The inventory of future short sales and foreclosures which will be coming to the market is known as ‘shadow inventory’. Future real estate pricing will be determined by the number of these distressed properties which eventually reach the market.
These properties sell at major discounts:
- short sales at a 10% discount
- foreclosures at a 35% discount
CoreLogic just reported this inventory is declining as more Americans are staying current on their mortgage obligations. Here is a graph from their latest report:
There still are a substantial number of distressed properties that must be cleared. They will cause prices to soften in many markets. However, it is comforting that this number is finally beginning to decline.