SHADOW INVENTORY Courtesy of WAVE – The ARMLS Magazine Aug/Sept 2011
A look at lender owned sales and lender owned listings does not tell the full distressed property story, because there are still properties not on the market lurking in the shadows.
Since the onset of the Great Recession, shadow inventory has cast a pall of fear over an already troubled market. A shadow, like its namesake inventory, morphs to appear greater than its physical counterpart. Because shadow inventory is unseen, it remains ill- defined and a source of angst.
The shadow inventory label itself is continually reinvented. Some define the shadow as properties whose mortgages are at some stage of delinquency or foreclosure and have not hit the market. Others, such as Standard & Poor’s, only include loans that were packaged and sold as securities by Wall Street, and do not have a guarantee from government-sponsored entities such as Fannie Mae or Freddie Mac .1 Corelogic estimates current shadow inventory by calculating the number of distressed properties not listed on multiple listing services that are either a minimum of 90-days delinquent, in foreclo-sure or in real estate-owned status.2 Others include properties with negative equity mortgages, i.e., that are “upside down,” reasoning that those mortgages have a high likelihood of foreclosure eventually. The variations are vast, and com-plicate estimations of the shadow inventory’s size.
The purest definition of shadow inventory begins with trustee deeds, where the trustee has taken back the property from the original borrower. It then subtracts trustee deeds purchased by a third party before the property is acquired by the lender. The remainder is acquired by a lender, and those properties are either listed for sale, or held in inventory for an indefinite period. (Figure 1 depicts trustee deeds acquired monthly for the Valley, third party sales and trustee deeds acquired by lenders since 2009.)
The difference between what the lender acquires and what is listed, plus any accumulated lender retained inventory, is the shadow inventory in the truest sense. The Cromford Report indicates that the Valley’s residential shadow inventory has remained relatively steady in the 8,000 range since well before November, 2010. In Figure 2, the monthly additions to shadow inventory sits in the spread between the blue line, representing the trustee deeds acquired by lenders, and the green line, representing lender and HUD listings.
Comparing disparate estimates of shadow inventory becomes problematic unless there is a uniform definition used by all. In the broadest and most pessimistic sense, any property in distress sits in the shadow and could wend its way into the market. Lenders, though, prefer not to be in the property liquidation business. Thus all inventory they acquire will eventually be added to the market and influence the supply and demand balance. The good news is that trustee deeds acquired by lenders are trending downward and at some point all of this property will come out of the shadow and be absorbed. (Figure 3 shows Lender Sales compared to the Lender Trustee Deed and Lender Listings.)
2 http://www.housingwire.com/2011/06/22/corelogic-puts-shadow-inventory-at-1-7-million-units
Figure 1-3 – Data Source: The Cromford Report
Tags: Arizona properties not on the market yet, Distressed Properties in Arizona, Fannie Mae and Freddie Mac homes for Sale in Arizona, foreclosure properties in Arizna, lender acquired properties for sale in Arizona, lender owned properties for sale in Arizona
Avg. Sales Price: 379,000
Free Market Alerts 
