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Month’s Shadow Inventory: State by State

Last week, we reported on the National Association of Realtors’ (NAR) Economists’ Outlook and gave you a map showing the percentage of overall sales that distressed properties represented in each state. Today we want to show you another map from the same NAR outlook. This one shows the number of months shadow inventory by state:

NAR explained their methodology:

The map shows the number of months it would take to clear the shadow inventory by state. The months’ supply is estimated by dividing the shadow inventory and the monthly number of distressed sales. The numbers range broadly from 51 months in New Jersey to 7 months in Nevada. When looking at months’ supply it is important to keep in mind that this estimate highly depends on saturation of distressed sales. Given that New Jersey over the past year on average reported about 20 percent of existing home sales to be distressed sales, it will take a longer period for the shadow inventory to clear. In contrast, Nevada’s distressed sales averaged a considerable 70 percent share of the existing sales and at that rate the current shadow inventory would clear in 7 months.

Bottom Line

Appreciation of residential real estate will not take place until a region works their way through the shadow inventory that exists. This map gives you an indication of when that will occur in your state.

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26 replies
  1. Jeff Geoghan
    Jeff Geoghan says:

    Very nice analysis and bottom line. I’m surprised that California seems looks as good as it does – must be persistent local demand.


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  2. Ryan
    Ryan says:

    This is a joke right? Another example of NAR twisting numbers to come up “positive” news. Any clear thinking real estate professional knows what shadow inventory is and knows “distressed sales” include REO homes and short sales. If short sales didn’t exist and and only REO properties are calculated in distressed sales this may make some sense.

  3. Ray Garrett
    Ray Garrett says:

    Thanks for the info. It seems these numbers may be skewed in that they are based on how long it would take states to clear their shadow inventory based on the current percentage of foreclosure sales to regular sales.

    It would stand to reason that as a state’s foreclosure inventory increased the percentage of overall foreclosure to regular sales ratio would increase proportionately.

    I think a better indicator is simply looking at a percent of increase in shadow inventory quarter over quarter.

  4. Pat Warnken
    Pat Warnken says:

    These statistic are interesting but not very helpful. Real Estate is very local. This information would give my sellers unnecessary worry. My trading area is 30 minutes from New York City with the finest schools in the country. There will always be a demand for our area. Sellers, be rational, prepare your property for showings and it will sell!

  5. Ben Edsall
    Ben Edsall says:

    NAR is always trying to push roses, pop-sickles and lolly-pops on us, I’m living next door to three homes that have been foreclosed on a year ago and are still not listed!

  6. JMLS
    JMLS says:

    I would not put too much faith in these numbers. NAR does not have complete information on shadow inventory and there appears to be a lot of guesstimates going on.

  7. Scott MacDonald
    Scott MacDonald says:

    This map and generalization can be very misleading. In Northern Virginia, we have a 1.9 month supply of houses and at this time, distressed properties represent just 19% of the market. For our market to swing from 1.9 months to 14 months, nearly 35,000 properties would have to be put on the market. A very unlikely scenario in my opinion. Am I missing something? Do you have access to information that us local REALTORs don’t have the ability to access? Please advise.

  8. steve Loynd - Realtor
    steve Loynd - Realtor says:

    I have to agree with many of the prior comments a color assigned to a state, doesn’t mean squat to a local region within a state. The Ski Resort properties I deal with have seen NO foreclosures on homes or high-end condos at all …a few vacant lots that shouldn’t have been financed to begin with have gone back to the bank, but even those are rare. Yet me state suggests a shadow inventory of 30+ months.

  9. Mick Shaw
    Mick Shaw says:

    I agree that shadow inventory of foreclosures must be cleared but the implication that a state with a 70% ratio of distressed property sales is poised to experience price appreciation is highly questionable. Imagine what prices are doing when 70% are distressed property sales. Even moderate reductions in prices puts even more homeowners under water, increasing the likeliness of more and more foreclosures, casting a longer and deeper shadow of distressed inventory into the foreseeable future. Supply is always a factor but increased buyer demand is the only solution to balance the market and begin to experience modest appreciation. I also agree that tagging an entire state with one number can be misleading.

  10. Paul hunter
    Paul hunter says:

    I cancelled my membership with you guys because of negative, irresponsible reports like this one. It does more harm to the market than good and in fact is not even true.

  11. Steve Harney
    Steve Harney says:

    @Paul – Two things:

    1.) We know you feel strongly on this issue as you have voiced your opinion before. You always end your comments saying that the issue ‘is not even true’. Do you believe that ‘shadow inventory’ doesn’t exist?

    2.) This is not a KCM report. As the post explains, the map came from a recent National Association of Realtors’ (NAR) Economists’ Outlook.

  12. Bill Cullen
    Bill Cullen says:

    Four years ago I was telling Realtors the likely bad news and I found that as a group they represented the clearest representation of ostriches with their heads in the sand that I could imagine existing. Real estate professionals are most likely to portray the best case scenario possible when it comes to real estate sales probabilities. Believing in what you are trying to sell is the key to any successful sales effort. It is not always the best perspective for your prospective clients, and most realtors I know that are still in the industry are starving. By the way, I am not a neophyte in these matters. I used to be a broker in Manhattan.

  13. Clarkco
    Clarkco says:

    I find it very interesting to see how this survey shows Arizona and Nevada, two states with perhaps the highest concentration of distressed assets, as having the lowest supply of shadow inventory.

  14. Denise Gallagher
    Denise Gallagher says:

    I have to agree with ‘Clarkco’s’ post of 4/5. I was very surprised to see AZ being portrayed as one of a few states with the lowest shadow inventory. I guess my question is, is that the shadow inventory we ‘know’ about? What we don’t know about is what scares me.

    • Steve Harney
      Steve Harney says:

      I’m actually in Arizona speaking this week. AZ is rapidly working through their shadow industry unlike other states where court challenges have slowed the process. Some states (ex. AZ) will have intense pain for a shorter time while others (ex. NY) will have less intense pain for a longer period of time.

  15. Ginger
    Ginger says:

    For this map, what definition of “shadow inventory” are they using:

    First the definition of shadow inventory is up for debate. Depending on who you’re listening to it can mean many different things. The different definitions are some of what’s causing people to debate the subject.

    Definition 1 – Foreclosed but not listed. Some analysts say the “shadow inventory” is the homes which the has bank foreclosed on but not sold. These are homes that are not on the market but owned by the bank (REOs not listed on the market).

    Definition 2 – Homes in the foreclosure process as well as delinquent mortgages where foreclosure proceedings are imminent.

    Definition 3 – All homes delinquent, short sales not on the market, REOs not on the market, and anything in the foreclosure process.

    Definition 4 – All of the above plus modified loans (as they have a large percentage of failing anyway, pay option-arms about to be reset, and lots sitting idle with builders in trouble.


Trackbacks & Pingbacks

  1. […] by THE KCM CREW on MARCH 29, 2011 · 22 COMMENTS […]

  2. […] The KCM Crew on March 29, 2011 […]

  3. […] by The KCM Crew on March 29, 2011 · 1 comment […]

  4. […] by The KCM Crew on March 29, 2011 · 17 comments […]

  5. […] Your Real Estate Broker in Georgia has obtained this information from the KCM Crew and wanted to share with you a map from NAR’s Economists’ Outlook that shows the month’s shadow inventory for each state. Click here to  see how many months of shadow inventory your state has. […]

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