Woman searching online for shadow inventory real estate to purchase.

Shadow Inventory: What It Is And Where You Can Find It

Sarah Sharkey3-minute read

September 28, 2021


Implications Of Shadow Inventory

Shadow inventory is an uncommon term. But the consequences of shadow inventory can be dramatic. Here are some of the most significant impacts of the phenomenon.

Impact On The Housing Market

Shadow inventory can reflect conditions in the housing market.

If lenders and homeowners choose to hold off on selling their properties, that can indicate a poor housing market. After all, these sellers want to get top dollar for their property. The choice to hold onto the property for longer can indicate that the market is slow. The seller may decide to release the property for sale once the market begins to grow again.

With that, a slow market often means more shadow inventory. But a strong market often leads to a small shadow inventory. If the market is growing, sellers are less likely to hold on to the property for a better deal.

Why Banks Hold Onto Shadow Inventory

When a bank or lender is in possession of a property, the goal is to sell the property for the best possible price. If the market is slow, then a lender may choose to hang on to the property until the market begins to grow again.

A growing market can lead to higher property values and more profit for the lender’s bottom line. For example, buyers are experiencing a seller’s market across the country. With hot prices and rising values, it is likely that there is minimal shadow inventory available.

How Real Estate Investors Can Benefit From Shadow Inventory

Real estate investors stand to gain a lot from shadow inventory.

With one real estate investing strategy, investors can work with lenders and banks to buy foreclosed homes from the shadow inventory at a discount before they’re put on the market. That means there are lots of deals to be had for real estate investors!

How To Find Shadow Inventory Real Estate

Shadow inventory can serve as a useful investment opportunity. After all, there is plenty of room for negotiation on the price of an investment property before the property even hits the market at large.

If you want to find shadow inventory, a good place to start is speaking with the REO departments of small banks and credit unions. Another tactic is to work with a real estate agent who may have the right connections.

Although it may take more time to find shadow inventory, it could be worth the effort.

Can You Find Shadow Inventory On Real Estate Listing Sites?

You won’t be able to find shadow inventory on any listing site or the Multiple Listing Service (MLS). However, a connected real estate agent could be able to point you in the right direction. 

The Bottom Line: Affordable Housing May Be Hiding In The Shadows

Shadow inventory presents a potentially lucrative opportunity to real estate investors. However, the impact of the currently available shadow inventory can have impacts throughout the housing market.

Are you ready to move forward with a home purchase?  Apply today with Rocket Mortgage®.

Today's Purchase Rates

Loan Option Rate / APR
30 Year Fixed* 3.125% / 3.391%
15 Year Fixed* 2.375% / 2.846%
VA 15 Year* 2.25% / 2.922%
VA 30 Year* 2.75% / 3.10%
FHA 15 Year* 2.125% / 3.392%
FHA 30 Year* 2.625% / 3.591%
These rates are current as of 6:12 PM UTC on October 27, 2021

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Sarah Sharkey

Sarah Sharkey is a personal finance writer that enjoys helping readers learn more about their finances. She has an MS in Business Management from the University of Florida. You can connect with her on LinkedIn or Instagram @adventurousadulting.