By Mike Colpitts
The shadow inventory or the number of homes that lurk uncounted by banks and other mortgage lenders in the abyss of the troubled housing 
market is shrinking as banks offer more troubled homeowners, including landlords short sales for the first time since the U.S. housing crisis started.
Estimates of the shadow inventory, the number of homes that are likely to end up in foreclosure, range from about 1.6 million by CoreLogic to some where between 8.2 and 10.3 million by Laurie Goodman at Amherst Securities. The great variance is likely only the result of limited information provided by bankers who made the mortgages in the first place.
In this day and age, lenders who made millions of failed loans aren’t exactly being forthcoming with researchers striving to gather the best data for their estimates. The U.S. foreclosure crisis has already resulted in more than 7-million foreclosures, and millions more are forecast.
Two years ago an estimated 6 million homes made up the shadow inventory, according to CoreLogic figures. The inventory makes up part of the more than 18-million vacant homes that the U.S. Census Bureau says sit rotting empty across the nation.
The flood of soon to be foreclosed properties has yet to have materialized as lenders, including Freddie Mac and Fannie Mae take steps to sell them off in bulk to investors at massive discounts. Many of the same people who caused the financial crisis now make up the firms vying to purchase the homes in cash for another profit windfall.
Hundreds of thousands of homes are not yet being foreclosed by lenders until agreements are struck under government scrutiny. The inventory of homes lingering in the back drop of the troubled housing market is slowly declining as bank servicing companies sell-off the properties at substantial discounts to unload them on their balance sheets.
“The shadow inventory remains persistent even though many other metrics of the housing market show signs of improvements,” said CoreLogic economist Mark Fleming. “In some hard hit markets the demand for REO and distressed property is now outstripping supply.”
Real estate economists estimate that whatever the number of homes in the shadow inventory currently is as much as half of the residential properties are not yet counted. Almost another half of the homes that make up its inventory are located in states that sustained the hardest hit from the housing collapse, including California, Florida, Arizona, Nevada, Ohio and Michigan.