Community Corner

Experts: Until Shadow Inventory Hits, Local Housing Market Might Not Improve

Caution seen in the reports on 2012 housing market locally.

Last month, an AOL Real Estate blog post reported that there might be a “gradual improvement in the housing market” in 2012 according to a speech given by Lawrence Yun, chief economist of the National Association of Realtors, the nation's largest real estate group.

Yun said that he expected existing-home sales to edge up 4 to 5 percent and “new home sales getting an even bigger boost off this year's record lows,” the blog reported.

“I think it is first just important to clarify that Yun is referring to volume of houses that will sell and not price,” said Amanda Eckart, a local real estate agent. “This year, volume of sales in Port Jefferson (11777) has been down around 15 percent, so even a 5 percent increase next year, will likely not be felt by the average seller.”

Find out what's happening in Port Jeffersonwith free, real-time updates from Patch.

Something that may have more of an impact on the housing market’s recovery is what Eckart calls the “shadow inventory” of houses.

“While we have been fortunate that the foreclosure rate in our area has been well below the national averages, in may be unfortunate that we still have a supply of ‘shadow inventory’ that will hit the market,” she said.

Find out what's happening in Port Jeffersonwith free, real-time updates from Patch.

According to Investopia.com, the term “shadow inventory” refers to “real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve.”

Generally these are bank-owned properties coming up for sale after foreclosure.

“This is largely due to the fact that it takes so long for banks to foreclose on a house here,” explained Eckart.

RealtyTrac–a source that tracks foreclosures–says it takes a bank in New York an average of 900 days from notice of default to foreclose and sell the property.

These low prices homes from foreclosures or short sales are more desirable to first time homebuyers and investors, Eckart pointed out. She said that even though this high demand is a good sign–helping to increase selling prices on the low-end homes above the original asking price–a flood of “shadow inventory” will negate any gains.

“Pricing is always a matter of supply and demand,’” she said. “Until the inventory of distressed is gone, we will not see significant or steady appreciation in price.”

Maria Palmar, a real estate agent with Jolie Powell Realty agrees that the shadow inventory will affect the market. First-time homebuyers and investors call her about boarded up houses they see while driving around but she finds the title searches don’t reveal information about the current owner. She also said that a flood of homes hasn’t even reached the foreclosure stage yet. Some are people with Adjustable Rate Mortgages (ARMs) coming due.

“When they gave the three and seven year ARMs they also gave out 10 year ARMS,” she said. “Until we hit that 10 year mark things won’t stabilize.”

She sees most of the foreclosed homes that do show up onto the market coming from Port Jefferson Station, Middle Island and other surrounding towns, more than Port Jefferson village.

“I know there is a lot of shadow inventory,” she said. “I don’t see a lot of it in Port Jefferson but there’s a few.”

Many of the real estate attorneys she speaks with that handle a lot of short sales tell her that until those properties are dealt with we’re not going to see the shadow inventory. That might be a few years away.

 “I’m foreseeing seeing ten years since this started,” she said. “I do believe it will affect us and we’ll be in a worse downward spiral than we’re now.”


Get more local news delivered straight to your inbox. Sign up for free Patch newsletters and alerts.

We’ve removed the ability to reply as we work to make improvements. Learn more here