I was asked a question today and I thought that many more of you were probably wondering the same thing. The question was, “What is shadow inventory?”.
Shadow inventory is related to foreclosures sales. The term shadow inventory represents properties that are foreclosed by a mortgage company but are not listed for sale by the bank right now. That makes you want to ask, “Well, why would the bank want shadow inventory?” They don’t exactly want it; they have a couple of reasons to justify the fact that all of their foreclosures are not on the market.
1) They are inundated with foreclosures and short sales so they are short staffed. and
2) The would probably tell you that it takes them a long time to finish processing all of the paperwork after the property has been foreclosed.
Strategically the banks are choosing in some cases not to put all of their houses on the market at the same time because they don’t want to write off all those losses in one quarter of their fiscal year – they want to try to spread it out over the year. Analysts are saying that the banks should be putting their entire shadow inventory on the market and get rid of it.
Homeowners and other folks disagree. They say if all of the banks’ foreclosure inventories went on the market at the same time it would flood the market and impede the recovery of the US housing market. If you were in a neighborhood with some foreclosures and they all came on the market at the same time that would really tie the hands of any homeowner that was trying to sell their houses that were not in foreclosure.
The foreclosure inventory can affect the appraised value and has other impacts on the neighborhood as well in terms of maintenance of the homes and yards for example.
Have you ever heard the term “shadow inventory” used before?