Many experts differ on what impact shadow inventory will have on home values in 2013. Shadow inventory consists of properties in “pre-foreclosure”. The owners have stopped making payments and the lender has not yet initiated the foreclosure process. In some states, the lender is required to go through the court system (know as a judicial foreclosure) and this makes the process take more time. In other states, like Utah, the process does not need to go through the courts and is much more efficient. Therefore, in Utah, we do not have a backlog of shadow inventory.
In Summit County, foreclosures represented 34% of sales in 2011 but only 16% of sales in 2012. This number continues to fall. As of today, only 4 bank owned homes are on the market in the Park City area, representing only 1.1% of our single family home inventory.
You may read warnings that distressed properties will play a major role in limiting appreciation. According to the National Association of Realtors, foreclosures sell at a 20% discount. Based on the Summit County and Park City statistics, it appears that distressed properties will account for a very small portion of our market and will have a limited impact on home prices.