A lot has been discussed about shadow inventory in real estate over the past several months. I want to give a clearer picture of what shadow inventory is and how it affects the real estate market's recovery.
Shadow inventory is defined differently, depending on who you ask. Some consider it to be just foreclosed homes that are not yet on the market. Others also consider homes that have 1st mortgage delinquencies greater than 90 days. Further, the definition can go on to include homes that are to be short sales that are not yet on the market and any homes that have had modified loans (as most of these loans still default after the modification).
Because of the varying degree of what constitutes shadow inventory, the perceived effect of this inventory varies as well. Without going too in depth with how this is calculated by the National Association of Realtors, essentially they use data from Mortgage Bankers Association and Lender Processing Services to account for the number of households that are to be included in this definition. For more about how this is calculated and determined, CLICK HERE and go to page 8 of the publication.
The effects of foreclosure and shadow inventory situation, just like anything else in real estate, vary by location. Arizona, California, Florida and Nevada are projected to be the worst hit by foreclosures. The good news is that overall delinquencies in all but 4 states (Washington, New Jersey, New York and Vermont) declined. The national average for serious delinquencies of 90+ days declined 38%. For detailed breakdown by state, this is a very informative ARTICLE and a good read.
While the number of delinquencies are declining, the amount of shadow inventory as well as distressed properties currently on the market will effect the pace of recovery in the real estate market. These homes are or will be competing directly with homes that are not in a distressed situation, causing these homes to remain on the market for a longer period of time and keep the market value for real estate depressed or stagnant.
Once these distressed properties are cleared out to more "acceptable" levels, then we can expect to see a more thriving real estate market. How long this will take is still anyone's guess, but we are probably looking at a 2-4 year window nationally, depending on the location. The key is to have an economy that continues to improve, resulting in fewer delinquencies, allowing the real estate market to catch up. Fewer foreclosures, of course, would reduce the amount of homes on the market, create a larger demand for non-distressed homes, resulting in quicker sales at a relatively higher sales price.
No comments:
Post a Comment