One Year of Shadow Inventory Projected for Colorado

October 11th, 2011

One Year of Shadow Inventory Projected for Colorado

While Steamboat Springs, Colorado has seen an increase in bank owned home sales, there’s a likelihood that bank owned home sales will be around for another year or so if the latest National Association of Realtors’ (NAR) Economists’ Outlook is any indication for the state of Colorado and Steamboat Springs follows suit. But as with any numeric estimate, you need to be aware of how the numbers were calculated.

First a quick reminder of what Shadow Inventory is in case you missed my blog earlier this month: Shadow Inventory consists of homes not yet for sale that are distressed and will be on the market in the near future.  Distressed properties include:

* Homes already foreclosed on and owned by banks (REOs)

* Homes in the foreclosure process

* Homes where owners are at least 90 delinquent on payments

Shadow Inventory by State

Shadow Inventory by State

So what does this map really mean when it indicates the numbers on each state equate to the months’ supply of Shadow Inventory? Initially you’d take it at face value and assume if Colorado has a “12” on it, then it’ll take a whole year to clear out Shadow Inventory from Colorado’s home sales pipeline. Looking at the high and low, you’d see NJ is the high with 51 months (more than 4 years)  and Nevada is the low at 7 months…wait a minute you’re thinking, “I thought foreclosures were all over the place in Las Vegas?” Well, yes they are, and they are selling,  and that’s why the numbers can’t be taken at face value. Digging in further here’s what to keep in mind:

* The months’ supply is derived from dividing the shadow inventory by state by the monthly number of distressed sales that took place in that state.

* So keep in mind that the months’ estimate by state is highly dependent on the number of distressed sales closings that are occurring in the state

* NJ on average reported about 20% of all it’s sales in the past year were closed on distressed properties…if only 1 in 5 closings take a bite out of distressed homes on the market, it’s going to take longer to work through the Shadow Inventory yet to hit the market than it will in Nevada where 70% of all closings (more than 2 out of 3) are for distressed homes.

If you live in Washington state and you’re thinking, “Well our largest home market, Seattle, is booming, so how can we have an average of 28 months ahead of us to work off Shadow Inventory?” Now you know – sales are booming, but not on distressed homes.

In all likelihood Steamboat Springs will somewhat mirror the 12 months predicted for the entire state of Colorado. This means any significant across the board residential price appreciation is not likely in the next year. Should you wait or should you buy now? That’s always the question isn’t it…and one best discussed one-on-one with your real estate agent. I always counsel my clients (buyers and sellers) that many variables are at play in the real estate market, and pinning your hopes or fears on any specific one happening is probably not in your best interest.

—For more information on buying real estate or questions regarding Steamboat Springs real estate or renting a home in Steamboat Springs, Colorado, feel free to call Charlie at 970-846-6435 or write me an email at: charlie@steamboatsmyhome.com.

Thanks,

Charlie

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