Shadow Inventory Hurts Housing

We all know what inventory means, but what’s “shadow” inventory?

Well, it’s one of the latest things to worry about. Thanks to the recession, high unemployment and collapse in the housing market, the shadow housing inventory is soaring.

In housing, inventory refers the number of homes for sale. When more homes are on the market, it’s usually good for buyers and not so good for sellers. It takes longer for the average home to sell, and it’s harder for sellers to command top prices.

A separate figure, shadow inventory, counts homes that could come onto the market relatively soon, says CoreLogic, a California firm that provides data on the housing and mortgage markets.

“CoreLogic estimates shadow inventory, sometimes called pending supply, by calculating the number of properties that are seriously delinquent (90 days or more), in foreclosure and real estate owned by lenders that are not currently listed on multiple listing services,” the firm says.

As of August, the shadow inventory had reached 2.1 million units, an eight-month supply of homes at the current rate of sales. That was up from 1.9 million units a year earlier, a five-month supply at the rate homes were selling back then.

The “visible” supply – homes actually on the market, was about 4.2 million homes in August, the same as a year earlier. The latest visible supply figures represent 15 months worth of sales, up from 11 months at last year’s faster sales pace.

Together, the visible and shadow inventories represent 23 months of sales, compared to 17 months a year ago. Six or seven months is considered normal in a healthy market.