Housing isn’t close to stabilizing

BRIDGEPORT, Conn. (MarketWatch) — Much has been written about the so-called “shadow inventory” since the term was first coined a few years ago.

Some analysts and commentators have argued about whether it even exists. Let’s take an in-depth look at this shadow inventory and see whether it really is a threat to housing markets around the country.

Shadow inventory defined

Rather than joining the dispute about what the term actually means, I’ll simply define it in this way: The “Shadow Inventory” is comprised of all those distressed residential properties (other than MLS listings) which we know will almost certainly be coming onto the market in the not-too-distant future.

MLS foreclosures — the tip of the iceberg

The starting point in discussing the shadow inventory has to be homes actually on MLS listings around the country. With the plunge in home sales starting in July, the number of listings has risen substantially since the spring. For example, California listings are up 25% since April.

The percentage of total listings that are bank-owned properties has declined over the last year, while the percentage of short-sale listings has risen tremendously during the same period. For example, short sales comprised 40% of all active listings in Sacramento County in August. The following table from data supplied by ZipRealty shows this soaring number of short-sale listings.

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