Here’s one facet of this issue that has never been explored, as far as I’ve seen.
If lenders really had all this stockpile of “shadow inventory”, waiting for prices to rebound higher, why didn’t ANY of them take advantage of the market that existed in Orange County between January of 09, and April 30th of 2010, when, largely due to tax credits and low inventory, there were multiple offers – sometimes as many as 20 to 50 – on practically every listing in the lower price ranges? ( Under $350k, for condos, and under $500k for detached houses.)
That was a well known, more than a year’s worth of time, when it would have been an IDEAL time to unload excess inventory, getting prices bid up to higher than market value, in many cases, while the median price in Orange County rose more than 10%.
If all those lenders were holding all that alleged inventory, their agents would have been imploring them to take advantage of such conditions.
The reason that DIDN’T happen is because that stockpile really only exists in the minds of conspiracy theorists, who can only offer their opinions or theories on the idea of shadow inventory, with charts, graphs, and stories concocted from still more theories.
Here’s MY theory. There is no shadow inventory - at least not as promoted by doom & gloom bloggers - where lenders have huge stockpiles of properties that they’ve already foreclosed on, and are “holding”, waiting for prices to come back.
What there is, is a lot of properties wending their way through each lender’s labyrinth of systems with loan mods, short sales, and even cancellations, all preferable to eventual foreclosure. That pile of properties is probably going to take 2 or 3 more years to work their way through these systems, and will likely do so in an extremely manageable fashion, a little bit at a time.
As such, there’s very little likelihood of anything much more than a trickle of such properties hitting the market at any given time – pretty much as it has been for the past year and a half. Those on the lookout for a Tsunami of distressed properties to arrive, over this next few years are in for quite a disappointment.
Of course, this is just my opinion.