Shadow Inventory – Myth Busted by Foreclosure

I love the show Myth Busters and now reality has also made its way into the housing market.  The number of homes for sale in the San Jose area is the lowest we have seen since the boom summer of 2005 when demand was high and supply was low at extraordinary prices. For single family detached, condominiums, and townhomes the total active listings is hoovering around 1500 for San Jose.  That is down from nearly 4000 units in fall of 2008.  The television screams of how many foreclosures are occurring.  The number of “notices of defaults” (NODs) are climbing and climbing.  But the reality is the current home buyer is not the one being able to take advantage of these returned homes.

For months we have been trying to connect the dots on where this foreclosure inventory was and when would it hit the market for our hungry buying clients.  Many discussed it was a matter of time before the next “flood” of foreclosures hit the market.  Stating the banks simply could not process the volume fast enough.   Others believed investors were buying bulk inventory at 80 cents on the dollar.  Others believed the banks were simply holding the inventory with hopes of recouping some losses in a rebounding market.

Foreclosure out of Discovery Bay, California released their September report on the subject of foreclosures and in particular, “Shadow Inventory”.  Click to read the complete September Market Report .  Bottom line, some of these notices of defaults are in the process of being modified.  For those notices of default that turn into foreclosures many are being bought by third party investors at the trustee sale.  They are not making it past the courthouse trustee sale to the typical buying public.  This has significantly reduced the amount of foreclosed homes available on the open market.  With fewer and fewer homes for sale in San Jose and even fewer foreclosures available to purchase off the multiple listing service (MLS), buyers find themselves with fewer and fewer deals.  There are more short sale offerings and multiple offers but not nearly as many REOs.  Many buyers were believing they only needed to wait for the next flood of foreclosures.  It will be interesting to see if the ALT-A resets will affect this current trend of low REO inventory or whether that predicted flood is a myth as well.  In the meantime, thanks to Foreclosure Radar, myth busted.

7 Replies

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  1. CJ,
    Thank you for the timely and useful information – I have also been trying to figure out if the shadow inventory rumors were legitimate or not. Looking forward to more of your insights.

  2. CJ says:

    Thanks for the comment Kristen! The only question I now have is: What are the 3rd party investors doing with all those houses they are buying? Assume they will come to market as rentals and as re-sales. So simply another delay or slower paced release? We’ll see.

  3. Hi

    Great post I think these information are better for our knowledge.

  4. CJ says:

    Thanks for the comment!

  5. CJ:

    Thanks for writing a very informative post that really takes aim at a big myth called “Shadow Inventory” people better just wake up and just a buy a good deal if they see one, we cannot predict the future. For all we know this is just another way for real estate hype gurus to sell more high priced conferences! LOL Keep writing, I love the post!

  6. CJ says:

    Thanks Jonathan for reading and your comment! CJ

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