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Shadow inventory & reverse mortgage home values

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The coming shadow housing inventory and home prices

Home listing prices are dropping in several metros across the country but certainly not in all markets. In fact, if you look at your local home listings in the MLS (Multiple Listing Service), Zillow, or Redfin you’re likely to notice that there are far fewer homes listed for sale today than there were just months ago.

But more importantly, you may see home sellers stubbornly listing their homes at 2021 prices with 2023 interest rates. A disconnect from reality? Perhaps, but it’s also indicative of a frozen real estate market. 

Reverse mortgage professionals are particularly keen on home price trends in their markets because it determines if a borrower may qualify for a reverse mortgage or receive enough loan proceeds to meet their objectives. While the housing market is somewhat stalled, a backlog of shadow inventory may finally hit the market in late 2023.

The term shadow housing inventory is somewhat broad so let’s define it.

 

Shadow inventory may include homes presently owned by residents or investors who are waiting for more ideal selling conditions or REOs (real-estate-owned) properties that are in foreclosure that won’t hit the market for several months. However, a third element of shadow inventory is generally overlooked. New single-family construction. 

In 2020 there were 523,000 single-family units under construction. That number surged to a high of 811,000 units in 2022 despite supply chain disruptions and spikes in building supply prices. As of March Realtor-com shows 735,000 single-family units being built. With supply issues generally resolved and material pricing dropping substantially many of these units will become active listings later this year. The pipeline of homes under construction will help boost housing inventory back to levels seen in a normalized housing market. 

Single-Family Homes Under Construction (Snapforce)

For example, if you add 735,000 single-family homes under construction today to the present 562.565 available homes in inventory we would return to pre-pandemic inventory levels last seen in late 2018. Removing the barrier of artificially tight inventory will increase supply significantly and consequently, the log jam in home prices will be broken allowing prices to reflect the current economy and mortgage interest rates.

Single-Family Home Inventory (Snapforce)

In conclusion, reverse mortgage professionals may find benefit in tracking housing inventory and construction trends in their markets to anticipate which areas may see sizable reductions in home prices. This research may reveal which areas will be more or less susceptible to large declines in value when housing inventory returns to its pre-pandemic norm.

Postscript:

Snapforce is the tool we use to look at the macro and local market housing trends. This tool was featured in our February 27th broadcast of the Industry Leader Update. Those wishing to research their markets can subscribe to Snapforce for $12/month here.

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Editor in Chief: HECMWorld.com
 
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
 
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
 
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.

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