Officially, there are 3.5 million homes for sale nationwide. But there are millions more lurking in the shadows — hidden neatly away on banks’ balance sheets, stalled in foreclosure court proceedings, or simply occupied by nonpaying owners as lenders wait months or years before taking action.
The housing market’s ballooning shadow inventory — buoyed by a yearlong foreclosure slowdown — stands as its most menacing problem, threatening to stifle recovery for several years.
And South Florida, with some 200,000 homes either already owned by lenders or headed for foreclosure, has one of the nation’s largest collections of unseen inventory. The number of shadow homes dwarfs the 30,000 or so that are listed on the active market. Even as prices have shown signs of stability this year, an impending wave of foreclosures threatens to keep real estate values deflated in South Florida and across the country.
“A lot of people don’t understand how much inventory is set to come online in the next 18 to 24 months,” said Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach. “When you compare what the Realtors show is inventory to what’s out there, you realize we have a long way to go.”
A Miami Herald analysis of four years of foreclosure data and thousands of property records found record -high levels of shadow inventory in several housing markets across the nation.
Though these shadow properties are routinely left out of monthly reports by real estate trade groups, their influence on home values has grown sharply in recent years.
In the supply-and-demand reliant real estate market, the national supply of homes is officially listed at about 3.5 million, or nine months’ worth of homes (home sales are on track to reach about five million this year). But once shadow inventory is added, that supply more than doubles, to at least 7.5 million. A healthy housing market has about six months’ supply of properties, which would be about 2.4 million.
The wave of homes set to hit the market in the coming years consists of discounted distressed properties, which tend to drag down neighborhood values.
Economists insist that the housing industry will not normalize and recover until most of the foreclosures work their way through the system — a process that will likely last several more years.
Shadow inventory can be broken into three categories:
• Properties lenders have repossessed, but have not put up for sale. These homes are referred to as real-estate owned, or REOs.
• Properties caught up in the clogged foreclosure process.
• Properties that are severely delinquent in loan payments — almost certainly headed for foreclosure — but have not yet entered the process.
Calculating the size of the shadow market has proven difficult, and estimates range from 1.6 million to seven million homes. The Herald analysis, using data from several mortgage research firms, real estate trade group figures and public records, found the following shadow inventory in South Florida:
• 40,000 houses already owned by lenders but not yet for sale.
• 124,000 units whose owners have received an initial foreclosure notice, or notice of default, but have not yet been foreclosed upon.
• 37,000 properties whose owners are 90 days or more behind on their payments but have not yet been served with a foreclosure notice.
For hard-hit housing markets like South Florida, Sacramento, Las Vegas and Cleveland, The Herald culled thousands of property records for lender-owned homes, and checked whether those homes were being listed on the open market. In a large number of cases, they were not.