Market Conditions in Hilltop>Question Details

Barbara Gregg, Real Estate Pro in Westminster, CO

With the inventory shortage and all, why are the banks not releasing their shadow inventory?

Asked by Barbara Gregg, Westminster, CO Tue Mar 12, 2013

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Tim Klein’s answer
The federal government does not want them to, plain and simple. If the general public knew there are 750,000 properties being held back by the banks, it would harm the image of economic recovery that we all are led to believe is happening. It's been said the feds are paying the banks not to release these properties. Believe what you will......
2 votes Thank Flag Link Tue Mar 12, 2013
The question to answer is there shadow inventory? I went to the Denver County public auctions and one statistic they mentioned was that there were 7,000 homes that went through the public auction in 2011 but only 3,000 in 2012. The banks are also willing to work with homeowners and with rising values homeowners are no longer underwater so the number of short sales and foreclosures have decreased. This is good for the house market recovery but no so great for people looking for a deal.

Nina Kuhl
Cherry Creek Properties LLC
0 votes Thank Flag Link Tue Mar 12, 2013
45,000 homes in Colorado without electricity on. Shadow inventory?
Flag Thu Jun 6, 2013
Good answer Nina. I may see you tomorrow if I don't run out of time with other showings.
Flag Sat Mar 16, 2013
Strongly disagree!!!
Listening to Buyers, Sellers and Realtors on Trulia; the Shadow Inventory is HUMUNGUS!!!
Abandoned and Vacant houses are common in every city.
Scammers are taking advantage of these.
Cities are passing Ordinances about Vacant Houses and the care of the Houses and Lawns.
Vandals and Grafetti artists are a real problem.
Realtors are afraid to show these properties.

There are approximately 700 cities in the US with a population over 50,000. If they had only 100 of these abandoned foreclosures each, that would amount to 7 trillion dollors worth of homes.
Do you think that Detroit as only 100?
1 vote Thank Flag Link Tue Mar 12, 2013
Spread the fear Ron, spread the fear.
Flag Tue Mar 12, 2013
The question was somewhat rhetorical as I believe the "shadow inventory" was probably one small part of the market and a media person perhaps quoted out of turn and then she said and then he said. Detroit could very well have "piles of files", Denver, not so much.

I don't believe Denver has a shadow inventory of homes ready to be sold. The inventory that is sitting is due to the banks inability to line up necessary paperwork to complete a transaction-be it a short or foreclosure.

And we all know what they say about opinions!
1 vote Thank Flag Link Tue Mar 12, 2013
99% of the time, you will be correct if you FOLLOW THE MONEY!

And HUD is not putting any pressure on the Banks to divest.
1 vote Thank Flag Link Tue Mar 12, 2013
There are a variety of reasons. The most public answers are: banks will only show so much loss per quarter, banks are so under staffed they can't process their files and of course the problems with not processing files properly. The smartest reason may be; values are rising why not let the values rebound before selling.
1 vote Thank Flag Link Tue Mar 12, 2013
Because it would force them to have more liquidity by the Federal Reserve. It is all about money.
0 votes Thank Flag Link Thu Jun 6, 2013
There are some good answers here. But hey, we're only as good as our sources.

A Realtor quoted by John Rebchook's Inside Real Estate blog was almost apologetic that he had ever uttered the words "shadow inventory." He had to admit he might be wrong about it. Does he actually know? Who does know?

I would wager the banks may have quietly removed the Denver area inventory through short sales. We've seen foreclosures drop steadily for years (and Colorado is still in 11th or 12th place in the nation). We're not going to see as many foreclosures in an improving economy. The local story may well be there is no shadow inventory.

Then again ... If there is shadow inventory, why would they tell us? Does it help the banks to tip their hand? If they have a slew of homes to move off the books, are they going to let that information go public? Seems to me, that doesn't serve their interest.

With multiple offers greeting listings these days, the banks can be cheered by this turn of events. Will they suddenly flood the market with everything they have got? I like Cory's answer. Why would they swamp the boat? They'll release what the market needs and allow the market to regain its confidence.

Investors are still very active. I read a story today on that investors are buying real estate versus corporate shares. That should underline confidence. We're also reading that 40 percent of homes sold were sold to investors. I have no data I can point to that indicates what that figure is for Denver. But, I bet it's close.

Private sellers have not returned in numbers that will impress any of us. Move-up buyers are not moving. With prices having recovered to the 2007 level, that should mean a lot of people are in the black. The echo boomers, the sons and daughters of boomers, are coming into that high income stage of life. Will we see this buyer out there this spring?

Best to all of you,
0 votes Thank Flag Link Tue Mar 26, 2013
They cannot release all of them at once as that would flatten the market. They will have to allow a trickle of homes back into the market to allow it keep gaining. Many good opinions below! Overall less foreclosures/bankruptcies/shortsales which is also a good sign.
0 votes Thank Flag Link Mon Mar 18, 2013
The existence of a huge “Shadow Inventory” has been long rumored but never proved. Truth is…banks do not just sit on houses upon which they have foreclosed. That would be costly since the carrying costs would continue.
0 votes Thank Flag Link Sat Mar 16, 2013
I beg to differ... YES the banks ARE sitting on inventory and NOT dilligent to conclude on a sale even when a contract is on the table, fair and square and the Buyer is WAITING and WAITING! Banks have shadow "agendas" and accounting practices that we do not fully kno about, trust me!
Flag Tue Mar 19, 2013
Oh well who really knows, the banks are slow and have all their own reasons.....
Good Luck to you

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0 votes Thank Flag Link Tue Mar 12, 2013

That is the $64K question. Good answer from Kasha. Also the banks are under the gun to try to keep people in there homes, and sometimes at all costs. Even to deals to foreclose and rent back the home. The refinancing and restructuring of loans is also keeping homes off the market. Some homes are being released methodically with one thought as to not flood the market and drive the home prices back down after the recent upturn, especially in Colorado. Meanwhile the numbers are going down as to families going into foreclosure now and the overall numbers of foreclosure and shadow inventory are dwindling like a slow drain. The effect of robo-signing is still in place which is making banks more cautious to get all of their ducks in a row before making a move and getting sued by homeowners who have not made a payment in over a year at times. It will be good to hear the other answers as they respond to your question here on Trulia. Thanks for venturing into this area.

Robert McGuire ASR
Your Castle Real Estate
Direct - 303-669-1246
0 votes Thank Flag Link Tue Mar 12, 2013
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