Homes in the Shadow of a New Housing Economy


For over half a decade, housing industry experts have noted concerns over “shadow inventory” and how this could pose challenges to any housing recovery. Shadow inventory is defined as the number of homes that have seriously delinquent mortgages or have been foreclosed on but have been kept off the market. Lenders and servicers are still trying to get rid of the REO backlogs and the questions remain about why the homes are kept off the market. The general response from banks is to keep home prices from falling dramatically. Others have speculated the reasons for the shadow inventory are motivated by political considerations.

The amount of shadow inventory prior to the recession was a little below 500,000 units.  Michael Gapen, Chief U.S. Economist for Barclays Capital, wrote in his 2014-2015 US Housing Market Outlook, “As of December 2013, we estimate that there were about 2.3 million housing units in shadow inventory, down from 2.9 million units in December 2012, Falling shadow inventory, along with lean inventories of existing and new homes, supports a better pricing and building environment,” continued Gapen.  “In other words, despite remaining elevated relative to any previous historical episode, excess housing inventory now casts a smaller shadow over the housing market and our forecast calls for that shadow to diminish further.”

CoreLogic’s latest estimate is 1.7 million units of shadow inventory properties; they consider this the lowest number since late August 2008. While the numbers of shadow inventory are trending downward, there’s another piece to the story.

CoreLogic’s Chief Economist, Mark Fleming, said that the whole story isn’t told using the traditional view of shadow inventory. He looks at the shadow inventory/ housing recovery dynamic in two ways. In a CoreLogic Insights writing titled “The Rise of Housing Obsolescence and Shadow Demand”, Fleming notes the declining sales of new and existing homes in March 2014 compared to a year earlier and the greater drop in purchase mortgage applications.

Fleming agrees with National Association of Realtors (NAR) Chief Economist Lawrence Yun who always cites low inventory as one cause of slow sales and faster than normal price increases. Fleming says that the number of existing homes for sale is close to the amount for sale in the earlier part of the last decade, “There are even fewer homes for sale that do not suffer from housing obsolescence – properties that are no longer desirable because their characteristics do not match what buyers are looking for in a home.”

These homes are located in areas that are no longer popular, or they don’t have the amenities that buyers want.  This decreases the amount of homes buyers actually want, adding to the shadow inventory. The buyers that are waiting on a home selling with the desirable parameters are the “shadow demand”.

What do you think the solution is in reducing shadow inventory? Do you think that a part of this is politically motivated or that buyers are waiting on a desirable home?


Business Insider. “Remember The Housing Market ‘Shadow Inventory’ That Had Everyone Completely Freaked Out?” 17 June 2014.

Mortgage News Daily. “Giving New Meaning to Shadow Inventory” 17 June 2014.

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