Daybreak, Utah News

Have you heard about the shadow market? Maybe even shadow demand? What are these and what do they mean for the housing market?

Shadow Market

The concept of the Shadow Market is that there is a large supply of investor or government-owned homes that could flood the market. Recently supply has been really low so home prices have been going up due to competition. If the inventory of homes were to rise sharply, it could slow or even prevent rising home prices.

Is there a Shadow Market?

The government reports that there are just under two million home owners who are behind on their monthly payments of government-backed mortgages. These individuals are potential foreclosures. The consequence of almost two million defaulted loans would be a fresh flood of foreclosures on the market. Will the government default these loans and unleash the shadow market?

It's hard to say.

This would pose a huge financial risk for these federal agencies if they actually seized them. The government has already spent billions of dollars helping home owners manage high-cost loans and stabilize volatile areas. After all of that money, there are still 1.7 million threatening foreclosure. If the government started seizing all these homes they'll need to cover maintenance expenses, contractors, and real estate agents to sell and maintain the properties. So the government must decide what is the more financially sound decision. One approach they've been trying is offering the foreclosures in bulk to investors who will then use them as rentals. The market recovery would add higher value to these homes and outweigh some of the maintenance costs.

Shadow Demand