Real Estate Investment News & Blog

Shadow Inventory vs Declining Home Listing Inventory

Since the housing peak near 2007, approximately five (5) million homes nationally have gone all the way through the entire foreclosure process, ending up with the banks or with third-party investors. Another potential five (5) million homes may have gone through various phases of foreclosure but did not go all the way to a final foreclosure sale.

shadow inventory

Are banks hiding millions of foreclosures as “Shadow Inventory”?

If these numbers are true, then there were potentially upwards of ten (10) million homes nationally which went through some phase of the foreclosure process these past several years. As a comparative number, there are an estimated five (5) million mortgaged homes combined in California alone.

So why are inventories declining? As we all know, one of the best ways to try to increase the value of something is to suggest that there is a shortage of the product.

Home listing inventories have fallen in many regions by 30% to 70% year-over-year, despite our ongoing sluggish economy. At the same time, many homes have increased in value by 5% to 20%+ just over the past year.

Are there potentially several million “Shadow Inventory” foreclosure homes that may have been delayed? Are banks trying to artificially suppress listed home inventory levels, so that home prices slowly increase once again?

The MERS and LIBOR Scandals

The LIBOR and MERS Scandals are two key reasons why home supply is declining and the MLS inventory levels are much lower today.

The #1 reason why there was a foreclosure moratorium is linked to the questionable and legal right of MERS to actually foreclose on many homeowners. Since MERS acts as the nominee on behalf of many of the biggest banks and mortgage servicing companies, they affected the legal ownership of real estate and “Chains of Title” more than anything else.

LIBOR allegedly involved the rigging and manipulation of interest rates. Many homeowners were charged higher rates on their mortgages and credit lines which used the benchmark LIBOR rate as their core index.

If a homeowner may currently be in foreclosure, then will this same homeowner be able to stop the foreclosure process if he was overcharged thousands of dollars in fees and rates due to the rigging of LIBOR rates?

Numerous banks have sold entire packaged pools of their “Shadow Inventory” homes to domestic or foreign investment groups to avoid potential legal issues with future MLS buyers.

Supply and Demand

In life as well as in real estate, perception typically becomes one’s reality. If someone believes there aren’t enough homes for sale, then this will cause that same buyer to jump back into the real estate arena before the existing prices and interest rates rise too rapidly in the near term. As demand increases, then so do home prices.

Many big banks and mortgage servicing companies are trying to clear up their foreclosure supplies by either selling them off in bulk to large investment banks or even by bulldozing them,  like in Detroit. Instead of a true “popping” real estate bubble, we have experienced more of a slow leak by gradually releasing more foreclosed “Shadow Inventory” homes to the General Public.

The brightest real estate investors out there are picking up some great deals with very cheap money, and are “fixing and flipping” these same homes for quick profits, while the home listing inventories remain very low.

The supply of capital drives the future direction of the housing market more than any other economic factor. Let’s hope that banks decide to lend more of their money to U.S. consumers instead of  hoarding their cash to save themselves. Your comments are welcome.

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About the Author...

Check out Rick's new book The Credit Crisis: 10 Years and Counting (August 2017 publishing date) as well as The Credit Crisis Deals: Finding America's Best Real Estate Bargains.

Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date. He also writes college textbooks and real estate courses in several states for some of the largest educational firms nationwide.

Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.

You can visit Rick Tobin at


  1. Paris says:

    Shadow inventory? The banks don’t even know what they own. A home near me was forclosed and transferred to BOA through MERS. I called BOA to buy it and they said they didn’t own it! I had to goto MERS and send them the transfer number. BOA still says it’s not thiers so it sits vacant.

  2. Dylan Tanaka says:

    Rick this is a great article. I invest in metro Detroit which was close to being hit the hardest by the foreclosure boom. As a full time real estate investor I spend all day every day in the trenches. Over the past 18 months I’ve been able to go from buying a couple houses per month to 1 every other month while spending triple the time on it.

    As I spend time with other active and successful real estate investors, we all have one question…where the heck is the inventory. I think you’ve touched on where most of it is.

    The real question is if and when the banks will come clean and release the “shadow inventory”

  3. Mike Johnson says:

    Hi Rick,

    Thank you for bringing this topic to the spotlight.

    Another contributor to higher home prices is inflation. The Federal Reserve has printed trillions of dollars since the 2008 collapse to keep the economy from total collapse. Real inflation is running about 10% per year once you measure it the way the fed gov used to measure it in the 1990’s. (see for the explanation) The fed gov changed their formula to make inflation look lower than it really is for a variety of self-serving reasons.

    The Federal Reserve is also buying about $45 BILLION worth of mortgage-backed securities per MONTH, which is in effect, pulling those MERS-impaired mortgages off the market while paying those banks and investment pools who hold them 100% on the dollar. This $45 billion is just keystroked into existence out of thin air. This is basically counterfeiting, which makes the dollars we hold worth-less. Home prices aren’t actually rising, the value of the dollar is falling. It just takes more dollars to buy the same home.

    Former bank examiner Bill Black has looked closely at the big US banks balance sheets and flatly says they are all massively insolvent right now. When they book a foreclosure, they have to book the lower value which hurts their financials. Until the foreclosure is written off or sold, they hold that loan at 100% value. So they have an incentive to write off as few foreclosures as possible. If they claimed them all, they would immediately all go bankrupt. So the shadow inventory will continue to be “released” little by little to help the banks buy time for the Federal Reserve purchases and Federal Reserve-created inflation to play out and make the banks whole.

    By that time the dollar will really be plummetting in value. Income producing real estate is still a great inflation hedge and a safer income source (anything you can touch is safer than paper or digital dollars or paper assets) but we do have to worry about our tenants’ ability to pay as the dollar continues its fall from worth-less to worthless. Most tenants do not have enough wealth to store in real goods outside the US dollar, so their purchasing power will continue to fall. And of those who do have excess wealth, many of them are ignorant of how inflation is ravishing their wealth right now.

    This is why I am continually reminding my tenants that a small side business is a great way to earn extra cash to buy real goods and a great insurance policy against job loss, which I think will only get worse for the forseeable future.

    There is reason for hope, however, as this can’t last forever. There will have to be a Big Reset of some kind to eliminate the huge debt levels that are smothering the economy and the federal and state governments. Unfortunately, this Reset will have to devalue the dollar even more — which is another reason to hold your excess wealth outside paper or digital dollars and in real goods like income-producing real estate.

    Thanks for starting this important topic.

    Mike Johnson

    • Chris In FL says:

      Mike Johnson,

      Love your reply… I follow Robert Kiyosaki quite a bit – you sure Mike Johnson isn’t a fictitious name for R.K.? LOL. I share your concerns. Our government is running a Ponzi scheme with the dollar, and it can’t go on forever. Just like a family living on credit cards, increasing their borrowing every year, sooner or later something has to give. Same thing with creating dollars by the billions, with a B! Real estate is a good hedge, though I share your concerns about my tenants losing purchasing power fast… I tell my wife, might be we have to barter. One tenant pays us rent with chickens, another with a cow, third by fixing our vehicles, fourth painting our houses, etc. For those of us wealthy enough to be able to do it, I also think a small percentage of our wealth stored in silver (I like 1 oz American Eagles) is not a bad form of insurance – right amount of value to use to buy groceries, etc. if we ever reach that point where you go to the store with $100 for a loaf of bread, and when you get there it costs $200. Or, you set your wheelbarrow full of money outside the store, and as you shop, somebody dumps the money out and steals the wheelbarrow. Currency not pegged to a real asset, sooner or later over time, goes towards worthless. R.K. has said that he expects that sooner not later – maybe in 2-3 years or less. I personally think further out than that, but who knows. If when it starts to spiral, it could happen fast. If we were any other currency but the dollar, which has been a benchmark around the world for a long time, and any other country but America, I think the Ponzi scheme would have been stopped long ago. They are getting away with it because we have been the currency and investment country of choice for so long (IMHO). Thanks for sharing.

      Best wishes,
      Chris in FL

      • Mike Johnson says:

        Hi Chris,

        Thanks for the big compliment — I am an enthusiastic Robert Kiyosaki (Rich Dad Poor Dad) fan. Had I grasped his advice earlier I’d have retired by age 25 instead of 52.

        Everyone would be far more financially secure if they just understood that money DOES grow on trees — it’s called food. The rich buy trees (assets) while everyone else buys food (liabilities). Once you buy enough trees, you never have to work for food again. It’s a simple concept — if you need more money, just buy another income stream. And this website teaches many ways to do that without having any money to start.

        I agree with your take on physical silver — it is the most underpriced asset on earth. Once the Big Reset or Big Collapse hits, it will skyrocket in price. It is a great asset to hold in reserve to give you the ability to pay off all your mortgages at pennies on the dollar when hyperinflation hits. It is wise for any investor to back his empire with “the silver standard.”

        But investing excess wealth is only wise after you’ve socked away an emergency fund, a year’s worth of food and other survival-critical goods, and invested in educating yourself about basic survival and financial skills. It’s a mathematical certainty that rough times are on the way and very few are prepared. I like you mentioning your Plan B (bartering) as that is a more likely reality than most realize. In fact, it is also a great investment strategy to purchase extra liquor, coffee, soap and other real goods that you already use to have in reserve as possible barter items in the future.

        When you have excess wealth after the basics above, I always recommend purchasing physical silver as it is far cheaper than gold, more divisible, easier to get change if ever used as money and severely underpriced with a spectacular upside.

        Because I’ve had success with mobile home parks as my income streams, I also enthusiastically recommend investing in the type of aluminum that comes in 14 X 70 foot “ingots.”

        Most of my success can be traced to the nearly free advice I’ve gained from Rich Dad, this website and Lonnie Scruggs (the mobile home expert). All three sincerely want to help others, which only proves again that the truly successful want others to succeed too. So as we reach our own definitions of success, it is only natural that we too, want to share our learning with others. Pay if forward!

  4. Paul Wiseman says:

    Interesting article; thanks Rick – many points that have not occurred to me. But what about the basic concept that many of these homes have been scarfed up by investors at bargain prices too good to pass up.
    Thanks again for stimulating my thoughts.

  5. Rick Tobin says:

    Thank you for the comments above, Mike. Quantitative Easing, and other trillion dollar bailouts, are devaluing the value of the U.S. Dollar. A weaker Dollar, in turn, leads to increasing levels of inflation which traditonally tends to help real estate better than most other types of asset classes.

    Additionally, the “Fed” allegedly purchases upwards of $85 billion per month in U.S. Treasuries and mortgages as you referenced above in order to partly continue to artificially suppress interest rates. Lower rates, in turn, tends to lead to higher prices for assets due to increased demand.

    I also like to research data from John Williams’ website. Is the real rate of inflation 3%, 7%, 10%, 15%, or even 20%+ for various types of consumer goods or services? Wasn’t it just four or five years ago that gasoline was under $2 per gallon? What is the true rate of annual inflation for gasoline prices in recent years thanks to a weakening “Petrodollar” system?

    MERS (Mortgage Electronic Registration System) potentially affected tens of millions of residential mortgages nationwide. In many cases, the existing mortgage paperwork had no valid promissory note and /or a legitimate notarized signature (aka “Linda Green” – a forged notarized signature on thousands of mortgage documents nationwide). If there was no existing promissory note (“IOU” for the debt), then was the existing mortgage debt even valid?

    With the LIBOR Scandal, potentially $300 to $800 trillion of loans or assets might have been adversely affected by the rigging of the LIBOR benchmark index which is used in so many various types of mortgage, credit card, automobile, and derivatives loans or investments.

    Due to the MERS Scandal, the national foreclosure moratorium and the National Mortgage Settlement Act of 2012 lead to a declining suppy of available homes listed for sale. In recent times, national home listing inventories are near twenty (20) year lows, rates are near historic lows, and home sales prices continue to increase since there are more motivated buyers today who have access to cheaper money.

    When our financial leaders create money “out of thin air” in order to purchase more assets such as stocks, bonds, and mortgages, then inflation tends to follow as well. Historically, real estate has been one of the best hedges against inflation so we may continue to see homes appreciating 5% to 20%+ per year in various regions nationally as long as interest rates also continue to remain near their lows today.

  6. Rick Tobin says:

    @ Paul and Mike:

    Thank you both as well for your comments. Yes, it is challenging to pass up foreclosure investments as low as $1 to $20,000 for a home in various regions of the country. Isn’t the land alone in many of these regions worth much more than the purchase price of the home?

    If I may buy a home for $12,000 and rent it out for $1,000 per month, then will I potentially recapture my entire purchase price in a year or so (excluding any repairs)? I know some investors who have been purchasing hundreds of discounted homes these past few years, and their annual cash on cash returns have been incredible.

    These past several years since 2007, we have experienced a deflationary real estate cycle which has been improving over the past year or two in various regions. The best way out of a deflationary cycle is by way of INFLATION. As a result, I personally believe that median home values will continue to increase this year possibly even more so than in 2012 as long as the “Shadow Inventory” continues to be artifically suppressed right along with the incredibly low interest rates today.

  7. stella mayeux says:

    I agree with these comment’s we haven’t hit bottom yet. Stella

  8. My primary residence in Hawaii was originally funded by Countrywide, they immediately went belly-up….Bank of America took the loan…assigned it to MERS where Lehman Brothers owns it and now several other service companies have had it, some of which I have never even heard from or know anything about them. It is currently with Nationstar, I haven’t paid a mortgage payment in 8 years. The statute of limitations on a promissory note in Hawaii is 6 years. I truly believe that since multiple lenders,servicers and owners have had my loan….most if not all the paperwork is lost or destroyed. I spoke with the attorney for Nationstar today and she confirmed my loan is in a “inactive” status and no foreclosure proceedings are pending. I have learned a lot from researching all this fraud and lending institutions acting in bad faith, I am preparing to defend myself in the event any one of them try and foreclose. NO ORIGINAL PAPERWORK, NO FORECLOSE. I filed certified mail with all the known lenders requesting copies of what paperwork they have and also requesting the whereabouts of the original signed promissory note. They are required by law to respond within 30 days with the information. I don’t feel guilty about not paying my mortgage. I tried at every level to negotiate, apply for Obama’s programs….what a joke they are. I think Obama’s plan was to get people to sign new loan docs so the banks could foreclose. Has anyone heard of a loan not being paid for 8 years and what became of it?

What do you think? We would love to hear your opinion.


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