Shadow Inventory in Housing Market Decreases Across Nation

Those who are into real estate and the foreclosure market probably have at least heard of the term “shadow inventory”, but many do not understand exactly what it means for the market as a whole and for their individual investments. This is unfortunate, since the shadow inventory is one indicator that any investor or prospective homebuyer should pay attention to in this economic climate.

The shadow inventory is comprised of distressed properties that are either facing foreclosure – because they’re delinquent or have not yet been listed at auction. In other words, these are homes that more than likely will enter the foreclosure market – but are not yet counted in foreclosure filing figures.

This is why just looking at foreclosure rates can be deceptive. You have to also know what the shadow inventory is doing so you can make an accurate assessment of the foreclosure market – and therefore know how to time your entry into the market.

Today, new numbers released indicate that the shadow inventory, on average, has decreasedacross the country by as much as 18% from its peak. Currently, there is about a five month supply of homes in the inventory that have yet to be processed, at today’s rates.

Shadow inventory is declining in some areas because of the effect of loan modification programs and their impact on homeowners who are in distressed properties. These programs are helping homeowners push back foreclosure or avoid it altogether. A slowdown in foreclosure filings by banks and lenders also contributed to the decline, although this is viewed by most as being temporary and largely artificial.

A large shadow inventory and high foreclosure rates contribute to lower prices, so a reversal of one or both could mark the beginning of a slow and gradual recovery. If so, now is definitely the time to look into buying a foreclosed property at cheap prices.