Q. I see you refer to "shadow inventory" from time to time, but I've never seen an explanation of just what it is. Could you enlighten me?

A. There is an immense amount of inventory that has yet to hit the market but will, sooner or later. People in the real estate business have taken to calling this shadow inventory. It consists of homes for which the owners have stopped paying the mortgage but the banks haven*t foreclosed on yet, foreclosed properties that have not yet been put for sale, homes with modified mortgages that the owners still can*t afford and will soon default on and so forth.

Properties that constitute shadow inventory will likely be around 3 million to 3.5 million units. This number included distressed properties that have been repossessed by the lender and those that are in the foreclosure process because of delinquent payments. The current housing market is absorbing about 1 million units per year, and at that rate, it will probably take about 3.5 years for the shadow inventory to be bought, occupied or otherwise absorbed.
 

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