Real Estate Shadow Inventory Analysis

Posted by Joe Manausa on Wednesday, August 18th, 2010 at 11:56am.

Real estate shadow inventory analysis shows that homes which recently failed to sell are rapidly becoming the largest problem with the housing market today.

I have been conducting a real estate shadow inventory analysis lately in order to gain an understanding of just how long the housing market recovery is most likely going to take. With differing reports being published around the country, I felt that a true analysis of our local numbers would yield a much better report than just the hot wind being reported by the lobbyists of the National Association of REALTORS® and the National Association of Home Builders.

The first thing I had to do was to define exactly what the shadow inventory in real estate comprises. Most people nationwide use the term "shadow inventory" to locally describe all the delinquent loans that have yet to convert into homes for sale in Tallahassee. But there are other components to this glut of homes that is poised to hit the market. We would fully describe the shadow inventory as "homes needing to be sold but not currently on the market", including:

  • Homes owned by people who are in default on their mortgage
  • Homes that have adjustable rate mortgages that will adjust in the next year to significantly higher rates
  • Homes that have been on the market recently but failed to sell (and are currently not yet re-listed)
  • Homes owned by people wanting to sell but realizing the market is not ready for them yet

With most media reports referring to just delinquent loans when reporting on the shadow inventory, you can see how many more homes exist that should be added to the real estate shadow inventory analysis. Today's review of this segment of the market is going to focus on the homes that recently failed to sell.

Homes That Failed To Sell In Tallahassee

My review of the Tallahassee MLS found that there we 3,745 homes that failed to sell since January of 2009. This number is the filtered result having already removed homes that failed but

  • were duplicate listings
  • have since been re-listed for sale
  • sold with a different listing number

When we look in the MLS, we find that during that same period of time, 2.300 homes were selling each year. That means the existing "failures" represent nearly 20 months of supply of homes and that only 38% of homeowners were successful when they placed their home on the market since the beginning of 2009.

Homes That Failed To Sell Each Month

Understanding Price Ranges In The Real Estate Shadow Inventory

We know that the hottest segment of the housing market has been homes priced from $150,000 to $200,000. This is our median price point and it was greatly affected (positively) by the Homebuyer Tax Credit. Needless to say, I would never have guessed that it was also our most active "failure" zone.

Homes That Failed To Sell By Price Range

What we all must understand that homes that fail to sell end up seeing reduced prices when they return to the market. This is why no price range is immune to our market conditions, as the price range above it ends up "feeding" homes to it as prices begin to fall. With 20 months of supply of failures, plus 12 months of supply of homes on the market, plus the delinquent loan properties that will hit the market, it is obvious that we have more than three years worth of supply of homes available (measured at the current rate of consumption).

Interesting Observation About Virtual Tours

One of the habits that we sustain at Joe Manausa Real Estate is a regular review of housing market data from Tallahassee. By doing so, we learn to ask more questions about what is going on and we gain a better perspective of the overall market.

With this in mind, we looked at the data that was pulled for the real estate shadow inventory analysis to see if there was any correlation between a home's ability to sell and whether or not the real estate company had taken and expense to create a "Virtual Tour" of the property. A virtual tour is a 360 view of many of the inside rooms of the property, thus giving potential buyers a more realistic impression of what the property is like.

The results confirmed our belief that virtual tours are a must for home sellers .... sort of. Actually, there was a "magic line" in our data. Homes priced below $150,000 seemed receive no benefit from a virtual tour, but the evidence demonstrated that higher priced homes fared better with these online open houses than those that did not have one.

Distribution Of Homes With Virtual Tours In The Tallahassee MLS

The graph above tells me that if you have a home to sell that is valued at more than $150,000, than you should choose a real estate company that not only features the best virtual tour in Tallahassee, but also knows how to drive traffic to your home using it!

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.

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