Is This A Reemergence Of The Shadow Inventory In Real Estate

Long-time readers of the Tallahassee real estate blog were introduced to the concept of the shadow inventory of homes more than five years ago.

A reader had asked me to explain what it was and whether or not Tallahassee was dealing with more than its fair share of homes that fit the description of "needing to be sold" yet not listed for sale in the Tallahassee MLS.

We explained that the real estate shadow inventory includes homeowners who are facing foreclosure, banks or lenders who have foreclosed on homes and now own them, homeowners waiting for the market to improve, and people who have failed to sell their home recently or in the past.

So five years later, with the Tallahassee real estate market recording a slow, continuous rise in the number of homes selling every day, where do you think the shadow inventory of homes stands?

The Shadow Inventory Of Homes Is Growing Again

When the term "shadow inventory" is used in real estate, most often people are talking about properties held by lenders that are not visibly available for sale in the market.

The reason that I have expanded this group to include all homes that need to be sold is because it represents pent-up supply that will be looking for an entry in the Tallahassee real estate market as soon as homeowners think they can procure a sale at a price that solves their problem(s).

This means that as home values rise, we will see more of these homeowners in the shadows reemerge to test the market again. This is good, it is a sign that the market is healing.

The real estate graph below measures the number of homes leaving the market without selling (expired listings, withdrawn listings, and canceled listings) which do not immediately re-list their home for sale.

Shadow Inventory Of Homes

Clearly, there has been growth in this category. Some of the growth in the shadow inventory can be blamed on homeowners jumping the gun, re-entering the market at prices too high in the hopes of finally unloading their homes that they have wanted to sell for years.

From 2009 through 2013, the one-year trend of daily failures fluctuated from 2 to 4 per day, but this year we've seen the number skyrocket to more than 5 home failures per day.

While we are not prepared to identify the definitive reason for this recent rise, we can advise homeowners and home builders that this is a sign that the shadow inventory of homes is still large enough to satisfy demand for at least the next year.

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Real Estate Supply And Demand

Remember, like any other market, real estate relies on the balance of supply and demand to determine the direction of values and the conditions for prosperous trade.

If you are thinking of selling a home in Tallahassee, take the time to study real estate supply and demand for homes like the one that you own. Meet with a highly skilled market analyst to determine the likelihood of your home selling at a price that solves your problems.

If you are a home builder wondering if now is the time to build speculatively, the same advice holds true. Study supply and demand for all areas and look for opportunities in the market. Right now they are few and far between, and it will be very risky to try to bring a product to market in the hopes that it will handle the breadth of the competition that is available (as well as the competition waiting in the shadows).

If you would like to know more about how the shadow inventory of homes will impact your chances in the market, just drop me a note and we can arrange a time to review your home and its likely position in the Tallahassee real estate market.

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