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Can Shadow Demand Impact the Recovery?

Solomon-Success3-22-13One watchword for prudent living is patience, according to King Solomon. And a number of his Proverbs remind us that it’s also a key virtue for long term prosperity. “The impatient man shall work folly, “ the King says in Proverbs 14: 17. Today’s housing industry experts worry that he “shadow demand” for housing fueled by a sense of impatience among potential homebuyers could destabilize a housing market that’s on its way to recovery.

The term “shadow demand” echoes the concept of the shadow inventory — the backlog of foreclosed homes that haven’t been put on the market. These homes are waiting in the wings, so to speak, potentially capable of flooding the housing market all at once and driving prices down.

The same idea applies to the newly coined shadow dammed – a group of potential homebuyers who might have purchased houses since the housing collapse but didn’t, due to financial uncertainty or credit issues. As the economy improves, so the theory goes, large numbers of these would-be buyers are regaining enough stability to revisit home buying.

As mortgage rates continue low and the number of homes for sale is limited in many markets, these buyers may be experiencing the sense of buyer urgency that could spike demand for new and existing homes – a belief that now is the time to buy before conditions worsen, rates go up and they lose their financial footing again.

Also fueling the shadow demand are the so-called “strategic defaulters” and other victims of foreclosure. These former homeowners are trying again to buy homes, now that waiting periods imposed by mortgage lenders are running down and lenders are taking a second look at credit problems caused by the housing collapse.

What does all this mean for the housing recovery – and for investors seeking to buy income properties? Industry experts fear that, like the shadow inventory, the shadow demand will suddenly emerge into the light, with a sudden, large influx of new buyers competing for the limited number of properties available for purchase.

That could cause prices to rise, with an added benefit of helping some shrugging homeowners dealing with negative equity to regain some stability. Pressure could also increase on sellers to close deals quickly, and on banks to push more homes onto the market to meet the increased demand.

Some industry experts claim that all the talk of looming shadows is simply alarmism based on a bad metaphor. After all, shadows have no substance of their own. But for investors building long-term wealth through investment property as Jason Hartman advises, these shadows may conceal costly pitfalls – or unexpected opportunity.

Register now for the Memphis Wealth Building Bus Tour and Real Estate Education Event, coming April 26-28, 2013 to the Memphis Hilton. Meet with investing experts, Jason Hartman’s local property specialists and take a bus tour of turnkey investment propertied available now. As an added bonus, ticket costs are applied toward any property purchased during the event.(Top image: net_efekt)


The Solomon Success Team

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