Shadow inventories played important roles in the aftermath of the subprime mortgage meltdown of 2007-2008. With such unprecedented numbers of foreclosures stemming from the housing markets collapse during that crisis, lenders were left with real estate holdings. Many lenders were slow to put their inventory up for sale for fear of flooding the equity markets with so-called Distressed Properties. Since these properties sold for very little, more drove down prices and lowered the lenders’ return on investments.
This is because distressed properties sell at a much lower price than other properties. When distressed properties make up a large proportion of homes on the market, they drive down prices across the board. According, foreclosures which have been on this market for less than a year sell for 35 percent below value, while those that have been on the market for more than a year sell for 60 percent less. Such low prices do impact sellers high equity but could help Buyers Afford Homes directly offer by homeowners.