[quote=FormerSanDiegan][quote=analyst]The phrase “shadow inventory” came into existence to describe quantities of properties which were expected to appear as listings for sale, but, for some reason, did not.
In that context, there is no difference between any of the following:
1. REO not listed for sale
2. NOT, sale postponed, no short sale in progress
3. NOD, NOT not issued, no short sale in progress
4. delinquent, NOD not issued, no short sale in progress
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Inventory numbers by themselves are meaningless. One needs to also consider the demand side.
For example, if the inventory is 10,000 homes and 15,000 sell in a year that is one thing. If 500 sell in a year it’s a completely different story.
So, in that spirit we should start tracking shadow demand. These would be those who will buy in the future but are not current buyers in the market. Current (real buyers) are known from the sales numbers. Shadow buyers would include the following:
1. Those making offers but not getting the house due to competition.
2. Those trolling around realty web sites, saving up down payments for a purchase 12-18 months from now. (these buyers will be ready to purchase about the time those properties in shadow category #2 and 3 come to market).
3. Bubble-sitters.
4. Those aged 26-35 (well, those that still have jobs) who were shut out of housing due to the high prices of the last 5-10 years.
5. Seniors in high school. Some of these kids will eventually go to college, knock someone up and need a place to live in 5-15 years.
Anyone know of good reliable sources to find the number of these buyers ?
Measuring future inventory without considering future demand is a fool’s game. Neither is predictable.[/quote]
The term “shadow inventory” is used to describe an unusual and extraordinary supply situation.
What you cited are **normal** demand variables. They exist in any normal market.
The “shadow inventory” is NOT normal, and does NOT exist in a normal market. If not for the extreme govt interference, this inventory would indeed be on the market. That is why the definition of “shadow inventory” changes with the actions of the govt/PTB. When they move the numbers from one place to another (from REO/off-market to delinquent/no NOD filed), the end result is still the same. It is shadow inventory that **should** be on the market, but is being held back for various reasons. Until we know how this inventory situation is going to be resolved, the market poses greater risks than during a normal market.
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An example of “shadow demand” would be the existence of 500 million Chinese with massive amounts of USD who plan to buy up our real estate as the dollar crashes. That would be an unusual and extraordinary demand variable that would qualify as “shadow demand.” 😉
