Housing Market Overhang-Double-Shadow

Last month's FuIi Disclosure column focused on the growing accumulation of loans in the severe stages of delinquency, and the impact that loan inventory will have on future foreclosure and real estate-owned (REO) activity. This month, we expand our perspective by adding home-sale activity data and a bifurcated view of an aggregate shadow market of pending housing inventory.

While market discussions have been circulating for some time about the impact of the shadow market on real estate values, the typical definition of this market represents homes that should be for sale on the market but for some reason aren't right now. We tend to view two unique shadow markets: one "clean" and one "dirty."

The clean shadow market is made up of properties held by homeowners who would like to sell but choose not to due to their perception (and reality, in most cases) that values are too depressed right now. They may have even listed a home within the past few years but pulled the listing off the multiple listing service (MLS) as activity and pricing in their market disappointed, or an actual negative-equity position came to light.