Home Buying/Selling Specialist: Beware of Shadow Inventory!

Beware of Shadow Inventory!


Beware of Shadow Inventory!

Big announcement today:

There is still approximately $460 billion dollars worth of shadow inventory (inventory the banks have taken back but not yet put out on the market).  Wow, who keeps track of that???

Current estimates are that it will take 41 months to release all of that inventory.

Here’s my thinkingt:  More shadow inventory will be added even as this is being released.  What exactly do they mean when they say it will take 41 months to release what they’re holding now?  Just putting it out on the market is going to take almost 4 years?  I certainly can’t see how buyers will be able to absorb (buy) all that inventory, $460 billion dollars worth (!), in the next 4 years.

So, this housing crisis thing is bad and not going to be better for a while, am I correct?

If this inventory is released too quickly, it will only drive down house prices and values even further.  It has to be released slowly so it doesn’t overwhelm the already weakened housing market.

I was at a seminar yesterday on the future of the housing industry and we, as housing professionals, we encouraged to discuss and spread only good news we find in the press.  I really want to but there is so much reality that is a concern and, with this post, I’m going against what I was told to do just yesterday!

How do you feel about our housing market?  The facts are the facts, if we can find them through all the media hype.  Forget shoulda, woulda, coulda.  I want to be correctly informed so I know how to handle my little piece of the economy and how to protect my personal assets.

This is some pretty heavy information released today and, even though we’ve been “told” that the recession is over, there is a lot of fallout from this thing yet to come.

Whatever you do in real estate, be informed, be aware, be cautious.  Don’t buy anything that won’t make you a profit and, if you’re a landlord, don’t buy anything that doesn’t cashflow, from the day you close on it.  There are tons of great deals right now and I absolutely believe in real estate as the way to financial wealth.

Interest rates are low (and they will not be this low much longer) and house prices are low/low so, if you can, buy now and hold on.  You will create tremendous income for yourself for the future.

(Ahhh, there’s the good news!)


Karen Rittenhouse | www.JKKPropertyInvestors.com | 336-834-0614 | karen@karensperspective.com
Comment balloon 20 commentsKaren Rittenhouse • September 30 2010 01:37PM


You know, I wish I was looking for a home right now. In my area we have great homes in great areas that are priced so low I would pay asking price. In 2 years people will wish they made offers, I agree with you this is a good time to buy.

The problem, is the banks.

The bankers don't know what to do and they will keep us spinning our wheels for 2 or 3 more years.

Posted by Paul Lesieur (203kloanmn) over 8 years ago

The bankers keep creating and re-creating messes and they keep being forgiven and being bailed out!

Why doesn't the government give me some money?  Maybe we have to do something wrong first...

Posted by Karen Rittenhouse, Real Estate Investor (www.JKKPropertyInvestors.com) over 8 years ago

We all need to be careful when we talk about shadow inventory - I agree with you that "shadow inventory" should mean homes taken back by the bank and not yet put on the market. However, that article defines shadow inventory as homes where the owner is 90 days late, in foreclosure or already foreclosed by the bank NOT just homes already foreclosed by the bank & not on the market. The article doesn't even delineate between REOs and REOs that are not listed so it seems to imply that it includes listed REOs, (although that seems to be contradicted by the 1st paragraph so who knows what exactly they mean.)

I did some simple research at one point in my market and really didn't find a whole lot of homes that were foreclosed that weren't listed. Most of the ones I did find were very recently foreclosed and so hadn't been processed by the foreclosing bank yet.

That said, I can say that for my market, banks continue to file plenty of foreclosure notices (actually trustee's sales in AZ) so I DO think we have some real problems that aren't going away soon but having ill-defined stats doesn't help.

Good article - thanks for the link!

Posted by Eric Lee, e-PRO, SFR - Phoenix, AZ (Realty Executives) over 8 years ago

This is more a local issue for some - In my area there are pockets where there might be  alot of shadow inventory...but the popular areas are in good shape.

Posted by Ruthmarie Hicks (Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605) over 8 years ago

Its a good time to fine investors and first time buyers...in my area the bottom price range is stable so find those people and get them in a house.

Posted by Chuck Carstensen, Minnesota Real Estate Expert (RE/MAX Results) over 8 years ago

Wow 41 months and still counting !!!!!!!!!!!!!!! Buyers need to take advantage of this market !!!!!!!!

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 8 years ago

With all these pent up properties, there will be deals on the market for years but probably not these interest rates!  Buy, buy, buy!!

Posted by Karen Rittenhouse, Real Estate Investor (www.JKKPropertyInvestors.com) over 8 years ago

You're right, reality is a slow market for the near future. I've wondered what the recent halt to foreclosures will cause? Even more homes will populate the shadow inventory when the banks resume foreclosing. In a scenario where interest rates go up a couple percent, the housing market could slow even more.

Posted by Jon Budish (Resident Realty) over 8 years ago

You're so right, Mike, the banks don't know what they're doing!

But you can't talk to anyone who really cares because they're all paid by the hour no matter the outcome with the property...


Posted by Karen Rittenhouse, Real Estate Investor (www.JKKPropertyInvestors.com) over 8 years ago

I am always very skeptical of #s and stats, as it seems like the feds nor the banking industry can even count, let alone manage or report, so while the general concept may be valid, I would be very skeptical of the #s.  Who knows, they could actually be higher, or much lower.

Posted by Chris Olsen, Broker Owner Cleveland Ohio Real Estate (Olsen Ziegler Realty) over 8 years ago

They say the recession is over. There are so many people out of work, unemployment keeps rising, the real estate market is going down slowly at least in my area but homes are selling, salaries haven't risen. Yes, we are not in a recession. Puh-leeeze!

Just like the real estate market, even the economy is local.

I also want to know how anyone tracks the shadow inventory we keep hearing about. If that dollar amount is correct, let's hope they release those homes little by little. You know how greedy some banks can be.

Posted by Jackie Connelly-Fornuff, "Moving at The Speed of YOU!" (Douglas Elliman Real Estate in Babylon NY) over 8 years ago

If the banks leave a property sitting for 41 months with no utilities... there won't be much left to sell... the mold will have taken over and the property will be fit for nothing short of a bulldozer. 

More to the point though, we have been hearing this now for over 2 years... that the shadow inventory is coming.  I just wonder how much of the shadow inventory will be reclaimed by the borrower (if it hasn't ben foreclosed) or otherwise dissipated.

Posted by Lane Bailey, Realtor & Car Guy (Century 21 Results Realty) over 8 years ago

I have real estate that I could not in good conscious sell now because the great equiity I had has diminished so greatly.  However, my bank has renewed the loans at 2% less in interest rate and lowered my payments substantially.  So, I am with you: buy right and take advantage of fantastic rates.

Posted by Jerry Morse, BBA,GRI (The Morse Company) over 8 years ago

"It was the best of times, it was the worst of times."

That classic opening story line could apply to the American Real Estate Market in 2010.

Posted by Fred Griffin presently on Leave of Absence, Licensed Florida Real Estate Broker (Fred Griffin Real Estate) over 8 years ago

I think if we do not stay informed and in reality.  We are crazy.  To only imagine the positive is to ignore the reality of the market.  Good luck with that.

Posted by Tim Lorenz, 949 874-2247 (TIM LORENZ - Elite Home Sales Team) over 8 years ago

The shadow inventory is a huge problem with no simple solution.  I actually posted a blog today that offers a solution.  Please check it out and let me know your thoughts.

Posted by Simon Mills (Mills Realty) over 8 years ago

You definitely found some good news to round out the post.  I've been wondering, like many, how the shadow inventory will effect the market.  I didn't realize there was four years worth.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 8 years ago

The banks and lenders really find themselves in a tough position.  Having all that inventory... but not being able to get it sold, because to try and do so would flood the market, and really cause values to crash even more.  What a quandry.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 8 years ago

Chris:  Numbers & stats are difficult and typically are used to prove whichever point someone wants to make. However, I think these stats show pretty definitely that the tough times are not over and its too early to expect much "turn around"!

Jackie:  "They say the recession is over." Don't you wonder who "they" is?  Where do they live and what have they been smoking?

Lane:  So right. I was in a gorgeous antebellum home today that is about 8000 sq. ft.  It has been vacant for over 5 years.  I think it will have to be bulldozed because of the mold.  You can barely breath in it.  In 2010, how is this allowed to happen? So much unnecessary waste and devastation.

Jerry:  Congratulations and such great news!  When they banks are willing to communicate, so much can be accomplished!

Posted by Karen Rittenhouse, Real Estate Investor (www.JKKPropertyInvestors.com) over 8 years ago


I wouldn't say the bands and lenders "find" themselves in a tough position, I would say they "created for themselves" a tough postions.

I wrote a post a while ago stating: "And, that’s not the end of the frustration.  According to an article in the Huffington Post, mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures."

The banks had/have options, this economy that they've created was and is not necessary. But, as long as the government bails them out even when "they're doing it wrong", we don't stand much chance of a turn-around!

Check out that post: http://www.karensperspective.com/foreclosures-more-profitable-than-loan-modifications/

Posted by Karen Rittenhouse, Real Estate Investor (www.JKKPropertyInvestors.com) over 8 years ago