Shadow Inventory; no, we aren't counting your shadows

If you listen to media on the real estate market, especially the distressed part of the market that includes short sales and foreclosures, you'll probably hear the phrase "shadow inventory".  Shadow inventory means all the properties not currently on the market that are expected to come on soon.

 These properties are being held off the market until the market improves or other conditions change.  Such properties can be those that are eligible for foreclosure, but lenders are worried about the pitfalls of foreclosing or don't want to hold too many properties in inventory, (remember, it costs lenders money to hold houses while they prepare them for sale).   While statisticians can identify properties not yet delinquent, but likely to become so, these are not included in estimates of shadow inventory.  Also not included are properties being held off the market by individuals waiting for the market to improve; retirees wanting to sell the family home in favor of a smaller place, owners that became involuntary landlords when they were unable to sell, but had to move, landlords ready to convert their properties to cash and so on.

CoreLogic is a data and analytics company that tracks shadow inventory of residential properties.  CoreLogic's recent report  shows a slight decline from July 2010 ( 1.9 million units) to July 2011 (1.6 million units).  This is is big decline of 22% from the peak in January of 2010.  These units are broken down into three categories; seriously delinquent, in some stage of foreclosure, and those already foreclosed on but not yet on the market. 

CoreLogic estimates " the aggregate current mortgage debt outstanding of the shadow inventory was $336 billion in July 2011, down 18 percent from $411 billion a year ago".  Holy Cow, $336 billion in outstanding mortgage debt?!  No wonder Bank of America is looking to their debit cards as a profit center.  And while it is great that these numbers are down from last year, there are still 1.6 million (!) properties tumbling toward foreclosure.  Set aside the sterilization and depersonalization of calling these "units" instead of "homes", and you've got 1.6 million folks about to be out of a home.  :(

I am an optimist though; glass half full and all that.  So I take solace in the improving numbers as an indication that things may be improving, if ever so slowly.