Market Insights: Warning: Do you know what is hiding in the shadows?
You and I care about Summit County real estate. That is why I provide these market insights each week and why you read them. I have seen what is hiding in the shadows and I want you to know what it is.This article is about “Shadow Inventory,” a term used frequently in the real estate industry, but not always understood. First, let’s define what the industry means by “inventory.” The National Association of Realtors (NAR) defines it as the number of properties currently for sale in a specific market. On a national basis, this is expressed in months. However, here, in some segments of the market, we have so much inventory we express it in years! For example, in The Highlands of Breckenridge, at the current time, the inventory of vacant land is over four years. Based on my involvement in the Resort & Second Home Specialists Division of NAR, I have learned the ideal supply of inventory is closer to six months. This means that if no additional properties come on the market for sale, the existing supply would run out in six months.”Shadow Inventory” is the inventory that is likely to be coming on the market in the foreseeable future. For example, in most major metropolitan markets, bank-owned homes that have not yet been placed up for sale constitute the majority of the shadow inventory. In our resort community, it is much, much different. Here, those who hold the shadow inventory are sellers waiting for prices to increase. In particular, these are property owners who want to obtain the same peak price they could have obtained if they sold in 2007/08. Have a look at the photos of this Summit County home. At the peak of the market, it might have sold for $3+ million, but not today. This summer, it might sell for $2 million or less. Here is what I hear from owners of properties like this one: “It is very hard to swallow losing one million dollars or more.” I agree. Let’s look at the impact of shadow inventory in our unique community. I know for a fact there are many, many sellers waiting in the shadows of the market for prices to increase. Once prices start to increase, they say they will put their properties up for sale. If this happens, we will see a dramatic increase inventory. If this increase in inventory exceeds the buyer demand, prices will be pushed down again. All over the United States people in the industry are concerned this could happen.
For both buyers and sellers, it is critical that you work with a real estate professional who has a very, very broad view of their profession, so they can help you consider the impact of factors such as shadow inventory.Daniel Webster Johnson is a broker associate at Resort Brokers Real Estate in Breckenridge. He can be reached at (970) 393-3300 or daniel@YourMountainBroker.com.
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