I don’t think it was a myth right after the crash. There were a ton of homes in various stages of foreclosure that had not hit the market yet. That was the shadow inventory: homes that we knew were eventually coming to market, but that hadn’t yet shown up yet in the inventory stats.
And indeed, those foreclosures did slowly come to market, and it turns out that the market did not begin to recover until they were mostly gone. Nothing mythical or particularly mysterious about it.
But the idea that there is still “shadow inventory” that poses a big risk sounds preposterous to me. First, why would there still be shadow inventory, when those homes could have long since been sold at these juicily high valuations? Second, even if there were (highly doubtful), the only “risk” is that the housing market would have something closer to a decent and historically normal level of inventory.
