Categorized | Residential

Weighing the Impact of Shadow Inventory on the Housing Market

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For the past six months, economists and housing market analysts have talked about the potential recovery in the housing market. Initially, many believed that 2012 would be the year that the housing market recovered. As more data surfaced, economists and analysts changed their outlook, and believed that the recovery was more likely to come about in 2013.

 

The residential real estate numbers from February led some to believe that, perhaps, the housing market recovery would come sooner than initially expected. The number of foreclosures was down, and more new homes were being built. Residential property prices actually started to increase.

 

However, prices have once again started to fall, as a large number of foreclosures are expected to, once again, hit the market. The number of foreclosures had originally fallen as lenders worked out the robosigning settlement. Now that the settlement has been established, more than one million foreclosures are set to hit the market.

 

While the news of more foreclosures is certainly good for buyers, it is not good for the market as a whole. The anticipated foreclosures, which are known as shadow inventory, will drive prices to lower levels.

 

It is the shadow inventory that continues to hold back any kind of true recovery in the housing market. As long as people anticipate that more foreclosures will hit the market, they will delay their decision to buy a home. Furthermore, prices will remain low, as sellers will not be able to compete with the deals that buyers can get from the foreclosure market.

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About Josh Johnson

Josh is the main writer for the Residential category. He also helps out on other categories when needed, mainly the International section.

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