Shadow housing inventory

The housing market registered significant gains in 2012, causing many to proclaim that housing has turned the corner and will continue to improve. But what might be lurking in the economy that could derail this optimistic forecast? N.C. State University economist Mike Walden responds.

“There’s always got to be something lurking … in our economy, but seriously what many worry about here, many economists who study the housing market is something called the shadow housing inventory. One of the reasons why the housing market’s doing well is the supply of homes for sale is very low compared to the number of buyers out there. And that’s causing prices to go up, which, of course, is a big benefit for the housing market.

“But there (are) some economists who say, ‘Wait. Hold on.’ There’s a lot of inventory of houses out there, houses that banks have taken over and foreclosed on; houses that maybe people have simply held off the market because they’ve not been happy with the price they could get – that as the housing market improves, we might see a flood of these come back and that would cause housing price gains to stall and maybe go back in the negative territory.

“Now, not every economist is on board with this. They say, first of all, even if there is a shadow housing inventory, the numbers on that appear to be much lower than they were four years ago. Secondly, they say,’Well, buying is increasing, so even if you had more houses hit the market for sale, additional buying could absorb that.’

“And then finally they say that actually there are a lot of buyers – probably investment buyers – out there who would jump at the idea of getting perhaps a foreclosed home on the market because they see big investment opportunities.

“I think the majority of economists do think that the housing market has turned the quarter, but there is a minority who think that this shadow inventory may cause problems.”