How scary is San Diego's shadow inventory?

Twisty tenement
Creative Commons License photo credit: photojenni

Shadow inventory – We’ve all heard the term, a term which conjures visions of dark alleys, trench coats and impending doom.

Shadow inventory refers to the upstream supply of foreclosure and pre-foreclosure properties sitting stagnant in the pipeline until and if the lenders decide to turn on the faucet. The fear of course is that a large supply of fire sale priced homes will flood the market, putting out any flame in a housing market doing its best to recover.

OK, I pretty well bludgeoned that metaphor. The Voice of San Diego’s Rich Toscano penned (clicked?) an article this morning on the subject. The bottom line, he writes, is that more homes went into foreclosure this month than sold, although the spread is getting slightly better.  The question is, for how long?

I’m a big fan of the stats, but I am also a big fan of the gut check. My gut tells me we would be wise to have our raincoats on hand. Or a really good plumber. (I just can’t let a good metaphor die peacefully.)

Steve has been on the intergalactic search of late for a condo for clients who are “in the price range most likely to be overrun by short sales and lender owners.” His clients are very easy to work with; their requirements are few. In fact, their only requirements are that they can afford the property and that the homeowners association allow them to bring their 45-pound dog. Simple – not.

In response to his email query about the pet policies on one contender, Steve received this.

“I wish I had the answer for you. I was handed 20 listings on Friday to input and will go in tommorrow (sic) and be handed more. With the sheer volume we’re doing, there is no way to really get any thourough (sic) information… If the MLS says there are petrestrictions (sic), then I saw that in previous listings from the complex.”

One’s first reaction could be, not about the volume of bank-owned offerings this agent is handling, but about his or anyone’s ability to really represent the client under these circumstances. (In fact, “one” might be me.) But, in the agent’s defense, he responded within a couple of hours on a Sunday night, so I know he is trying. Instead, this is a reminder that foreclosures continue to haunt us. There can be no real return to normalcy until we flush through this shadow inventory, and it is anyone’s guess how soon that will be or how much is still coming.

According to Mr. Toscano:

While sales volume may be healthy, shadow inventory continues to mount…  What’s still unclear is when — or even if — the bulk of this inventory will come out of the shadows. The rumors and speculations are all over the map: that the foreclosures are about to be dumped onto the market en masse, that they will never hit the market at all, and everything in between. The entire topic is quite murky, at least to me. But the concept of shadow inventory remains very much on the radar screen, and it will continue to do so until the numbers… approach normalcy once again.

My gut tells me we should be keeping our eyes on that tap.

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