Shadow real estate inventory. What is it? Here is a simplified explanation
Definition 1 – Foreclosed but not listed. Some analysts say the “shadow inventory” is the homes which the has bank foreclosed on but not sold. These are homes that are not on the market but owned by the bank (REOs not listed on the market).
Definition 2 – All homes delinquent, short sales not on the market, REOs not on the market, and anything in the foreclosure process.
Definition 3 – Homes in the foreclosure process as well as delinquent mortgages where foreclosure proceedings are imminent.
Definition 4 – All of the above plus modified loans (as they have a large percentage of failing anyway, pay option-arms about to be reset, and lots sitting idle with builders in trouble.
The Standard & Poor's definition comes closest to the third definition here. What that essentially means is that the exact amount of home loans that will eventually become non performing assets is an unknown number right now and may grow with passing times into something colossal. The number of properties that are foreclosed by home owners or are in the process but not yet listed in the market for resale/ auction by the banks to recover their money, is growing. This also means that there will be an excessive supply situation in the markets as a result of this 'shadow inventory' which is not evident right now. These homes will increase the supply and new homes that are being built will not sell as there will be cheaper, ready to move in options available in the locality.
Some experts say that the situation is improving and that the shadow real estate inventory is not really a very large number. However, the real estate recovery in the affected markets is far from complete.
Excerpts from an article by Ryan Hinricher
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