lake norman real estate

What Role Does Shadow Inventory Play in Lake Norman Real Estate?


There was a rather disturbing article in Sunday’s Charlotte Observer:  Housing glut looms behind region’s ‘shadow inventory’.   It is not the whole issue of shadow inventory that is disturbing but rather the tone of the article, starting with the ominous title itself.  Home buyers are already extraordinarily nervous, why add relatively useless fuel to this fire?

Before I go any further, I need to address the definition of shadow inventory which is widely disputed:  The Shadow Inventory Debate.  For the sake of this article, I am defining shadow inventory as any home where there is a delinquent mortgage and has not been foreclosed upon by the lien holder.  While most of these are not listed for sale and may not be for years, some homes currently on the market in Lake Norman have been in the foreclosure process for several years but the sellers have been preemptive and have listed their homes as distressed.

If you are a regular reader you know two things about this blog, I love analyzing and interpreting the very specific numbers and data for Lake Norman’s housing market and I work hard to separate our local market from the broad brush media headlines about real estate.

While you might think that the Charlotte Observer’s article is specific enough to be applicable to our Lake Norman housing market, it simply isn’t and here is why:

The Facts:

Distressed Properties in Lake Norman’s Current Housing Market:

  • Only 10% ( 76 ) of Lake Norman’s homes for sale listed in the MLS are “distressed”  (Short Sales, In Foreclosure Process or Bank Owned).
  • 68% (52) of these distressed properties are short sales or in the foreclosure process so have not yet been foreclosed and would thus fall in to the category of  “shadow inventory” already based upon the definition above.
  • An additional 5% (4) properties are “In the Foreclosure Process” which means a total of 73% of our distress properties currently on the market for sale would be considered “shadow inventory” or properties in default or delinquent but not yet foreclosed upon.
  • Only 20 of our 76 distressed properties for sale are foreclosures that are bank owned and have completed the foreclosure process.
  • Take aways:  Today, distressed properties of any kind make up a relatively small portion of our current Lake Norman real estate market. And, a good portion of the distressed properties we do have are pre-foreclosures which would fall under the umbrella of shadow inventory indicating that Lake Norman homeowners are not waiting to be foreclosed upon but are electing to negotiate short sales if possible.  Yes, there may be many more properties in the foreclosure process that aren’t listed that are what the Charlotte Observer article are referring to but some at least are already on the market.

State of the levels of inventory of homes for sale in Lake Norman compared to prior years:

  • Today we have 752 active listings in the entire Lake Norman (area 13 in our MLS) area as compared to 1023 at the same time last year (-26%), 1161 in 2009 (-35%), and 1406 in 2008 (-47%).
  • Our number of active listings is about half of what they were in 2008 at the beginning of our recession!
  • So, even if we were to increase our number of homes for sale in Lake Norman with “shadow inventory” in the future as predicted in the article by 2000+ over the next few years they are not going to hit us all at once and given our very low inventory right now most likely won’t be harmful but rather a boost to our sales.
  • As David Benham was quoted in the article: ‘Demand, he said, outstrips supply…”Everything we have is flying off the shelf… The inventory’s not there”.
  • Like several quoted in the article, I have a number of buyers looking for and waiting for more bargains to hit the market.  However, the tables have turned in the Lake Norman area to a certain extent because the demand for bargains is higher than the supply.

Price Range of Distressed Properties

  • Of the 76 active distressed listings in Lake Norman today 26 or one third are under $300,000,  and two thirds are under $500,000.
  • Of the 20 distressed sales last month, 17 were under $500,000.
  • Clearly, our very lowest price ranges are most vulnerable to foreclosures at this time.  Several years ago we had a number of waterfront homes in higher price ranges as well as the left over inventory of new construction spec homes in higher end communities like The Point but these are gone and with no new construction of spec homes are not being replaced.

In general, home buyers looking in the Lake Norman area, just as else where, share a heavy skepticism about whether now is a good time to buy.   As the article said “The mere thought of shadow inventory can make potential buyers wary of investing of real estate.”  While a bit of caution is healthy, my concern is that buyers will hold out for bargains like we were selling two years ago and may not see again rather than take advantage of what we do have right now.

If you are one of these buyers, I simply can’t stress enough how important it is to get a thorough analysis of  the specific neighborhoods, areas and price range that you are considering and base your actions upon these facts not the broad brush news you read in the news.



Your comments...