Real estate pundits love to throw around the term “shadow inventory“. The doomsayers theorize that banks are holding onto an abundance of foreclosed inventory and are not releasing it for sale. The reason is that with a housing recovery underway a sudden deluge of foreclosed homes would saturate the market resulting in the basic economic principal of supply and demand. More supply less demand, lower prices. Homebuyers would then sense the blood in the water and flock to these get them while they last bargains, making it much more difficult for equity sellers to achieve their selling price and once again the fragile recovery is destined to fail. Hello Deja Vu!

The number of Pasadena homes in foreclosure has been staying constant at close to 650 units for the last several months. So, what does this really mean? Are homeowners more likely to make their mortgage payments now than they were this time last year? Are modification efforts taking place which are keeping homeowners in their homes ultimately delaying the inevitable? Is there now so much government intervention in a process that used to take close to 4 months, now taking up to 2 years? This reminds me of some of my college friends who managed to squeeze 4 years into 6.

I can give you my opinion based solely upon my experience and empirical data I have collected. I have actually had the opportunity to meet with some people in the foreclosure process in an attempt to consult with them about their options. For the most part there doesn’t seem to be a real concern the bank will kick them out and foreclosure on their home. If here is, its not visible to me. The wave of short sales that have been predicted hasn’t seem to materialize yet, at least here in Pasadena. To add a little proof to what I just said, in the week of June 7th, there were 29 homes scheduled for auction. There was 1 recorded foreclosure. From what I have observed is that many of these homes are just postponed until next month. How high is the water mama, two feet high and rising.

Pasadena’s Homes For Sale, Now and Then

I read an article he other day where someone cited the rising number of homes for sale along with the high amount of shadow inventory as evidence the housing market was slowing. Since i have already addressed the number of homes with Notices of Default in Pasadena has been fairly constant, I decided to look at the current number of homes for sale. Included in this number were single family, condos and townhomes. I looked at the boom years through the end of the cycle which occurred in mid 2006.

The number of months supply is determined by dividing the number of homes available for sale by the number of homes sold in the previous month. Based upon the current rates of sale we see the inventory numbers are almost identical for May ‘06 compared to May ‘10.

This is a very impressive statistic considering the availability of mortgage money has been severely curtailed compared to the free and easy policy of years past when all that was required was to turn your head and cough.

The other similarity worth noting is inventory begins to build in January and February as these months can typically be the slowest months for home sales. It happened in 2006 and again in 2010. My bet is that it will repeat once more in 2011. Oh yea, as far as the free beer tomorrow goes, that was a sign in a roadside hamburger stand in Houston Texas back in the mid 80’s. Remember Houston? They had their own issues with the oil patch and a crashing real estate market.

Tags: IS shadow inventory a threat to the housing markets recovery?, The number of homes for sale determines the health of the housing market, What is shadow inventory