There’s a big myth going around about the so called “shadow inventory” What is the “shadow inventory”?
It’s been speculated by some that banks have been holding onto inventory in an effort to restrict supply and increase the demand which leads to higher prices and that there is now a huge supply of homes that will be released into the market.
Research from many expert sources show that it’s just not true.
Professor Michael Orr of the ASU Real Estate Studies Department doesn’t believe that. Right now, there are about 8,800 homes for sale in the Phoenix area, compared with 50,000 in 2008. Many people believe the low number is because banks are holding foreclosed homes off of the market in an effort to drive up Valley home prices.
“I actually keep a file of exactly what houses the banks own and what they’re doing with them,” he said. “When you actually count them out, it’s a relatively trivial amount that they actually own that they haven’t already listed for sale.”
As for banks having a so-called “shadow inventory,” Orr said it’s just not in the cards.
“It’s not possible,” he said. “To own a house, you have to have a deed. A trustee doing the foreclosure writes a deed and records it with the county. You can get those and examine them and see when the bank disposes of the property. It’s not really ‘in the shadows,’ it’s public information.”
Orr said buyers shouldn’t be worried that Valley housing prices will plummet when banks flood the market with foreclosures to sell because it’s not going to happen.
“It’s a bit like the Y2K problem,” he said. “Everyone was really was really scared about that, but when [the year 2000] came around, nothing happened.”
Orr said the same will be true for Valley real estate.
As I interact with many buyers there are quite a few of them who believe the shadow inventory exists and all waiting for this influx of homes. To them I say, Y2K….
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