Shadow Inventory in Real Estate

I came across an interesting blog post recently by Joe Manusa, a real estate agent in Florida. Like myself, Joe is rather disappointed at the spin techniques being used to confuse both buyers and sellers in the real estate market, luxury or other wise. The staggering numbers of underwater mortgages and foreclosure properties in the USA is distorting the market considerably. Obviously this varies on location, but one of the issues we face is the amount of bank owned property.

As far as I can ascertain, the US banks currently own somewhere in the region of 22 million residential properties, so if you were wondering where all that lovely bail out money vanished to – now you know – the billions that were not paid out as banker bonuses went to allowing the banks to hold this inventory.

So – we have around 22 million properties being artificially with held from the market. Another factor to consider, and this is the point that Mr Manusa made – is the “shadow inventory,” comprising homes where a seller wishes to sell, but chooses not to do so because their mortgage is under water and large number of homes that fail to sell are simply sitting in the expired listings.

I must admit – I had not considered this aspect before, but combined with the amount of foreclosure properties sitting unsold, this could add up to a substantial problem. According the the Tallahassee MLS, between 72% and 84% of all listings failed to sell throughout 2009. That is a lot of property. The original blog post is here – blog.manusa