posted by: realtormarkpalace | April 12, 2013

Breaking Down the Shadow Inventory

By Sarah Parr

A recent CoreLogic report shows some more hope for the housing industry as it reveals that the shadow inventory of homes in the United States dropped 28 percent since 2010 to 2.2 million housing units. CoreLogic used the number of homes held as REOs (real estate-owned) by mortgage servicers, but not yet listed on multiple listing services (MLS), seriously delinquent homes and properties in foreclosure to determine the shadow inventory figure.

Identifying the shadow inventory

The U.S.’s shadow inventory consists of a range of properties not listed on the market. Half of the shadow inventory consists of vacant properties in some phase of foreclosure that homeowners have abandoned, also known as “zombie foreclosures.” Many homeowners leave homes when they can no longer afford their monthly mortgage and assume foreclosure is imminent. Another part of the shadow inventory is composed of the homes held by banks, but not up for sale yet, and homes that owners would like to sell eventually, but are holding off putting on the market.

How it began

RealtyTRAC says the nation’s large shadow inventory grew because of the finalization of the National Mortgage Settlement last year that resulted in a 59 percent increase in properties in foreclosure. The settlement invigorated pending foreclosure cases, as banks re-filed or were required to work with homeowners on alternatives to foreclosure. As Pine Castle foreclosure lawyers would reveal to you, shadow inventory mostly grew in judicial-process states since these states are inclined to possessing a buildup of foreclosure cases. In these states, foreclosure cases are handled primarily by the court system.

The impact on real estate

Real estate market analysts initially feared that a simultaneous release of shadow inventory properties on the market would greatly reduce prices. Nevertheless, shadow inventory properties have slowly been listed, and decreased inventory has led to price increases in some communities, Reuters reported. Single investors and investment firms have also prevented the market from being flooded by purchasing large quantities of these homes when they are first listed, according to TIME.

The presence of shadow inventory can create an unclear situation for sellers and for predicting when a local housing market can anticipate full recovery. Shadow inventory can also cause housing data to underestimate the total amount of housing inventory. Even so, there is a silver lining: future buyers can expect a steady flow of inventory on the market in the near future, especially in Florida. Presently, Florida has a nice chunk, 16 percent, of the nation’s shadow inventory. Once some of these properties go through the judicial-foreclosure process, Florida will see a solid increase in housing inventory. Lawmakers are also looking to remedy Florida’s foreclosure process with various measures. The housing market will benefit greatly from an increase in supply for those eager to buy.

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