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They are homes that lurk in the shadows. They are the “shadow inventory,” foreclosed homes owned by banks, Fannie Mae or Freddie Mac that are not yet listed for sale. As the mortgage crisis continues, backlogs of such properties are ballooning. In Milwaukee County, according to a real estate website, that “shadow inventory” is particularly large, meaning the real estate market here could be saturated with foreclosed homes for a long time to come.

As it’s grown, the so-called “shadow inventory” of unsold foreclosures has drawn national attention. Even if foreclosures return to pre-crisis levels, there are concerns the country will still have to endure a housing hangover as banks and the federal mortgage buyers, Fannie Mae and Freddie Mac, gradually sell off those amassed during the mortgage crisis.

milwaukee homes (photo by adrian palomo)

Earlier this year, the Standard & Poor’s rating service estimated that it will take about four years to clear the country’s shadow inventory. Taking so long to “clean house” would mean that, for years to come, foreclosed homes would continue to depress prices in housing markets around the country, according to the National Association of Realtors.

In Milwaukee County, according to the foreclosure listing service www.realtystore.com, only about a half of the foreclosed homes owned by banks, Fannie Mae or Freddie Mac are listed for sale. The report estimates that if all the completed foreclosures were immediately put up for sale in the county, they would saturate the local market, growing from 12 percent of homes currently on the market to about 21 percent. “This represents a high foreclosure saturation level,” it says. “It could take considerable time for this dormant inventory to sell through.”

The growth of Milwaukee County’s voluminous shadow inventory may be slowing: Foreclosures fell about 6 percent between January and February and appear to be on the decline and posting record numbers last year. Peter Ranck, vice-president of the service, says continued economic recovery could help pump up sales of foreclosed homes, but it’s likely the shadow inventory in Milwaukee County “will require some extensive time to burn through.”

Slower sales are in the interests of banks and other owners of foreclosed homes. Ranck describes shadow inventory as a “warehouse” from which the owners draw properties to list on the market. But they don’t list them too quickly. “As a prudent seller, you wouldn’t want to flood the market and drive your own prices down,” he says.

Foreclosed homes are already being sold at a steep discount in the county. Here, the median price for a foreclosed home is 62 percent lower than the median price for all homes sold in the county. Nationally, the figure is about 40 percent, according to Ranck. The average bank foreclosure is listed for about $55,000 in Milwaukee County.

Throughout the Midwest, foreclosure prices are low. In the Detroit area, where some of the lowest home prices in the country can be found, the average foreclosure goes for just $24,900. Its market is ultra-saturated with foreclosures, even more so than Milwaukee: 18 percent of homes for sale in the Detroit area are foreclosures, a number that would swell to 45 percent if its entire shadow inventory was pushed onto the market.

Many other markets in the Midwest are similarly saturated, according to figures provided by Ranck. In Cook County, Ill., home to Chicago, the saturation is somewhat less severe: Eight percent of homes for sale are foreclosures, which would grow to 17 percent if the shadow inventory was dumped on the market.

In Hennepin County, Minn., home to Minneapolis, the market is somewhat more saturated than in Milwaukee County: 13 percent of homes for sale are foreclosures, which would rise to 23 percent if shadow inventory was listed.

In both the Cleveland and Indianapolis areas, about 10 percent of homes for sale are foreclosures, a number that would double with shadow inventory added in.

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