While we keep hearing references to a mysterious and uncounted inventory of homes, the important question is: Will the shadow inventory affect the housing recovery? The answer is: Maybe. As most have discovered, this recession is anything but predictable, and forecasts from the experts regularly miss their mark.
Most of those experts, however, have expressed concern about how the so-called shadow inventory might impede a housing recovery. The difficulty lies in getting a handle on the actual numbers.
There are 3 groups of homes in this category:
• Bank owned homes which are not yet on the market. Some estimates place this number as high as 750,000, and there are approximately 2 million additional foreclosures in process.
• Those homes whose owners would like to sell, but who have been discouraged by declining prices and who awaiting signs of recovery. A recent Zillow Survey showed that a third of all homeowners were at least “somewhat likely” to put their home on the market if they saw signs of improving sales; and 20% of that group were “likely to very likely.”
• Those homes recently purchased by investors and who plan to “flip” them whenever possible. While many investors had planned to rent their homes on a temporary basis, the vacancy rate for rental units increased to 10.6% in the second quarter, the highest on record. And the glut of rental units has made it more difficult to rent for an acceptable price. Some investors, discouraged by the lack of rental income are returning their homes to the market to avoid losses.
What these numbers reflect is a large pool of potential homes for sale, and while there is disagreement on the actual number, it could easily reach 5 million or more. The effect of the shadow inventory upon the market will be to suppress home values for an extended time; and many experts predict home prices to continue their decline into next year. Those who plan to sell their homes should consider doing so now, for there appears little hope for any significant increase in home prices in the foreseeable future.
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