Southern Nevada - with communities of Summerlin, Henderson, North Las Vegas, Mountains Edge, Silverstone Ranch, Spanish Trail and Charleston Heights - real estate arena is showing some green sprouts coming up from the soil that has been pretty dormant for a long while. So, there is hope. Quite affordable mortgage money and shamefully low prices are largely behind the modest trend to turn things around. But a potential obstacle to the budding recovery could derail a promising start.
The lately much-discussed words shadow inventory are back on the lips of housing observers in Las Vegas and throughout. Shadow, or phantom, inventory entails foreclosed homes mortgage banks keep in their books while they try negotiate loan modifications and short sales. Or they may not do any of that, instead have decided to hold back and wait for the market to one day get better.
One of the leading mortgage providers, Bank of America, is planning to unload roughly 6,000 foreclosed properties to the Nevada real estate market this year, predictably most of it here in Las Vegas. That means about 500 new listings per month. These are considered part of the shadow inventory. Nationwide, First American CoreLogic estimates there to be 1.7 million of them, while Amherst Securities puts that number close to 7 million.
Since Southern Nevada is winning hands down the top contender honors in mortgage foreclosures, it's fair to assume that the shadow inventory here is one of the highest around. BofA dumping around 500 of them a month in itself wouldn't spell disaster, as it would only cover a small proportion of the good-size real estate market. However, if other home loan operators entertaining a large phantom inventory in their toxic books choose to do the same, then seat belts should be fastened pronto. The following firestorm would quickly wipe out those green shoots, leaving them charred and lonely. Prices that for now appear to have stabilized would head further down, spreading more housing agony across the valley for years to come.
How this shadow inventory release plays out depends largely on how rationally mortgage banks act in doing it. If they can pull it off in a balanced manner, no problem. If a stampede sets in, well, buying a one-way ticket to the sunny Caribbean might become appealing.