Dr. Housing Bubble 08/30/09

Shadow Inventory Proof and Banks Delaying Losses for another Day. Banks Employing the Stick Your Head in the Sand Solution for the Financial Crisis.

Apparently acknowledging shadow inventory is like holding onto childhood superstitions like believing in Santa Clause or the financial Easter Bunny. Over the last week, many of you have sent me articles where many authors both amateur and professional have started attacking shadow inventory and started proclaiming that it was a myth. Shadow inventory does not exist according to these new articles. Some of these authors went ahead and made up their own definitions of shadow inventory which in itself is curious since this inventory supposedly does not exist. The problem of course is that there are many definitions of what shadow inventory is so I will try to reiterate what I have been talking about for months.

Here is how I define this category of inventory:

“(Doctor Housing Bubble) What is shadow inventory? First, shadow inventory is housing units that are not making it onto the public market for one reason or another. There is speculation surrounding why this is happening. Lenders are overwhelmed and simply do not have the human capital to handle the glut so goes one theory. Others speculate that lenders are simply too incompetent to have a system in place to handle the mess they created.”

This is rather clear and many people when referring to shadow inventory are discussing it by this definition. Essentially shadow inventory encompasses housing inventory that isn’t viewable by the public or measured in more historical standards. Calculated Risk does an excellent job breaking down some of the categories:

“(Calculated Risk) There are several categories of shadow inventory:

REOs. There are bank owned properties that have not been put on the market yet. Several sources have told me the number is growing - no one knows why except possibly for accounting reasons (the banks might have to take an addition write down when they sell the property).

http://www.doctorhousingbubble.com/shadow-inventory-proof-and-banks-delaying-losses-for-another-day-banks-employing-the-stick-your-head-in-the-sand-solution-for-the-financial-crisis/

with their "inventory" of houses.

Includes hints about what effect the
"suspension of mark to market" will have
on housing stock and banking in general.

Watch out!