Although we learned today that better home sales in August reduced inventory slightly, this isn't the whole story. The data only accounts for the inventory that banks have allowed to hit the market. There's much more so-called shadow inventory out there, which consists of homes that banks are putting off listing for sale to prop up prices. But good estimates of shadow inventory are hard to come by. In a MarketWatch column on the still struggling market, Keith Jurow explains:
With regard to shadow inventory, the key question is how many foreclosed and repossessed properties are now either in the inventory of banks or held on behalf of residential mortgage-backed securities investors whose loans they service. Estimates start at about 500,000 and go up from there. One highly reputable data provider with a huge database of first mortgage liens has been reporting an REO inventory in excess of 1 million since last summer. Whatever the number is, it seems clear that the vast majority of these properties aren't currently on the market.
Read the full story at MarketWatch.