I frequently receive questions, or overhear questions, about the "shadow inventory" of distressed homes. Specifically, people want to know how big the shadow inventory is. The problem with the shadow inventory is that it is shadowy, of course, so it's hard to discover without scanning the books of all the mortgage companies that have REO properties on the books.
I've seen the term used differently by different media outlets. It seems that the most useful definition would be: The shadow inventory is the inventory of foreclosed properties that have reverted to the mortgage company and now await liquidation.
In Colorado, and most places in general, this is very hard to track since these properties have gone through the foreclosure process and no longer show up in foreclosure records. Yet, we know from people in the real estate industry, and from the mortgage companies themselves, that there are a lot of properties out there that have foreclosed, but are sitting on the books of the mortgage companies and haven't yet been liquidated.
The foreclosure prevention task force was told early this summer by the mortgage companies that they were going to get more aggressive about getting these properties off the books. If and when this happens we'll likely see a decline in home values, at least temporarily. I don't have any good data on the shadow inventory for Colorado, but according to DSNews, at the national level at least, the shadow inventory has been getting smaller, and this has likely been contributing to some of the drops in home prices we've seen in the last month, although the end of the tax credit likely contributed to that as well.