Shadow inventory are homes that will soon be on the market but not for the usual reasons. These are homes that are 90-days plus delinquent, about to hit foreclosure, already are in foreclosure or are bank owned (REO) properties that have not been put on the market. These properties will end up as distressed or short sales further keeping house values flat.

What does this mean? Most real estate professionals consider a 34-month supply of shadow inventory to be the norm. The higher amount of housing supply leads to more product, more inventory, more competition and lower prices. 

A recent analysis by Standard and Poor’s indicates that several cities may have more foreclosures coming due to months of shadow inventory.  Dallas has a 43-month supply as does Denver, Atlanta and Boston. New York City has the highest with an 103-month supply and Phoenix has the lowest with an 18-month supply.