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Scared of Your Shadow Inventory?

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Home-selling Strategies by Chris Kaucnik

RISMEDIA, April 14, 2011—This big inventory of homes—90 days or more delinquent on their mortgage payments, currently in foreclosure or now REOs—at last count was 2.1 million. It’s enough to make you plop, plop, fizz, fizz, worrying everyone from the banks to the sellers and most of the rest of us in the real estate industry. Adding the shadow inventory to the current visible inventory at about 4.2 million units, creates a 23-month supply of potential homes for sale when a 6- to 7-month supply is in the normal range.

But for all the reports of this shadow inventory in the news, none really factor in elements of our economic recovery that will effectively lower this inventory and perhaps even keep a good deal of this housing from ever coming to market.

First of all, the jobs outlook is improving, and while many are still feeling the pain of this downturn, it’s at least going in the right direction. According to a survey by the National Association for Business Economics in January 2011, “sales have strengthened and economic growth has picked up while the percentage of businesses expecting to increase payrolls during the first half of 2011 exceeded the share projecting more firings by 35 points, the most since the question was first asked in 1998. More than half of these businesses said they planned to boost spending on new equipment, up from 48% in the October survey.”

As we continue to move in a positive economic direction, the shadow inventory will shrink as the newly employed seek to keep their homes through continued modifications or take advantage of price declines and purchase homes. It has been stated that it could take as long as four years to eliminate this shadow inventory, but perhaps not if the economy stays on this track of growth.

Certainly there are parts of the country where this inventory is very high, such as Florida, California and Michigan. Recovery will be spotty, that is certain, and some areas may still see some price declines in the near future. But let’s stop with all the numbers because, in the end, we still believe in the American Dream, and at the core of this dream is owning a home. Yes, there will still be those that pick up and leave their homes for various reasons, but even as this happens and changes in the younger generations’ mindsets occur, Americans’ homes will still be where their hearts are!

Chris Kaucnik is chief marketing officer for Home Warranty of America.

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