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Will the Shadow Inventory Ever Come to Light?

The big question about shadow inventory is when this backlog of foreclosures will come to market. Prices will not be adversely affected until these distressed properties are actually put up for sale. Only then will they truly be competition to existing homes for sale. It seems that day may be upon us.

Much of the main stream media are concentrating on two major changes which are occurring in the foreclosure numbers:

  1. Foreclosure filings by banks are decreasing
  2. Homeowners who are falling behind on their mortgage payments are decreasing

What the media has not concentrated on is that the number of homes banks are actually repossessing (REOs) is up 38% over last year.

According to the most recent foreclosure report from RealtyTrac:

“The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

The reason banks are concentrating on repossessions instead of foreclosure filings is to clear the existing foreclosure inventory from their books. How many properties are we talking about? From the same report mentioned above:

“The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions.”

That is 1 million properties the bank will be bringing to market. That number is on top of the number of short sales already in the works.

What does this mean to you?

The banks have sped up the repossession of foreclosed properties in preparation to bring them to market. On average, an REO property is sold at a 34% discount. This wave of discounted properties will become your competition if you are planning to sell this year. Price your house to sell now before the banks release their inventory.

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