In the real estate community, the term "shadow inventory" has become a dreaded topic. Shadow inventory refers to real estate that is likely to become bank-owned, but is still in the early stages of that process. For example, homes with owners who are behind on their mortgage payments, with the expectation that the property will be foreclosed on or short sold eventually, constitute shadow inventory.
'Shadow' Inventory Causing Concern
The Chicago Tribune recently analyzed the devastating impact of shadow inventory on the Chicago market in particular. Based on research by John Burns Real Estate Consulting in Irvine, Calif., the article estimates that almost 204,000 homes are in danger of reverting back to the lender.
This is long been a fear of those in the real estate community locally, since this wave of homes will drastically lower sale prices, thus hammering down property values even more.
It certainly paints a bleak picture for those in the real estate game, but it also puts some pressure on mortgage modification plans. The article notes, via the Treasury Department, that only 1/3 of the trial-period payments under the Home Affordable Modification Program (HAMP) were converted into permanent mortgage modifications.
That figure must be much higher if future efforts to stave off a slew of shadow inventory are successful.