The Looming Shadow Inventory May Not Be Too Scary

• August 15, 2012

by Shilpi Paul

Followers of the healing housing market often warn that a looming shadow inventory — foreclosures, or homes about to go into foreclosure, waiting in the wings — will have a downward effect on prices.

Yesterday, the Wall Street Journal’s Nick Timiraos took a close look at the issue of shadow inventory and determined that the impact of those properties may not be as bad as some think.

From the Wall Street Journal:

There are several reasons why the shadow inventory isn’t as scary as it sounds: It’s concentrated in a handful of markets—it isn’t inherently a national phenomenon. It is being offset by improved demand, particularly from investors. And the housing vacancy rate is low, a product of very little new home construction over the past few years that could counterbalance continued high inventories of foreclosed homes.

Last week, The Sarasota Herald-Tribune came to a similar conclusion. Lenders, the newspaper found, are turning to alternatives to foreclosures like short sales or mortgage-to-lease programs that allow underwater homeowners to stay on as renters. Of the foreclosures that do exist, experts interviewed believe that banks will release them onto the market slowly, at a pace that won’t be too disruptive.

Finally, the number of foreclosures, both locally and nationally, appear to be diminishing. Bloomberg recently wrote that the shadow inventory is shrinking across the country, and RealEstate Business Intelligence found a significant drop in foreclosures in the DC area.

Timiraos will be examining the shadow inventory issue in a series of three posts.

This article originally published at http://dc.urbanturf.com/articles/blog/the_looming_shadow_inventory_may_not_be_too_scary/5910