Shadow Inventory Is Raging Like A River....

For over 20 years in real estate, I always wished for a crystal ball. Steve Harney is the closest I will ever come to having one! If you don't know of Steve, check him out on facebook! Follow him and you will see what I mean. A former broker owner of a large firm, Daily he reads all the reports and financial news and newspapers. When I say ALL, I mean all the reports, and all of them. From the first word to the last word, he reads it all, then digests and analyzes it, then blogs about it. The sound bites you hear on the news or headlines are sometimes contradictory, and Steve can always explain it, because he read the entire article, or studied the entire situation, not just the first paragraph. I use this excellent data to help my buyers and sellers see where the market is going and make educated decisions when it comes to their real estate needs.

I was lucky to see Steve Harney this month when he visited my company to give us the year end report and predictions for next year. The way he explained what is going on with shadow inventory was a great way for us to use with clients and customers. No one seems to really understand what is going on with shadow inventory, with conflicting reports in the headlines, and some opinions from well known real estate gurus, who have said "there is no shadow inventory". That is not true, they got some of their facts wrong, and they have been pointed out and corrected..

There is no question that Shadow Inventory does exist, the question is how much, and how will it the buyers and sellers in each of our markets.

The way Steve Harney explained it goes like this, and I hope I can explain it as well as he did. Shadow Inventory is like a river, that flows though a town, with a dam in the middle, and a river valley below the dam. (If you are from Wisconsin, picture the dam in the downtown area of Wisconsin Dells..) All the banking institutions have lots of properties that are coming through the foreclosure process-"the river". Because our market, like any, is based on supply and demand, they can't release all the inventory at one time as it comes back into their hands. The Shadow Inventory is held up by the dam, and as the market can tolerate it, the bank releases more and more of the foreclosed properties. As the Robo signing issues came to light, there was a stoppage of sherriff sales, and even more inventory built up behind that dam. Add to that, the new foreclosures that were just processed. If they let the flood gates open, and release all the homes above the dam, the raging river will flood the valley and take out all the homes that are alongside the banks of the river. Again, if you are from Wisconsin, remember when the levy broke and took out those homes) That would destroy everything, everything being the market and the prices of all homes in the market, not just the foreclosures. So the banks, have the masses above the dam, and as the markets absorb some sales, more of the foreclosures are let through the dam. This is managing the volume and protecting the neighborhoods down river.

I am hoping I was able to recount his Raging River story, good enough that you might be able to use it with your clients and customers. Let me know what you think of this way of explaining Shadow Inventory...

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