WHAT IS THE SHADOW INVENTORY?
HOW DOES IT IMPACT THE VALUE OF YOUR HOME?
The first time I heard of a “shadow inventory” was in 2008. At a local real estate seminar, a vice president of a major national bank commented that there was no such thing as a shadow inventory. Actually, in 2008, there already was one; big time. This month I want to spend time on the two questions that head this article.
WHAT IS THE SHADOW INVENTORY? The real estate shadow inventory is composed of homes which are owned by banks (called REO’s for real estate owned). These homes are acquired by banks through the foreclosure process. They are almost always vacant. They are called “shadow” because they have not been placed on the real estate market for sale. If banks placed the entire shadow inventory on the active market, the increased supply of homes would devastate current values. In an effort to preserve the value in these REO homes, banks put them up for sale over an extended period of time. As the owner, banks are charged with the responsibility of maintaining the curb appearance of these properties. Some cities actively pursue banks who have allowed these homes to have a distressed appearance.
IS THERE A “SHADOW” SHADOW INVENTORY? Actually, I think there is. These are homes that have been abandoned by their owners who are facing foreclosure. Rather than remaining in the home through the entire foreclosure process, the owner vacates. Usually, the fronts of these homes appear to be in a very distressed state. Although cities try to hunt down the real owners and force them to maintain their properties, this is often very difficult to do.
HOW DOES THE LOCAL SHADOW INVENTORY IN OUR AREA COMPARE TO OTHER AREAS? Here is some good news! A recent SF Federal Reserve report was very encouraging for our area. Shadow inventory is currently the lowest in the western part of theU.S. which includesNevada,California,Utah andWashington. The lone exception at this time isOregon. The northeastU.S. has the biggest shadow inventory right now. This includesNew Jersey (big problem!),New York,Pennsylvania,Maine,Connecticut, andMaryland. In another study by CoreLogic, it is estimated that our area will clear the shadow inventory in 2-3 years. Many areas in the eastern part of theU.S. will need 6-10 years to clear inventory. To give you a feel for numbers, right now there are about 194 homes in the shadow inventory inConcord. In surrounding communities,Martinez has 51 whilePittsburg has 92. Regarding the potential “shadow” shadow inventory, there are 286 owners inConcord in the foreclosure process.
HOW DOES THE SHADOW INVENTORY IMPACT THE VALUE OF YOUR HOME? The shadow inventory can impact the value of your home in several ways. If the banks do not adequately maintain and secure these homes, they become a blight on the neighborhood. The distressed appearance usually includes a dead front yard strewn with garbage, broken windows and peeling paint. These homes are prime targets for home invaders. These invaders may live in the home while stripping it of any anything of value. You’ve probably seen this type of home in your neighborhood. Buyers also see these homes. It creates a stigma which often results in lower values for the entire area. A second problem is the significant future supply of homes for sale. In a relatively pure supply-demand market, increased supply means lower prices. Right now, the supply of homes for sale is very low throughout our area. As banks continue to bring on more REO properties to the market, the value of all homes will be reduced.
In summary, the shadow inventory is real and it will continue to impact the local real estate market. The good news is that the impact will be relatively short compared to other parts of theU.S. Based on the current size of the local current shadow inventory, we seem to be moving toward a better, more traditional market at this time.
In Concord if you see a property that appears to be distressed and abandoned, contact the city at email@example.com or the 24 hour hot line 925-671-3282.