There will be no recovery until the shadow inventory is cleared out. This backlog of properties hangs over any sustainable housing recovery like a dark cloud overhead. Many of these properties are still priced at values too high simply to inflate bank balance sheets. The problem is apparent although not transparent. If these homes could fetch breakeven prices in the market they would have already been sold by banks. However with the prospect of a decade of stagnant home prices moving forward because of stunted wage growth many banks are starting to leak out some of this inventory onto the market. They were able to stomach 2 to 3 years of non-payments but 4 or 5 years? Bank of America plans to unload a sizeable amount of shadow inventory through a three year process. So where do things stand today? Is the shadow inventory really decreasing at a sizeable rate? Let us take a look at the current figures.
According to recent information 3,490,000 homes are listed for sale that are non-distressed previously owned homes. This is part of the “healthy” market if we can even label it that way. Yet as you can see from the chart above, we have another 1,800,000 properties that are in some stage of foreclosure or have the stigma of being 90 days behind on payments. What is more disturbing is that this doesn’t capture the entire potential future pipeline of problem properties:
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