Shining Light on the Shadow

Yesterday I read an article in the Denver Post which lead with, “Colorado could be facing new wave of foreclosures”, intimating a pending flood of the so-called “Shadow Inventory”. “Could” […]

June 26, 2012 // Tracy Shaffer // No Comments //

Yesterday I read an article in the Denver Post which lead with, “Colorado could be facing new wave of foreclosures”, intimating a pending flood of the so-called “Shadow Inventory”. “Could” being the operative word.
First, let’s define this Shadow Inventory: the number of properties that are either REO or 90+ days late on their mortgage in a given area.
If the inventory is REO (real estate speak for bank-owned), that troubled property could be:
• Actively on the market and available for purchase today
• On the market but under contract
• Part of the Shadow Inventory that has yet to hit the market but has to be sold eventually
If it is a consumer-owned property, the property could be:
• Actively on the market, available for purchase (as a short sale or regular sale)
• Under contract or pending bank approval of short sale terms
• Not on the market – but likely to get a loan modification
• Not on the market – but likely to be sold as a regular sale or short sale soon, in an orderly way
• Not on the market –the owner is in denial, and the home will eventually become a foreclosure. This is still part of the Shadow Inventory that may hit the market someday.
Now let’s look at the Denver metro area based on three key data points:
1. According to NAR, Denver has had the highest average home appreciation gain of any of the 30 largest cities in the U.S. in the past 3 years, at $29,900. The average gain (loss, actually) of the largest 30 cities is -$18,400. Just for kicks, the worst performing city is Las Vegas, at -$59,900.
2. Because Denver’s home prices didn’t appreciate as much during the bubble and began the correction before most markets, Denver has already processed the majority of its REO inventory. According to NAR, metro Denver has only 9,740 homes currently owned by banks. Only San Antonio and Kansas City have smaller REO inventories. Miami has the largest REO inventory with 159,000 properties.
3. Denver has the second fewest number of 90+ days late residential mortgages of the top 30 cities in the country at 29,000, again according to NAR. Chicago has 284,000 and Miami has 124,000 90+ days late mortgages respectively.
Looking at it from a data, rather than a hypothetical standpoint, though there is certainly Shadow Inventory in our market, Denver Metro does not have a large Shadow Inventory PROBLEM. Why? Because we have relatively very little Shadow Inventory in our market. Even if, on the extremely slim chance that a large portion of that inventory suddenly, magically descended upon us in a short period of time, we have such a low level of inventory it would actually help not hurt us!
Five years ago when we had 27,000 properties on the market a huge influx of inventory would have been a problem. Today, with an inventory of only 10,000 active properties, a dump of 8,000 more would only get us back to 2010 inventory levels. As a matter of fact, Charlotte, we need this inventory to sell!
Thank you to Lon Welsh and Charles Roberts, Managing Brokers at YOUR CASTLE REAL ESTATE, for their continued diligence at providing accurate statistics for the Denver real estate market.


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