What is Shadow Inventory?

What is Shadow Inventory?  And what can it tell us about the housing market, and maybe even the economy?

Well, simply put, Shadow Inventory is a fancy way of saying Pending Supply.  When analysts talk about the shadow inventory of homes, all they are talking about is how many homes are out there on the market.  In other words, they are discussing the pending supply of homes on the market.

How can the shadow inventory help us determine what’s going on in the housing market?  Well, unless you’ve had your head in the sand for the past five years, you’ve noticed that the country is in a recession, caused, at least in part, by the housing bust.  As homes were coming on the market, and buyers were disappearing, the Shadow Inventory grew.  According to CoreLogic, in October of 2008, there was a 6-month supply of homes out there.  And when a few sold, they were offset by the other homes that came on the market.

Just a little over a year ago, in April 2011, the shadow inventory was still at a 6-month supply.  But now we’re finally seeing some progress.  According to CoreLogic, in April 2012, the shadow inventory decreased 14.8% from the previous year.  That means that we only have a 4-month supply of homes on the market.  Since we know homes are still coming on the market right and left, through distressed situations or otherwise, this probably means that some buyers are coming out too. 

That, of course, is good for the economy.