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What does 'shadow inventory' mean for Florida buyers?

South Florida residents may have heard the term "shadow inventory" creeping into conversations more frequently in recent months. The term refers to the foreclosed homes that remain on the real estate market to be sold at a discounted price. Shadow inventory is good for buyers and bad for sellers.

The bad part for sellers is that when foreclosed homes flood a real estate market, the value of homes in that area significantly drops. Foreclosed homes sell for deeply discounted prices, as banks try to unload the inventory to recover at least some of their losses, resulting in a drop in prices for other homes in the area.

Some industry professionals are predicting that the nationwide housing market may be in the first stages of a broader recovery. Previous posts have noted that the real estate market in Florida is definitely showing signs of heating up, particularly in areas such as Broward County. In fact, some reports are showing that recent foreclosure rates in many parts of the country are actually decreasing for the first time in years.

However, not everyone is as optimistic about the market. Some people are predicting that a sizeable shadow inventory is set to enter the market and effectively lower home prices in many parts of the country.

In the meantime, South Floridians should keep in mind that now is a buyer's market. Residential real estate markets throughout the country reflect the historic bargains available for house hunters and investors. And as the summer selling season gets underway, banks will probably be looking to make even more of their shadow inventory available for bidding.

Source: U.S. News & World Report, "How 'Shadow Inventory' Hurts the Housing Market," David Francis, April 10, 2012

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