More Real Estate Shadow Inventory II

Posted by Joe Manausa on Wednesday, June 9th, 2010 at 11:28am.

Nearly 2 out of every 3 home sellers who tried to sell their home over the past three years failed. So where do all these "failures" go?

This is the 2nd blog post in my series on Measuring The Real Estate Shadow Inventory. As you might remember, we addressed the sources of supply in the "Shadow Inventory" of homes that need to be sold but are not currently on the market. Over the past several days, we have been compiling our results from the Tallahassee MLS and they are a bit disturbing.

For many years now I have been reporting on the growing shadow inventory, while NAR and most real estate bloggers are glossing over or ignoring what could be the biggest news in real estate since the roof was invented. What is going to happen if we amass a shadow inventory that is so large that the new construction market can plan to shut down for the five to ten years?

Home Sales Failure Rate GraphicWe have often times illustrated the fact that more homes fail to sell than actually sell when they hit the market. As a matter of fact, the current rate of failures is about 60%, but it has been higher in recent years.

To be clear, nearly 2 out of every 3 home sellers who tried to sell their home over the past three years failed. So where do all these "failures" go? Certainly many re-list their properties for sale and some eventually sell, but we need to get a better feel for how large the back log of these failures could be.

Measuring Failures In The Real Estate Shadow Inventory

I decided to find out how many homes were on the market since 2008 that failed to sell and are not currently on the market. I suspected the number exceeded 2,000 homes, but I was shocked to find that there are 5,143 homes that failed to sell that were on the market since January 1,. 2008 and are no longer for sale.

Considering Tallahassee saw fewer than 3,200 home sales in 2009, this would be more than 1.5 years worth of supply in this single source in the real estate shadow inventory. And there are many more.

In our article on distressed properties last July, we estimated that there were 2,000 to 3,000 non-prime mortgage loans that would add to the shadow inventory as well.

Troubled Neighborhoods In Tallahassee

The following table shows how many distressed properties can be found in some of the most visible neighborhoods in Tallahassee. Remember, these are homes that TRIED to sell, but FAILED and are not currently for sale. There are also other homes currently on the market as well.

To give this some perspective, in Southwood alone, where 76 arms-length existing home sales occurred last year, the numbers are unsettling. There are 67 homes for sale in the MLS, plus FSBOs, plus the known 143 homes that failed to sell and are not on the market, meaning 33 months of supply of homes for sale in Southwood. This does not even consider distressed loans that will also become inventory through short sale or foreclosure.

This is why I consider the shadow inventory to be major news and people needing to sell their homes better understand what they are up against and how long this recovery is going to last. My often repeated advice: If you need to sell, sell quickly. If not, take your home off the market and don't worry about the recovery.

Tallahassee Neighborhood Listing Failures
Southwood 143
Killearn Estates 121
Killearn Lakes 110
Plaza Tower 96
Golden Eagle Plantation 75
Killearn Acres 67
Bay Tree Cottages 61
Brighton Place 44
Tallahassee Center 43
Summerbrooke 39
Wolf Creek 38
Ox Bottom Manor 35
Mystic Woods Condominiums 30
SUMMERCHASE 29
WOODBRIAR 29
The Tennyson 28
Duval On The Green 27
Piney Z 27
Bull Run 25
Barrington Park 23
SAVANNAH CROSSING 23
The Lakes 22
Arbor Hills 21
The Timbers 21
VILLAS OF WESTRIDGE 21
Bond South 20
Lakeshore Estates 20
Blairstone Forest 19
Weems Plantation 19
Charleston Square 18
CRESCENT HILLS CONDOMINIUMS 18
Forest Heights 17
Holly Hills 17
Summerlake 17
Grand Total 5143

Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

2 Responses to "More Real Estate Shadow Inventory II"

Tim Mendor wrote: The table above is completely meaningless in the absence of a control for the size of the inventory in each subdivision. Some subdivisions simply have more houses to possibly sell. The author should report percentages not absolute figures. For all we know Weems Plantation might have the highest failure rate (% failures) despite being at the bottom of the list above (total failures).

Posted on Wednesday, June 9th, 2010 at 12:38pm.

Joe Manausa, MBA wrote: Hey Tim, thanks for the feedback. While I agree the information is not complete (I am a staff of 1), I would disagree about it being completely meaningless. If you live in Southwood, this means a whole lot to you. Same for every other neighborhood. It might be meaningless to readers who do not live in any of these communities however.

It took over 10 hours to complete the first two segments of this blog series, I'm hoping to do % of total in the next edition.

Again, I agree with your request for % of failures to compare 1 neighborhood with the other, but the actual intent of the blog is to show how many units exist in the shadow inventory, regardless of the community in which they exist. The fact is, we have over 5,000 homes that have failed to sell in the past few years that currently are not being offered for sale. That is the biggest news point to me.

Posted on Wednesday, June 9th, 2010 at 2:06pm.

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