Active Rain September 7, 2011

The “Other” Shadow Inventory

The real estate world is upside downA recent post by Donna Harris got me to take this thought out of mothballs and share my view on a phenomenon I am witnessing out there in the market. We’ve heard of a “shadow inventory” of foreclosed homes that aren’t yet on the market. They are there, but they aren’t potential business until they get listed. 

Well, I think there is another “shadow inventory,” and it is on the side of the buyers. I’ll explain. As a listing agent, I monitor the number of showings each of my listings get. Some have has 20, 30 or even 40 showings and haven’t sold yet. So what did the 30 people who walked through end up buying? 

In most cases, nothing. There weren’t 30 other sales in that locale or price category. 25 of those 30 parties who walked through never bought anything. If they did, the market would have taken off. It didn’t. I would opine that more than half of the people out there looking won’t buy now or in the foreseeable future for a variety of reasons. 

  • They still have to sell their current home.
  • They haven’t been to the bank yet & won’t get approved.
  • They are nervous about committing to a purchase in this environment.
  • Their “plan,” such as an inheritance or parental gift won’t pan out. 
  • They like to look at houses.

Many of the agents working with these people are so desperate for business that they feel that working with a warm body beats sitting at home. And they hope that the buyer will find something so spectacular and wonderful that they’ll finally commit, go to the bank, or get off their rear end and buy. But they seldom do. Like the shadow inventory of homes, these people are “there,” but they aren’t business. They are busy work. 

In the meantime, we’ll still have 10, 20, and 30 showings that don’t buy- this house, or any house, while the agents accompanying those people spin their wheels and hope for a miracle. It isn’t a good business plan, but it is a reality.