According to a recent article in Barrons, there is a growing segment of 7.1 million homes in the US’s “shadow inventory” – more than 15 months worth at the current absorption rate of sales. These are homes and condos that are most likely headed for foreclosure – mortgages that are at least 60 days overdue, of which nearly 10% haven’t made a payment in two years.
The shadow inventory is in addition to the actual housing inventory of 3.6 million unsold residential property, more than an 8 month supply. Another 300,000 homes are added to the shadow inventory each month. Unfortunately, programs like Obama’s Making Home Affordable, which has generated more than 630,000 loan modifications so far, has not made much of a dent in this new potential inventory.
What It Means for Nashville
A two year inventory of unsold plus ‘shadow inventory probably means housing prices will continue to not improve by much very soon. Median home sale prices were $158,376 in August 2009. This price is just less than it was in January when the first wave of foreclosures was just hitting our market. I would expect a very similar result during the second wave, which should not be as big as the first.
Sellers: If you absolutely must sell your house, you might have to wait awhile before prices start to improve. If you don’t have to sell, then it might make more sense to stay put.
Buyers: You are in a great position. A second, yet smaller wave, means that there should be a decent amount of extremely desirable homes that can be bought at extremely attractive prices. But, don’t sleep on the good ones because with a smaller wave, there will be less cream and more vultures.
You should also understand that Nashville is not Miami, Phoenix or Las Vegas. Homes cannot be bought for 50 percent of value unless they are falling down and inhabitable. Our market never got that huge value increase and won’t get the huge value decline.