'Shadow' Inventory Looms Over Housing Market The law of supply and demand has been crushing home prices for years now, and it's still not getting better. Since fewer people are buying, several million houses are waiting in a long line to be put back on the market, an effect economists refer to as a housing shadow inventory.
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Foreclosed Homes Wait In 'Shadows' To Go On Sale

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Foreclosed Homes Wait In 'Shadows' To Go On Sale

Foreclosed Homes Wait In 'Shadows' To Go On Sale

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STEVE INSKEEP, Host:

It's Friday morning on MORNING EDITION, from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, Host:

But NPR's Chris Arnold reports on one glimmer of hope amidst all the bad news.

CHRIS ARNOLD: On any given day, in just about every city in the country, auctioneers are standing on the front steps of homes selling off foreclosed properties. Houses like this one, an older, wood-shingled house in a bit of a tough neighborhood in Boston.

MONTAGNE: I, R.J. Netaconi, attorney and authorized agent for Deutsche Bank National Trust Company, as Trustee for HSI Asset...

ARNOLD: Often, no buyers even show up and the bank just takes the house. Five years after the housing bubble burst, the numbers are still staggering. And the crazy thing is how many houses are still in the foreclosure pipeline and haven't even come up for sale.

MONTAGNE: In a worst case scenario, you're looking at potentially six million of these properties.

ARNOLD: Rick Sharga is with RealtyTrac, which follows this shadow inventory. He says there are more than a million homes in foreclosure that haven't been sold. On top of that, there are four million seriously delinquent home loans.

MONTAGNE: The majority of those ultimately will hit the market as distressed properties, another part of that shadow inventory.

ARNOLD: Sharga says at the current pace of foreclosure sales, it would take more than nine years to sell all these homes. Until then, they could keep glutting the market and putting downward pressure on prices. So that sounds pretty bad.

MONTAGNE: And the numbers, frankly, aren't terribly encouraging.

ARNOLD: Karl Case is an economist at Harvard University.

INSKEEP: If you look at the number of households in the country, that's been growing at a rate of about a million to a million and a half a year, quite steadily.

ARNOLD: Case says, though, that during this economic downturn...

INSKEEP: All of a sudden, that seems to have stopped - that process of generating new households. And we don't really know why yet.

ARNOLD: Household formation is about a third of what it normally is. And Case says that this is part of the story about why the housing market is so weak.

INSKEEP: People are doubling up. They're staying with mom and dad. They're not coming here, and immigration figures are showing it's down.

ARNOLD: Case says that problems in the housing market actually even effect marriage and divorce rates.

INSKEEP: There's a great song, Loudon Wainwright, on his new album called "I Can't Sell My House."

(SOUNDBITE OF SONG, "I CAN'T SELL MY HOUSE")

MONTAGNE: (Singing) There's no way we could sell our house now, so we'll have to stay. And you can't up and walk out on me and I can't run away.

ARNOLD: If they could split up, that would create another household - demand for another apartment or another house.

INSKEEP: There's actually a new paper in the American Economic Review this month that finds the marriage rate sensitive to changes in house prices. So this decision to form a household is a major component of demand.

ARNOLD: Nariman Behravesh is chief economist of the forecasting firm IHS.

MONTAGNE: One way to think about it is, the longer household formation stays down, the greater the pent-up demand. And it's like a rubber band. You keep pulling back on it, at some point when you let it go, it's going to snap back in a very big way.

ARNOLD: Chris Arnold, NPR News, Boston.

(SOUNDBITE OF SONG, "I CAN'T SELL MY HOUSE")

MONTAGNE: (Singing) Suppose we got a buyer, we could go our separate ways and consider all our time together just a passing phase.

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