What is “Shadow Inventory” and how does it affect Short Sale Investing?
Shadow inventory is actually a combination of several different things, which I’ll cover here. It’s actually going to have a very big impact on the short sale market. I explain that too.
First, experts are not in agreement about the shadow inventory, or if it even exists. I say YES,it does.
Shadow inventory is comprised of 3 main components.
1. Millions…Yes, I said “millions” of would be homeowners that would otherwise put their property on the market for sale are now hesitant. An example is say, the Jones family, who are fine with their payments. They live in Virginia, but wish to move further south to enjoy the weather of that region. There is one thing stopping them; The under-priced housing market! See, Mr. and Mrs. Jones don’t HAVE to move, they just WANT to. They’ve decided to wait, because they believe the market will turn around, and they’ll be able to sell their home for tens of thousand MORE within just a few years…if they wait. Remember when I said millions? Millions of homeowners are in this exact situation all across the nation.
End result: What happens if all of these homeowners decide to list their homes on the market, because the media says “the housing market is great, and now is the time to sell!”?
I’ll tell you. A FLOOD of homes hitting the market, driving prices back down! it’s all about supply and demand, right? A lot of available homes, too much supply, the prices WILL drop.
2. Lenders that have foreclosed on homes are HOLDING them. Why? The same reason the homeowners above are, they’re WAITING for the market to turn around! You may not know, but a lender who forecloses on a property OWNS that property. They can hold it until they’re good and ready to put it on the market!
How many? It’s estimated that lenders are currently holding around 600,000 houses in REO inventory, just waiting for the right time to list them. That is a LOT!
3. The upcoming wave of foreclosures. the wave that hit in 2008 and 2009 is just the beginning. Unemployment is over 11% across the U.S. There is an estimated 7 million homes facing default. Are you kidding? The impact that will have on the housing market is unimaginable.
The solution? Short Sales. Short sale investing and real estate agents working short sales are going to be paramount in correcting this situation.
How many of these 7 million homes will avoid foreclosure if short sale investors and agents work on getting these homes bought and sold before the foreclosure? They’ll certainly have an enourmous impact.
The Jones’s are just going to have to wait, because there is NO way they’ll compete pricewise with short sales. Home buyers are savvy now, and they know that there are deals to be had if they look for short sale houses. Agents, you should certainly be in the short sale markets, and understand how to deal with short sale transactions of you plan to stay in business. If you list the Jones’s house, you’ll watch houses all over the area sell, via short sale transaction, before (if) yours does.
I believe ther IS a shadow inventory and I believe it’s going to have a huge impact on the market. If you’re doing short sale investing, great. If you’re an agent doing short sales, great. You’re in the right spot.
Learn more about foreclosure training programs so you can be well ahead of the competition!
Sincerely,
David Corbaley
{ 4 comments… read them below or add one }
totally agree short sales will be huge for the next 2 years and the opportunity for investors is unlimited
Yep, especially with the new FHA guidelines I mentioned in an earlier post.
I completely agree with the banks holding onto properties. I have noticed many properties in just a five mile radius of our neigborhood that are now REO\\\’s and nothing is happing with them, most haven\\\’t even been winterized which is going to cause a bigger problem. Bad for them good for us. I beleive that the banks are not even reporting the REAL number of foreclosures going on. I am dealing with alot of people that are over 6 months behind on the mortgage and haven\\\’t even received a notice from there lender….very strange.
In regards to homeowners thinking that in \\"a couple\\" of years they will be able to get there equity back. I don\\\’t see it, The trend for market cycles usualy run any where from 7-12 years. When it does finally stop trending down its going to level out for a least 2-3 years before we start to see any real appreciation again, by that time inflation will hit and interest rates will skyrocket. If you ask me perfect place perfect time to be investing in RE right now.
It appears that all of the factors that you mentioned are lining up. The results that you indicate make sense. Unfortunately if makes it all the more important to get short saled houses at the right price so you can sell them.
Exciting times ahead.