Shadow Inventory

You may have heard that the “shadow inventory” is going to destroy our market.  Just what is this shadow inventory?  How does it affect the real estate market and the economy in general?  Do we really need to be alarmed?  All very good questions; and for the answers look no further…we will try to dispel the myths right here! 

First of all, just what is the “shadow Inventory”?  This term refers to homes that the bank has not yet foreclosed upon but foreclosure is the expected outcome.  This group includes homes where foreclosure proceedings may have started (have received a NOD or Notice of Default), as well as homes where payments are not being made (for whatever reason) but have not yet been filed upon. 

Secondly, how does it affect the Real Estate market?  Real Estate pricing works just like any other marketable item.  The value is what someone is willing to pay for it.  The term “supply and demand” applies to property as well as any item sold in the open market.  If there is more of something (supply) than there is a need for it (demand) the price goes down. 

We must also consider desirability.  The harder something is to obtain, the more we value it over that which is readily available, even if the two are otherwise comparable.  However, the mare existence of something does not mean that it is available.  Example: if I own 10 of something and you want one, the supply is higher than the demand.  But, if I refuse to sell the item you want the value goes up. 

How does this come into play in real estate?  And how is it affecting us locally?  Stay tuned for part II to be posted later this week.


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