Have you ever heard of the term shadow inventory? This term seems to frighten most people as it will have a negative effect on the value of real estate. Here is an explanation of shadow inventory including the expected result and recommendations for investors.
During this recent recession, real estate values have plummeted. Many owners have lost their homes. Many are under water and owe more than the value of the home. Additionally, many could not sell or have decided to wait to sell until the market recovers. By the time this recession is over, there could be 5 years of homes that have not been put on the market and have accumulated into a very large amount of homes. These homes make up what is called Shadow Inventory and will add a significant amount of supply of for sale homes once the real estate market recovers.
What happens when supply increases more than demand and inventory of homes on the market increases to well over average amounts? Property values go down. Once the market recovers, Shadow Inventory will hit the market and add to the supply. We have been through the first storm of foreclosures. Storm #2 is on the way in the form of a 2nd wave of foreclosures. Interest rates will eventually rise to fend off inflation and then there is Shadow Inventory. This is just one more storm coming in this economic recession.
Savvy investors should see this as an opportunity to cherry pick from the oversupply of for sale real estate. This may be unfortunate to home owners as their home values may decline, but it adds to the opportunities for us investors. The next 5 years will be the best buying opportunities of our lives. Be prepared and set yourself up for the rest of your life. Best of luck!