Now, the first thing people will say as they read this is, “shadow inventory.” So let’s address it before we continue. “Shadow inventory” would be the number of homes, not for sale but currently in some state of foreclosure or already foreclosed on and owned by the banks (REO). As of Oct. 2011, that number stood at 1.6M homes. Now, before we get all excited, we should note that at the peak of the housing bubble, that number was 380K. So, this isn’t a case where we need to eliminate the shadow inventory but rather reduce it. To what level? Well, that depends on the number of monthly sales were are seeing.
There lies some good news as existing sales are at their highest levels since the crash giving way to the accelerating of the inventory decline we are seeing. Couple this with employment trends that are steadily increasing and we should see this trend continue.
So, yes, the shadow inventory is a concern but not nearly as large a one (and dwindling) as in 2009 when we had 12mos supply and >2m homes in shadow inventory.
The bottom line here is that we can expect more employment in the housing sector…..
Residential Construction Employment which has been one of the laggards in the economic recovery is turning higher. It is closely tied to the Monthly Supply of Homes for Sale as shown in the chart below. Employment peaks when monthly supply rises above 7mos and rises when monthly supply falls below 6mos.
Monthly supply is currently at 5.6mos and falling sharply. Good news for employment.