The nature of this term seems to have considerable impact on prospective home buyers. The feeling I get is that most people think that there is an exact amount of properties projected to hit the market. THIS IS JUST NOT TRUE!
What does the S & P consider to be “SHADOW INVENTORY”?
S&P includes in the shadow inventory all outstanding properties of which the mortgage payments are 90 or more days delinquent, properties in foreclosure, and properties that are REO (real estate owned is a term used by lending institutions to describe the property in their possession). The agency also includes 70 percent of the loans that became current, or “cured,” from 90-day delinquency within the past 12 months because S&P says these loans are more likely to re-default.
On top of this innocuous group of properties usually represented in a national manner we have the difference between judicial foreclosure states (generally a state that utilizes a mortgage vs. a trust deed) and non-judicial foreclosure states (Arizona is non-judicial). Why is this important you might ask? As of first-quarter 2012, S&P says its months-to-clear estimate in judicial states was almost 2.5x as long as non-judicial states. As an example the New York City metropolitan statistical area (MSA) has the highest months-to-clear in the nation, at 202 months.
So now you have a good Idea of what shadow inventory isn’t. As a Real Estate broker in Scottsdale Arizona the only components which I find meaningful are properties in foreclosure and REO. These are actual properties which can and will reenter the system. The balance of the shadow inventory is not in a shadow it is part of the rolling default process a process which the consumer can cure and many times do! We call these loans in default.
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