If you listen to the media at all, you probably have heard the term “shadow inventory” when referring to the housing crisis or bank foreclosures. Shadow inventory is a vague term and is often referred to in billions of dollars. What is the shadow inventory?
Investorpedia describes shadow inventory as….
A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell (for owners) and when a local market can expect full recovery. Also, shadow inventory typically causes reported data on housing inventory to understate the actual number of inventory in the market.
Basically, shadow inventory is the total value of all property that banks have foreclosed on and have not yet listed for sale on the market. These properties maybe vacant or still have an occupant living there. The properties often are being maintained by the bank with lawn care, utilities and secured.
Why would a bank want to hold a property without selling it? Most experts agree that shadow inventory is a result of banks not wanting to flood the market with foreclosed homes and as a result lowering prices. Some banks also are looking to hold a property until values rise and they can sell the property for a higher price.
The best way to find homes in the shadow inventory are to watch for homes in your interested areas that are foreclosed but have not yet been listed for sale. Some sites such as Zillow, foreclosure.com and realtytrac.com provide pre-foreclosures in their search results. Sometimes foreclosed homes in the shadow inventory are visually obvious as they have legal posting from the bank in window or other legal notices posted on the home.