The so-called “shadow market” of homes that are not yet on the market is poised to increase the inventory of unsold homes in the Denver area by 78.3 percent, according to a new report.

The shadow market in the Denver area is 13,888 homes, according to the Amherst Mortgage Insight report released by Austin-based Amherst Securities Group, which puts the total inventory – including the shadow market – at 31,618 unsold homes, based on data from Trulia.com. The shadow market, as defined by Amherst, are homes that are in or facing foreclosure, but are not yet on the market. Others also include homes that are being rented, often for less than the mortgage amount, because the owners are unable to sell them for a profit, but plan to sell them when they think the market is starting to recover.

“We keep hearing about this shadow market, but this is the first real quantification I have heard of,” said Tom Cryer, a broker with the Kentwood Co. “This report takes the shadow market from being something of an urban myth, to something that really exists. I do not see anything that could dispute it.”

If the shadow market could add almost another 14,000 homes to the Denver-area market, that could slow the recovery of the low-end homes that seem to be stabilizing and even appreciating, Cryer said.

In August, there were 24,648 unsold homes on the market in Denver area, 20 percent fewer than a year earlier, according to a separate analysis of Metrolist data by independent broker Gary Bauer.

One way to look at it, is that the shadow market would bring the supply more in line with its historical levels.

“But we have such a low sales rate,” that people are not putting their homes on the market, keeping the inventory low, said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range.

Nationwide, the shadow market is 7 million homes, equating to a 1.35-year of inventory, according to Amherst.

“The single largest impediment to a recovery in the housing market are the number of loans that are either in delinquent status or in foreclosure, destined to liquidate,” according to the report.

“This creates a huge shadow market,” the report notes.

More bad news could be on the horizon, despite recent positive trends, such as reported in the S&P/Case-Shiller report, which found that most of the 20 statistical areas had shown a month-to-month increase from July to August.

The Amherst report analyzed the 20 cities in the S&P/Case-Shiller report, including Denver. It found that only six cities – led by Las Vegas, had a larger shadow market, as a percentage of the total inventory, than Denver. In Vegas, the total shadow market accounts for a 315 percent increase over the number of actual listings.

And the shadow market could become an even larger problem.

The Amherst report notes that “to the extent that there is more home price depreciation (causing higher volume of defaults), the problem could escalate.”

Mike Rinner, of the Genesis Group, a local company that tracks housing along the Front Range, said the report “makes a strong case that the other shoe (of foreclosures and depressed pricing) is waiting to drop.”

However, he added you always wonder how good the research is of “experts from looking from afar.”

Still, the report attempts to quantify the shadow market, which is valuable for predicting the direction of the market.

“Probably the most interesting thing to come out of it, is that we do have an excess supply that isn’t frequently recognized,” Rinner said.


But he said there is a saving grace, which may help to mitigate the blow of the shadow market.

“We do have a pent-up demand,” of buyers who want to take advantage of low-interest rates and low home prices, he said.

Even though unemployment is high by historical standards, 93 percent of the people in the Denver metro area still have jobs, he said. The main thing that keeps people from taking advantage of the housing market is concerns about their jobs, he said.

“Over time, as that starts to go away and people feel more comfortable, and unemployment starts to fall or stabilize, people will start entering the market again,” Rinner said. “The excess supply will get used up.”

On the other hand, as the Denver-area population ages, that older demographic is not as likely to move as quickly as younger buyers do, who are forming and growing families, he said.

However, as builders construct greener, more sustainable homes, and owners retrofit homes with green features, that could increase the demand, he said.

Amherst, in its report, said that more needs to be done to lessen the impact of the shadow market.

“We believe that the housing overhang is the single large issue inhibiting a housing recovery,” according to the report. “We are concerned that, in light of this overhang, the housing market , stabilization is temporary based on seasonal factors, and prices can deteriorate further. We believe

a more permanent stabilization must await some resolution of the shadow inventory.”