The Shadow Knows…

Shhh. Sh-sh-shhhh. Oops. Sorry. Shhhhh. No, I’m not shushing you. Honest. This is an Advertorial. We’re here to talk about real estate – not keep it on the QT.

My recurring speech impediment has flared up again. Maybe it’s a mild form of Tourettes. Part of my brain is trying to stop another part of my brain from blurting out bad words that aren’t supposed to be heard in public. My inner Gallant is trying to shut up my inner Goofus before he acts out in front of polite company.

Shh-Sh.-Shhh. See, every time I attempt to get a word in edgewise on myself, I begin stuttering. The last time this happened was in 2005 when my lips started twitching every time I tried to talk real estate. A series of b-b-bu-bu-bubs issued forth involuntarily whenever I opened my mouth. It was like some invisible finger of fate was flicking itself across my lower lip. I sounded like I was b-b-busy making goofy b-b-baby noises while there was a really serious rogue elephant stampeding the marketplace.

What finally came stammering up out of my subconscious in a cathartic moment of release was the one word that no one wanted to hear at the time – bubble. By then, it was too late. And the rest is real estate history. History we are still trying to muck our way through in the present tenseness.

But now, I’ve got this sh-sh-sh thing going on. Thankfully all that therapy I had in the past is helping me get to the bottom of my speech pathology quicker this time. So everybody be quiet for real now, ok? Listen up. Shhhh.

I’ve got two important words to say to you. Actually it’s four words, but bear with me. Ready? Sh-sh-sh-shadow inventory. Sh-sh-sh-short sales. Whatever else I say and whatever else anyone tells you and whatever else you believe, these are two of the most important things you can pay attention to right now.

No one is talking about either of these things in a way that does them justice. Sure the words get tossed around. Casual catch-phrases floating through the open house ether. But truly meaningful conversation and analysis in the context of the big picture is conspicuously absent. The silence surrounding both is deafening. All I know, is that the growing size of the shadow inventory and the growing number of short sales are both exerting a huge gravitational pull on the marketplace, in ways we can’t quite grasp or comprehend yet.

Shadow inventory is the name for that the hidden underground vault full of foreclosed properties the banks are hoarding. For reasons we can only guess at, they aren’t ready to recycle their REOs back through the marketplace. They’ve been dribbling a few out here and there but the vast majority haven’t seen the light of day since they fell off the court house steps into the abyss. In fact, apocryphal stories from local REO Agents suggest that the tiny flow of post-foreclosure listings has grown even more constricted these last few months. The drip of damned-up inventory has stalled below a snails pace. Why? Inquiring minds want to know.

At the same time the number of REOs coming on is decreasing, the number of short sales is increasing exponentially. Short sale has to be the dumbest term anyone ever invented for anything having to do with real estate (other than the word “real” itself.) Short sales aren’t short. And to date, not a lot of what we sorta, kinda, wanna think of as short sales as in actual “sales” – have really turned out to be sales at all.

The whole concept of the short sale is fuzzy at best. A clustered FUBAR at worst. A Seller is nominally the Seller, but in the end, after hiring an Agent and marketing the property and negotiating an offer, it is the bank(s) that decides whether a property sells or not. Once a possible sale disappears into the bowels of short sale negotiation anything can happen – including nothing. How do things get decided? How long is it going to take? Who knows? Everything is open- ended. A hope and a prayer with Jiminy Cricket as escrow officer.

Short sales are really just a shadowier kind of inventory than the other kind of shadow inventory. Add them to the huge supply of homes already residing in the limbo of bank land. Sitting on the sidelines. Twiddling their thumbs. Collecting cobwebs. Waiting to be released and unleashed upon the market someday when something or someone decides it’s the right time to let ’em rip right through the tender balance between supply and demand.

As conventional wisdom says Sh-t Happens. As these unconventional times also suggest… a lot of ShSh is going to happen too.


1 thought on “The Shadow Knows…

  1. pn

    …not to mention the thousands (millions?) of houses still being resided in by owners who defaulted a year ago, and the banks have not done anything yet; also not to mention the people who have techinically not “defaulted” but who are 60 days behind on payments and who statistically will default, not to mention the “modifications” which will also no doubt default…can you say China Syndrome?


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