Will the 'shadow inventory' stunt a housing recovery?

After every bear market on Wall Street, some investors are reluctant to buy because they believe many other investors will be anxious to sell into any rebound, swamping the market and stunting any recovery.

And yet, bull markets get going anyway.

Now the same issue is dogging the housing market.

A new Zillow.com survey of 1,266 homeowners nationwide asks, "If you saw signs of a real estate market turnaround in the next 12 months, how likely would you be to put your home up for sale?"

Twelve percent of homeowners said they’d be "very likely" to try to sell into an improving market, 8% said they’d be "likely" to do so and another 12% said they’d be "somewhat likely."

Zillow refers to that total of 32% as the "shadow inventory" of homes.

"With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices," said Stan Humphries, Zillow's vice president of data and analytics.

By region, just 7% of survey respondents in the West said they were "very likely" to try to sell their homes into an improving market, compared with 10% for the South, 12% for the Midwest and 20% for the Northeast.

Despite the low number for the West, I’ve often wondered through this housing crash whether California would be particularly vulnerable to a supply overhang -- in large part because of the number of aging California baby boomers whose retirement plan had consisted of eventually selling their home (at a big profit) and leaving for a lower-cost state.

For a summary of the Zillow survey, which also delves into home-price expectations and other market issues, go here. A link to the full report is here.

-- Tom Petruno

Photo credit: Joe Raedle / Getty Images

Comments

[Gimme A BREAK!]

1) Bloated DO-NOTHING (but get rich on the taxpayers' back) bureaucracy 2) protecting the most incompetent Govt employees (the NEW WELFARE recipient has a job, pay check, Govt car with govt credit card, retirement boosters, unbridled healthcare, and is TOTALLY UNACCOUNTABLE) 3) 50 years of gross mismanagement of the once Golden State 4) over-run with illegals getting anchor babies and education and healthcare at NO cost 5) Selling off the Crown Jewels for salmonella-laced peanuts.....yeah, every voter DESERVES to be STUCK in the quagmire where their homes have NO BUYERS - everyone with a brain, is fleeing!!!

[Ernst Blofeld]

On a micro economic level, there is a substantial shadow inventory of foreclosed homes in desirable areas of the greater Los Angeles area. Banks are withholding excessive numbers of REOs from desirable areas to prevent price deflation. In non-desirable areas (Compton, Paramount, South Central LA, the Inland Empire, Bakersfield, the desert, etc) banks put REOs up as quick as they can. In the desirable areas, banks are controlling the flow of what gets listed to keep prices from going through the floor.

If you look at the REO auction slated for May 16th, the listings area almost exclusively the undesirable areas.

[joomba]

Tom Petruno answered his own question on retirement with the data. People in the cold climates (NE, MW) are more anxious to sell than those already in the warm climates.

on the second post the incidence of foreclosure has been much lower in good sub markets than in new tracts and in lower cost areas. Hard to believe there is much more overhang in W LA or coastal OC than in Compton, Adelanto, or Hemet

[JB]

PRICES WILL CONTINUE TO FALL DESPITE WHAT THE NAR OR NEWS ORGANIZATIONS MIGHT SAY . GUARANTEED! !! AT LEAST ANOTHER 25% TO 50 % DEPENDING ON WHERE YOU LIVE . GET READY BECAUSE ITS GOING TO HAPPEN !!!

[luis]

@GimmeABreak So what you are saying is that the baby boomers are to blame?

I TOTALLY AGREE.