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The housing market has shown some signs of life recently. Existing home sales are up compared to a few months ago, but some question the idea that the housing sector will lead the way to economic recovery. They say there's an untold number of houses waiting in the wings that have yet to hit the market, and the bigger this shadow inventory, the further off a real housing recovery might be.
Here's NPR's Yuki Noguchi with the story.
YUKI NOGUCHI: By the official count, there are about three-and-a-half million homes on the market right now. Given the rate of home sales, that's roughly twice the normal supply.
Mr. STAN HUMPHRIES (Chief Economist, Zillow): That could just be the tip of the iceberg.
NOGUCHI: Stan Humphries is chief economist for Zillow, a real estate Web site. It's not what's already for sale that worries economists like him. It's the number of homes that might hit the market in months to come.
Mr. HUMPHRIES: The portion of the iceberg below the waterline is inventory that's waiting to come into the market at some point. And as it bleeds into the market over time, it continues to put downward pressure on prices.
NOGUCHI: Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale, a number that's increasing. It also includes the untold number of homeowners who want to sell their homes, but are waiting for the market to improve. In a recent survey, Zillow found nearly a third of homeowners would have considered putting their homes on the market. Nationally, that would mean between 11 and 30 million homes that aren't listed but are on the sidelines waiting.
The would-be sellers include people like Jennifer Dalzell. She and her husband bought this five-bedroom row house just four years ago in the shadow of the nation's capital. Her husband's in the military, so they move around a lot.
Ms. JENNIFER DALZELL: We have been sent to different places and have decided to rent it because the market's just not good to sell.
NOGUCHI: Dalzell says she's watched the appraised value of their home plummet along with their retirement savings and mutual funds. Her husband will be moving to his new gig in Africa without the family, in part because they don't want to sell at what she believes is the bottom of the market.
Ms. DALZELL: Because we can wait, we'll wait until we feel that we can get a better price for the house. I think that the market will come back. It feels like there's money out there and people are just sort of waiting. And I guess we're contributing to that waiting game.
NOGUCHI: There are no records that quantify how many people like Dalzell there are. In fact, sizing up the shadow inventory is tough. Former Federal Reserve Chair Alan Greenspan spoke at the National Association of Realtors conference in May.
Mr. ALAN GREENSPAN (Former Federal Reserve Chairman): Unfortunately, our data are very delayed, and we really don't have a sense of exactly where we are, but it looks to me…
NOGUCHI: The key question, Greenspan said, is quantifying how many unsold single-family dwellings are available for sale. But it's not clear how many more homes will be heading into foreclosure. If prices keep falling, that number is bound to grow. Just last week, new government data showed the number of homes going through the foreclosure process jumped 22 percent during the first quarter.
The number of homeowners who are seriously delinquent on their mortgages is also up. And delinquencies are growing the fastest among borrowers who had good credit scores. And that's only part of the challenge. As banks take possession of more foreclosed homes, not all of those are listed, sometimes because the banks are holding back inventory so they don't flood the market.
Mr. PAT LASHINSKY (Chief Executive, ZipRealty): I do know that banks are holding onto inventory, and what they're doing is they're metering them out at an appropriate level to what the market will bear.
NOGUCHI: Pat Lashinsky is chief executive of ZipRealty, an online brokerage site. He says this strategy has paid off for banks, even if it also pushes a full housing recovery further out.
Mr. LASHINSKY: By not flooding the market, they were getting a better pricing on the homes that they owned. And instead of people coming in and offering less than what the prices were, they were ending up in multiple-offer situations and getting more for the homes.
NOGUCHI: Lashinsky says a large shadow inventory is not all bad because it creates a kind of buffer. Having so many people hold back prevents a free-fall in home prices, and also, when the economy recovers, he says there will be plenty of homes to buy.
Yuki Noguchi, NPR News.
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