To make matters even more challenging, potential REO inventories may be larger than the current inventory numbers indicate. The Brooking Institution’s Alan Mallach provides us with an article that focuses on the growing number of properties that are delinquent or in the foreclosure process, but have not yet entered the market as REO.
This “shadow inventory” threatens to continue the downward pressure on housing prices and further destabilizes communities. On a more positive note, however, Mallach contends that the neighborhood impact of REO properties can be mitigated if subsequent owners have a long-term interest. He points out that the community impact of an REO property purchased by an individual homebuyer is barely noticeable.