What is Shadow Inventory & How Will it Affect Me if I’m Buying/Selling Now?

… IMPORTANT INFORMATION

FROM YOUR REALTORS®

SPENCER & EHLING Realtors®

925.250.0399 (JANICE) OR 925.381.3224 (CINDY)

www.JaniceSpencer.com Www.learn2ownit.com

Recently the San Francisco Chronicle ran a story about

Shadow Inventory citing statistics from Realty Trac, a source

that follows foreclosures from the filing of a notice of default to

the property being repossessed by the bank or investor. The

story warned of a tsunami sized wave of foreclosure inventory

that could hit the market and any time and cause dramatic drops

in property values because of the resulting glut of standing

inventory on the market.

The Chronicle is not alone in sounding the warning alarm

for this impending flood of inventory. Asset Managers have

been telling REO Agents for months to get ready to be swamped

with new REO Listings that will need to be put on the market

quickly. And Freddie Mac and Fannie Mae are said to be

preparing to release over 200,000 foreclosed homes nationwide.

Windermere Signature CollectionWindermere Signature CollectionWindermere Signature CollectionWindermere Signature Collection 5119 Lone Tree Way5119 Lone Tree Way5119 Lone Tree Way5119 Lone Tree Way Antioch, CA 94531Antioch, CA 94531Antioch, CA 94531Antioch, CA 94531 925925925925----250250250250----0399039903990399

Article courtesy of Janice SpencerArticle courtesy of Janice Spencer

The result of these reports is a mini-panic among Buyers who are growing concerned

that perhaps they should wait to purchase until after the flood has hit and prices have taken

another dump. The problem I have with all of this is the complete lack of context for all of

this statistical information and what it means for our market place. So please allow me to

help set the record straight and give you some reason to stay calm amidst the so called

“News” of the day.

First, the shadow inventory theory springs from the disparity in numbers of properties

being repossessed by banks and the numbers of REOs recorded as “sold” on Multiple

Listing Services across the state. While there is a gap, the reports fail to take into account

the fact that many REO properties are being sold through auction companies and are never

posted to the Multiple Listing Services.

Second, the moratorium on foreclosures has actually trigged a shortage if inventory in

our area. When prices started falling a few years ago, we had 18-22 months of unsold

inventory in most of the cities in East Contra Costa County. Today we have an average of 2-

5 months of unsold inventory. This is NOT a Buyers Market any longer. In fact, right now

the buyer activity is so strong that almost every property priced at market value in

decent condition receives multiple offers within the first few days of being listed. Even

short sale listings which had been shunned by real estate agents for the most part

because they typically have had such a low rate of success are now receiving multiple

offers because they are the only listings left to show to buyers.

Our local cities could absorb anywhere from 200-500 listings right now without it

triggering another Buyer’s Market. For example, at the writing of this article, Antioch

had 393 active listings, while at the height of the standing inventory in 2008, Antioch

had more than 2000 properties for sale. With 253 recorded sales in Antioch for the

month of March, the absorption rate is only about a month and a half. That means that

Antioch could add 1000 new listings tomorrow and it would still only have an

absorption rate of just over 5 months (still not enough to turn it back to a Buyer’s

Market).

So what does this mean for you if you are thinking of Buying or Selling a home in

the next several months? Do you need to worry that prices will begin another dramatic

decline because of a flood of inventory? Can you expect to find a lot of competition if

you must list your home as a short sale? Can you expect to find a large number of homes

to view and offer on without concern that you’ll have to deal with competing offers?

The short answer to all of the above is, “Probably not!” While we will see increases in

inventory in the coming months, I don’t believe they will be at significant enough levels

to trigger big slides in values. If the Buyer activity is sustained at the same levels of the

last three months, the market will continue to stabilize and prices will start to firm up

well in the next six to nine months.

One big question that looms has to do with how the Homeowner Stability and

Affordability Act will help avoid many future foreclosures, and the answer to that

question right now also appears to be a “Probably not!” If you have questions about

Buying, Selling, or Modifying your current home loan in today’s market, please contact

us for a complementary and confidential consultation. We’re here to help.

Janice Spencer 925.250.0399

Cindy Ehling 925.381.3224

Leading the Way continued…..

5119 Lone Tree Way, Antioch, CA 94531

www.janicespencer.com