The Fiscal Cliff is casting a Shadow (Inventory)...

In real estate. shadow inventory refers to the inventory of homes not yet for sale that will eventually come on the market sometime in the near future. Although most people believe shadow inventory to be the group of distressed homes in some phase of foreclosure, shadow inventory actually includes three categories of homes: 1. Properties already foreclosed on, but not yet on the market for sale 2. Houses currently in the foreclosure process 3. Properties where the homeowners are at least 90 days delinquent on their mortgage payment Because of the number of lenders and the numerous homeowners, the exact total of homes in the shadow inventory is an ever changing number. Studies indicate that 95 percent of those homeowners who fall 90 days behind on their mortgage obligation never catch up and their home eventually comes on the market as a short sale or foreclosure. Those who catch up on their mortgage payments are referred to as the “cure rate.” From 2000-2006, the cure rate was 45 percent, while from 2007 to the present, the cure rate is less than 5 percent. As shadow inventory comes on the market, the total supply (inventory) of homes increases. The increase of shadow inventory homes, however, does not result in an increase in more equity home listings, but an increase in distressed property listings (REOs, short sales, foreclosures) that typically will force the price of existing home listings downward. However, recently, the lenders have been pricing their short sales and foreclosures at market value and are attempting to drive pricing up. We are not certain at this time if lenders are holding back on releasing their foreclosed properties on to the market because they are waiting to hear the results of the new government budget plans. We do know that several important real estate issues are certain to be addressed in the new year. One issue is the tax credit for mortgage interest and the other is the tax on the deficiencies in short sales and foreclosures. Both issues will affect the number of homes sold in 2013 and the future. To see a list of houses that have foreclosed and are currently for sale, visit my website at www.MaryDrefs.com and search on Homes for Sale.