Shadow Inventory

Shadow inventory is the phrase we use to describe the distressed properties that have not yet hit the market.  In other words, properties that will most likely become short sales or, more likely, bank owned foreclosure sales.  Many of these properties currently have had notices of default filed against them.  Others are in a state of limbo as they process past the point of default and transfer into the control of the bank. The process can take a long time.  There is a considerable lag between when a property goes into default and when it actually becomes available for sale.

The point is, these properties are “waiting in the wings” to become tomorrows distressed and bank owned inventory.  Based on the notices of defaults we are seeing in the Sun Valley market, the shadow inventory should continue for some time.  For example in January, 31 new notices of default were filed in Blaine County.  14 properties went back to the bank.  These numbers have been pretty consistent over the last year. Project these numbers out and I think we are looking at several years worth of shadow inventory just lurking around the corner.

Plus, the banks don’t necessarily want to put every property they control back on the market at once for obvious reasons.  It would flood the market and further drive prices down.  They would rather have the properties trickle onto the market at an even pace.

So, the shadow inventory will continue for a while.  Will it continue to drive prices down?  I think we have reached the tipping point.  The point where buyers have realized the market has shown all its going to show.  And the time to jump back in is now..before someone else jumps first.