Shadow Inventory…What Is it?? Part 1 of 3

Will The Shadow Inventory Help The Real Estate Market In Knoxville??

Will It Increase Short Sales In Knoxville??

The real estate market in Knoxville seem to be improving somewhat??  But there is something out there that could increase Knoxville Loan Modifications as well as the number of  Knoxville Short Sales.  It is what is known as the “Shadow Inventory”? What is it? How will effect the Knoxville real estate market and markets around the country. Will there be more short sales in Knoxville and around the country. These are the things we will explore in this  3 part series.

In recent months, aspects of the real estate market have seem to have stabilized. Homes sales and prices have been increasing, partially to be credited to the First Time Home Buyer’s Tax Credit that ended on April 30, 2010.

Still, interest rates and foreclosures have been increasing. And, we’ve been hearing more and more about the term “shadow inventory” in the news and what kinds of problems it could bring to to the real-estate market.  So, what’s the prognosis for the real estate market? And, how does the term “shadow inventory” factor in?

The definition of shadow inventory varies from person to person and how far ahead in the future that person is looking. And with the varying of definitions, comes a great variation in the ultimate level of desctruction that it will cause to the already fragile real-estate market.

According to recent studies from, Amherst and the National Association of Realtors (done by economist Selma Lewis), the devastation of shadow inventory that could hit the market is anywhere from 2.49 million homes, as predicted by NAR, to 7.57 homes, as predicted by Amherst.

To anyone with interests in the real estate market, these numbers could have crucial impacts on the market for years to come.  If this number of houses does get on the market like many experts are predicting, it would cause a huge inventory of houses to hit the market causing already low home prices to become much, much lower.

The definition of shadow inventory has evolved greatly.  To clear things up, here are a few different definitions:

Definition 1: All properties that are real-estate owned (REO) — that is, homes that are repossessed by lenders, but not yet on the market.

Definition 2: Homes that are REO, homes that are seriously delinquent on payments and likely to be entering into the foreclosure process, or homes that are entered into the foreclosure process.

According to the Mortage Bankers Association’s last National Delinquency Survey, in the fourth quarter of 2009, there were 7.33 million loans that were delinquent or in foreclosure.  This fact could possibly suggest that lender’s are playing a game of “extend and pretend” – meaning that they are delaying the inevitable of homes going into the foreclosure process.  Data from the Loan Processing Services (LPS) seems to support this idea, at the end of February 2010, there were 6.89 million homes that were delinquent and only 1.79 million of those were in the foreclosure process. Data from LPS also shows that in 2008-2009, loans that were 30-60 days late remained relatively stable, but loans that were “seriously delinquent” or 90+ days late were increasing rapidly.

Despite these dismal predictions though, there is some silver lining: not all of these properties will end up on the real estate market, some will be cured by Knoxville  loan modifications, Knoxville short sales or refinances.  Another huge influence on how the influx of properties will affect the market depends on when and how quickly these properties enter onto the market. If the hit the market gradually, they could ultimately just be absorbed without much effect on the market by pent-up demand and growth in housing formation.

Though, definitions and statistics on shadow inventory vary there, is one thing that can be agreed upon: there are many houses currently in limbo.  What is left to be said, is when and how many of these houses will hit the market and predicting these facts is about as easy as trying to predict the weather.

If you are a Knoxville homeowner having problems making you mortgage payments and want to know your options. Please feel free to download my free reports

You do have options as a Knoxville homeowner who may be facing foreclosure. Don’t let your home go to foreclosure call me at 865-675-8326 or email me let’s setup a time to talk about your situation and talk about your options. I’m here to help you as a trained Realtor with the CDPE designation I can help you…