The Shadow is a collection of serialized dramas, originally made popular in the 1930’s. This was a time long before television when radio dominated popular media. While originally a comic book character, ‘The Shadow’ became wildly popular through the voice of Orson Welles during radio dramatizations. The Shadow was a ‘wealthy, young man about town’ with psychic powers. He knew what others could only speculate about, and he became a crime fighting vigilante. The beginning of every broadcast started with these ominous words;
Who knows what evil lurks in the hearts of men? The Shadow knows!
So what possible connection could this vigilante hero have to today’s real estate market?
Inventory – or to be more precise – ‘The Shadow Inventory’
You see, I have been having this conversation in one form or another for the last 2 years. Maybe I’m slow, but I truly just can’t see the shadow – or maybe it’s just a little to dim from where I am standing. The ‘evil that lurks’ simply can’t be identified or even known by a simpleton like myself. I am convinced that I need the help of ‘The Shadow’. In fact it’s his ‘psychic powers’ that I need. It seems like every month we talk about ‘The Shadow Inventory’ that is surely coming out soon.
The latest rumor that circulates through real estate is that the ‘Shadow’ will move into the light right after the 2012 election. Really? Take a look at this chart of Folsom-El Dorado Hills sales and inventory for the last 5 years.
What do you see?
Look at the inventory levels in the summer of 2007. There were nearly 900 homes on the market in Folsom and El Dorado Hills. Sellers were desperate to cash out but the economy was all ready in recession. There were simply not enough buyers to absorb that level of inventory. Through the economic collapse of 2008, right on through to the later part of 2011, inventory continued to shrink.
And then it happened – supply dropped below demand.
Here is what I think. Inventory has been dropping steadily for 5 years. There is no indication that there will be a flood of bank held inventory any time soon in either Folsom or El Dorado Hills. I think that we all need to come to grips with the situation. With roughly 25% of Folsom & El Dorado Hills homeowners in underwater mortgages, a large block of potential sellers will not be jumping into the market in any significant way. Regular sellers are still coming to grips with the loss of value. Couple this reality with the anemic new home building in the last 5 years, and you have the conditions for tight inventory for a long time to come.
But then again, maybe just maybe … ‘The Shadow Knows!’