Shadow Inventory: Short Term Medicine - Long Term Cure

For nearly a year, the threat of "Shadow Inventory" being unleashed on to the market has loomed large in the hearts, minds and wallets of homeowners all over the country.  Certainly, the short term impact of thousands, if not tens of thousands, of distressed /foreclosed properties will adversely affect property values in localities where they predominate.  In some states, the courts have delayed foreclosures for years in some cases, and the sheer volume of homes that will suddenly  be released onto the market will have a tsunami effect on affected communities.

South Florida, while hardly immune to judicial backlogs, have had a considerable head start compared to other regions of the US.  Our real estate boom ostensibly ended in July 2005, whereas much of the country didn't experience their respective housing downturns until late 2006 and 2007. 

We will most certainly feel the effect of the shadow inventory stampede in sficic areas, but I believe the effect will be considerably less devastating than other parts of the country.

In my opinion, the reasons for this is the fact that the mushroom cloud effect of the housing bust hit South Florida first, and many communities have already begun to stabilize.  A second and more critical reason is that South Florida is a Mecca for foreign investment in real estate.  Foreign exchange conditions with our primary international markets in Latin America have drawn thousands of buyers to our shores to take strategic advantage of the currency exchange rates.  Finally, the rental market is smoking hot with increases as much as 20% over the last two years.  In specific areas, the rent vs. buy analysis clearly favors the buyer.

The link below explains the situation and uses New Jersey to illustrate of the declining effect this shadow inventory will have on the real estate market.  I agree that the disposition of all these distressed properties is the only way to bring the supply and demand equation back in to equilibrium.  Please be reminded, however, that real estate is local in nature, and conditions in New Jersey are not the same as in South Florida or Dubuque, IA or Beaufort, SC.

I conclude that sellers should consult with a knowledgable and experienced Realtor who is keenly aware of his local market conditions, and make their decisions based on accurate local data.     

http://kcmblog.com/2011/08/24/shadow-inventory-luckily-here-it-comes/