Shadow inventory threat may have passed

Some real estate experts believe a sudden flood of distressed properties from the national shadow inventory could dampen the housing market recovery, but a new report suggests this fear may be too pessimistic.

Some real estate experts believe a sudden flood of distressed properties from the national shadow inventory could dampen the housing market recovery, but a new report suggests this fear may be too pessimistic.

Based on recent home price increases and declining foreclosure and mortgage default rates, distressed assets, such as vacant properties, won't have the same impact on housing now as they did in the past, according to a report from Freddie Mac.

"While the shadow inventory persists, there is an important difference in today's market compared with those of recent years and that's the substantially reduced amount of excess vacant housing," said Freddie Mac vice president and chief economist Frank Nothaft. "The housing recovery may finally be coming out from the shadows."

Home prices surged 4.8 percent between March and June, which is the most significant quarterly increase experienced in nearly eight years, the report said. Meanwhile, property values rose 1 percent in June on an annual basis, representing the largest annual gain since November 2006. It's for these reasons that experts from the government-sponsored enterprise believe excess housing supplies may have finally been absorbed.

Further, the rental vacancy rate recently fell to 8.6 percent, the lowest level recorded since 2002. In addition, the supply of vacant homes for sale of the market declined to just 2.1 percent of the national inventory, the report said.

The decrease in vacant housing stock is a very important development, experts from Freddie claim. Specifically, this means that in many struggling marketplaces, real estate-owned homes, including foreclosed houses and short sales, no longer have the ability to threaten the oversized vacant housing inventory.  

Future looks bright 
   
As the housing market approaches the fall and winter months, experts believe the expected slowdown in activity that often occurs during this time of the year will not have enough of an impact to erase any gains made so far this year.

In fact, new buying and selling trends suggest that home sales have actually been more prevalent during the colder months, according to Credit Sesame. The only major difference is that the average sales price is often much higher during the spring and summer. With this in mind, real estate professionals may want to continue their efforts in the coming months, which could be profitable for themselves as well as the industry as a whole.



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