Beware of What's in the Shadows
Last October I posted a comment about "shadow inventory". Â In the post I defined shadow inventory this way:
"Shadow inventory is the term used to reference distressed properties that haven't hit the market yet. Â Distressed properties are homes that are in some state of foreclosure proceedings with a bank. Â These can be homes where homeowners are behind on their mortgage payments and may result in default, or homes that banks are completing the legal process of acquiring from homeowners already in default."
I thought it would be good to revisit this topic and see what's happened in the past 12 months to shadow inventory. Â According to an article published by the Florida Association of Realtors on 10/17/2011 the official number of homes for sale in the USA is approximately 3.5 million homes, which is about 9 months of supply at current sales rates. Â If you add in the properties from the shadow inventory the supply more than doubles to 7.5 million homes.
The number of homes in the shadow inventory has grown in the past year partly due to the "robo-signing" scandal last fall. Â In that scandal it was revealed that at major mortgage servicers employees were cutting corners in the process and were either falsifying documents or signing thousands of documents a day without proper review. Â Once this was revealed, lenders stopped foreclosure processing altogether for a period of time and really slowed the process when they started back up. Â That resulted in an accumulation of foreclosed properties. Â
A major holder of foreclosed homes is the US government. Â Between Fannie Mae, Freddie Mac, and the Federal Housing Administration they have about 250,000 foreclosures. Â Locally in the greater Jacksonville area there are 1178 foreclosures (single family and condo) for sale out of 14,093 total listings.
Banks seem to be aware that they have to be careful how they dispose of this inventory. Â They don't want to flood the market (thereby driving down the value of the homes they own), so they are slowly releasing foreclosures. Â In some neighborhoods you can see that as a couple of foreclosures sell a few more are released. Â
Any way you look at it its going to take a few years to work through all of this inventory. Â Determining how long it will take depends on how quickly homes are sold, how many delinquent homeowners end up being foreclosed on, and how quickly banks add them to the market.
The "shadow" got longer this year...let's hope it starts to fade next year.
Prudential Network Realty
3535 Highway 17, Suite 10
Fleming Island, FL 32003