The Shadow Inventory is Real

Over the past months the reported inventory of homes for sale in the South Florida market is very small, prices are rising and sellers are getting multiple offers above the asking price. Some buyers have never even viewed the home. These are facts which are true. Although these facts may be true they need to be considered with other information.
Being active in the residential and commercial market I have an account to make on-line offers to purchase properties at the Miami-Dade County foreclosure auction. These foreclosure auctions are held daily and permit a buyer to make bids for properties on line. With a deposit of 5% of the amount of your bid you can bid for properties with the understanding that you must pay the balance within 24 hours.

My analysis of this electronic bidding system shows that between April 15th and July 1st of this year the county is scheduled to auction over 7,500 properties, mostly condos and single family. If the 1,200 properties listed for “Short Sale” are deducted, the inventory of homes for sale will increase by 6,300 homes. This compares to the Multiple Listing Service list of approximately 11,900 condos and homes for sale in mid-April. Therefore, in the next several months the inventory of homes and condos for sale could easily increase to 18,300 or an increase of over 50% as the foreclosed properties are placed on the market.

The listed homes which have been selling are generally in good condition with sellers motivated to maintain their property to maximize the sale price, whereas most of the foreclosed homes have issues which make them difficult to sell because of their physical condition. These physical conditions will affect the purchase price so we might see a decline in prices as foreclosed properties are placed on the market. Again the facts will show a change in pricing but other factors need to be considered such as property condition at the time of sale.

Years ago I tried to convince an apartment builder to buy land to build an apartment building. His comment was “where will the tenants come from?….do you see anyone sleeping on the streets”. There are only so many buyers who can afford the all cash or 20% down-payments and a history of good credit. The real estate boom years of 2005 to 2008 came about because there were NINJA loans (No Income, No Job, no Assets) with a 3% or smaller down-payment, rapid speculative price increases and television shows on how to flip houses. Unless we get an influx of new residents the demand for these foreclosed properties may reach a saturation point.

Facts can be both true and misleading. Yes there is a shortage of homes listed for sale, but there is also a very large shadow inventory or pool of homes coming to market which will have an impact on the future price of housing. We interpret facts to help us make knowledgeable decisions to help our clients.

By Thomas J Dixon