DEFINITION of 'Shadow Inventory'

A term that refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell (for owners) and when a local market can expect full recovery. Also, shadow inventory typically causes reported data on housing inventory to understate the actual number of inventory in the market.

BREAKING DOWN 'Shadow Inventory'

With the unprecedented number of foreclosures stemming from the subprime mortgage meltdown of 2007-2008 and the overall housing market collapse during that crisis, lenders were left with significant real estate holdings. Many lenders were slow to put their inventory up for sale for fear of flooding the market and further driving down prices, which would in turn lower their potential ROI.

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