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Phoenix Area Real Estate “Shadow Inventory” – Fact or Fiction?

There are few absolute certainties when it comes to Phoenix real estate, and the debate about the so-called “shadow inventory” is no exception.  If you’re not aware of that term, it refers to real estate that the banks have already acquired via foreclosure and are holding onto for the perfect moment to dump them back on the market.

Many real estate aficionados believe that the shadow inventory is not only going to quell our current market recovery, but is actually going to lead to a double-dip housing bust.

The truth will only be borne out in time, as it is impossible to accurately determine numbers of properties being held across all the different lending institutions, as well as the status of negotiations with existing homeowners in default.

A number of details seem to indicate that the Phoenix area housing market won’t be subject to a shadow inventory effect.

  • Mike Orr, real estate analyst at ASU’s W.P. Carey School of Business, recently reported, “There is still no sign of any significant new supply of homes coming onto the market, and those who anticipate a flood of bank-owned ‘shadow inventory’ are likely to be very disappointed.
  • The Mortgage Bankers’ Association reported last week that Arizona’s mortgage delinquency rate fell from 6.5% to 6.2% since the start of 2012, placing Arizona 35th in the nation in delinquency rates.
  • Filing of Notices of Trustee Sales in Maricopa County fell again to 3,219 in July 2012.  It was 4,328 in May and 3,711 in June.
  • Bank owned sales as a percentage of total monthly sales has also fallen steadily, despite a very tight inventory supply.  Here’s a graphic from R.L. Brown Reports that illustrates the trend:

At the moment, most indicators point towards the fact that there will not be a shadow inventory dump in the Greater Phoenix housing market, but only time will tell.  If the banks are holding significant inventory, with a 25% rise in the median sales price in the last 12 months and continued tight inventory levels, now would be a good time to start selling it off.

 

What do you think?  Are we going to see a shadow inventory release in the upcoming months?

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