The Triangle housing market enters 2013 with a good deal of momentum, which makes it a good time to ask whatever happened to the shadow inventory.
Shadow inventory is the ominous term that refers to houses that are in some stage of distress but have not yet reached the market. Some of these homes have been foreclosed upon and are now owned by banks; others are in pre-foreclosure and are candidates for a short sale in which the lender agrees to sell a home for less than the balance remaining on the mortgage.
The shadow inventory has been viewed as one of the biggest threats to a sustained housing recovery. The concern in the Triangle, and elsewhere, has been that a flood of such homes would be put up for sale, causing prices to drop and further destabilizing the market.
Although foreclosures havent been nearly as widespread in the Triangle as in some other hard-hit areas, that hasnt stopped people from fretting about the shadow inventory here.
So far such a scenario has not come to fruition. The regions inventory of homes on the market has continued to decline, and theres been no dramatic uptick in the number of distressed properties on the market.
About 10 percent of the listings in the Triangle MLS were marked with a special conditions category, which indicates the property has been in some kind of financial distress, at the end of 2012. That number remained fairly constant throughout 2012.
Nationwide, the shadow inventory appears to be shrinking. CoreLogic, which doesnt break out its shadow inventory by local markets, reported earlier this month that the nationwide inventory of such homes totaled 2.3 million in October, down 12 percent from the total in October 2011.
CoreLogic attributed the decline to investors buying up distressed residential real estate from banks, and the fact that improving market conditions are expected to help some owners who owe more on their mortgages than their homes are now worth.
Given the long foreclosure timelines in many states, the shadow inventory stock represents little immediate threat to a significant swing in housing market supply, Mark Fleming, CoreLogics chief economist, said in the report.
9 percent in the Triangle
Marti Hampton, owner of Re/Max One Realty in Raleigh, also tracks the level of distressed listings closely. She puts the number in the Triangle at 9 percent.
Hampton doesnt expect a big wave of distressed properties to come on the market in the near future, although the market may see an increase in short sales compared to foreclosures.
Many real estate agents who focus on foreclosures are now having trouble getting banks to hand over new listings, Hampton said. A bank-owned property typically sells for considerably less than a short sale, and many banks are now dispensing with properties through short sales instead of foreclosures.
Hampton expects the level of overall distressed listings in the Triangle to remain about the same in the near future, but she said even the current percentage has a major affect on the market.
Honestly, you wouldnt think that 9 percent could really affect prices that much, but I always tell people its like if you got cancer and only 9 percent of your body is affected. Its still a bad thing, she said. We need to get the 9 percent of the bad stuff out of there before we can really recuperate.
Shadow inventorys effect
Hampton believes there is considerable pent-up demand from both buyers and sellers, which should translate into a strong sales year that will put upward pressure on prices. But shes already hearing from agents and sellers who are worried that houses wont appraise for the price that a buyer agrees to pay.
And the reason those appraisals are a problem is because theyre looking back, and thats the only thing that appraisals know how to do, she said. When they look back, they have some of that about 10 percent of those foreclosures in there, which is dragging everybodys prices down.
So the shadow inventory may not grow, but that wont stop it from casting a chill over the market.