Shadow inventory is a real estate reference to properties that are either in foreclosure or those houses owners are delaying putting on the market until â€˜the market improves.â€™ It creates a large degree of uncertainty because it is like a skilled poker player, not revealing the real estate marketâ€™s full hand. Data that is exclusive of shadow inventory paints a skewed picture of what the real estate market looks like.
Shadow inventory has been the looming dread behind the slowly recovering housing market. The rising number of short sales has greatly allowed the market to be more transparent.
"Although re-defaults and new delinquencies will continue to keep shadow inventory elevated, the rapid decline should prevent downward pressure on home prices going into 2013," according to Chase analysts. "Combined with better existing home sales, investors have reason to be optimistic about running recovery scenarios."
Source: â€œShadow Inventory Declines by 1.2 Million in 2012,â€ HousingWire (Sept. 24, 2012)