Know about Texas Foreclosure and Shadow Inventory

Few weeks ago I posted a blog talking about many markets in Texas becoming seller’s market because of low home inventory. As per reports, Home sales in 2008, 2009 and 2010 were sluggish all over America despite low interest rates because of job losses and falling home prices in many parts of the country. Job growth started to increase in 2011, but home buyers were still skeptical because of the possibility of falling prices. As we passed through 2012, job growth continued, mortgage rates were low and the fear of falling prices began to fade into the mist of history.

Inventory levels of homes for sale (as reported by the local Multiple Listing Services [MLS]) are extremely low in some Texas markets and at manageable levels elsewhere across the state. When inventory levels are high, prices can fall.

When inventory levels are low, prices start to take off again. Especially Houston housing inventory has gone back to 1999 levels losing almost 20-30% in 2012.

On the right is the stats about the average foreclosure sales in Texas metros. We almost close to the pre-recession level on the foreclosure sells. It is really good for the sellers but not great news for buyers. Wait, it’s not over yet. There is talk about shadow inventory which is in pipeline and expected to hit the market anytime soon. Texas A&M Real Estate center has recently published a report shedding light on shadow inventory.

What is Shadow Inventory?
The shadow inventory could be defined as the number of homes in a local market that have seriously delinquent loans on them, are in the process of foreclosure, or have been foreclosed but not yet sold. These houses create a pipeline of additional inventory that will eventually be put up for sale and compete for buyers.

Statistics about Shadow Inventory

Table 1 above shows how Texas compares with California and Florida in mortgage loan distress. In Florida, nearly 21 percent of all loans reported by LPS(Lender Processing Services) haven’t received a payment in more than 90 days. A sizable portion of these loans will be foreclosed upon in coming months, adding to the current inventory of homes for sale in the marketplace. In California, 7.8 percent of the loans are seriously delinquent. Just 5.3 percent of the loans in Texas are seriously delinquent. Clearly the pipeline of troubled properties likely to come into the market in the next year is much smaller in Texas. Below is the graph about 90 day delinquent loans from 2005 to 2012.

Another table below shows more information about the loans which are current, delinquent and percentiles on each category. This will give you an idea about the shadow inventory which might hit the market soon. It doesn’t look like a lot but we still have few thousand houses which might come to foreclosures to add to the inventory.

As per the report and data, we see the clear indication of housing market improving every day. Delinquency rates are still elevated but no longer increasing. Foreclosure sales are still happening at elevated levels, but the local markets in Texas are digesting the extra inventory that comes from broken mortgage loans. The Texas housing market is not fully recovered, but it is getting there. There is light at the end of the tunnel. It’s not a train. To read full report, go to

If you are a buyer, you might not find lot many homes with great deal compared to few years ago. Sellers cheer up now, your wait is over. You can expect to sell houses at least for the appraised price and may be come out good at the end.

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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