Shining Light on Tucson’s Shadow Inventory

SHADOW INVENTORY, Shadow Inventory, shadow inventory

Those words are tossed around as if this were the plague descending.

Like this title from an October 28 article:
Over 2,000 distressed homes lurking in Tucson’s shadow inventory

See how ominous it sounds to have these homes lurking.

“For the second consecutive month, lenders and banks owned more than 2,000 homes in the Tucson region that have not yet been listed for sale. These pre-market real estate owned (REO) homes, referred to as “shadow inventory,” are up 35 percent since January.”

This is a significant number of homes. But is it a tsunami that will suddenly overwhelm the Tucson real estate market? NO!

Shadow Inventory in Tucson Nothing to Fear

Here are a couple of reasons why we don’t need to fear the Shadow Inventory.

First, Our current number of active listings for October 2011 in Tucson was 5,290 properties. If we added 2,000 to that total we would have 7,290. Looking back at October of 2010 we had 7,412 active listings. Just last year we had 2,000 more than we have right now. Does it matter that these 2,000 would be all REO homes? Not at all. The Banks aren’t dumping, dumps on the market like they did a few years ago. They finally realized they needed to fix up these foreclosures. If they didn’t they would find getting comps for a future sale difficult because those “as is” sales are included in the appraisal for comparable properties.

So we don’t have dumps being dumped on the market and the Banks have learned that you drip properties onto the market, you don’t dump them.

Going back even further we find that in 2007 we had an active inventory of more than 10,000 properties. There is room for more active listings in the market.

Shadow Inventory Drip on the Market

Second, as already mentioned, the Banks aren’t putting homes on the market that have the wiring ripped out and the plumbing fixtures all broken and drains filled with concrete. (There are still a few, but they are now the exception) Around 50% of monthly contracts are either REO or Short Sales we know a significant part of the inventory is already Bank owned. Home prices have become more affordable, but is there anything to “dread” in the shadow inventory? Again, NO!

Two Thousand New Listings in a month

Would 2,000 new listings sink the Tucson real estate market? Looking back to 2010. January, February, March and April all had over 2,000 new listings EACH MONTH! Remember? Of course you don’t remember, was it cataclysmic. Nope, business as usual. Even in January of 2011 we almost had 2,000 new listings. This is not a big deal either.

Does the shadow inventory exist? Sure it does.

But is there a reason to be afraid of the shadow . . .