29 Dec As we count down the final days of 2009, we are hoping for a better year than the last two and a decade that tops 2000.

A slowly recovering housing market is something we should be cautiously optimistic about among many things.  I encourage caution for many reasons but the one thing we often overlook in the housing recovery is the dreaded “Shadow” market.

It is amazing how many articles are written about a recovering housing market without a mention of this lurking problem.  My economist friends have pointed out to me that my optimism is encouraging but we all have to be aware of the homes not on the market “yet”.  One of the economist I follow, GU Krueger at Housing Econ is one of the leading experts on this subject.  I highly recommend you check out his forecasts.

The backlog of foreclosures are sitting and waiting to be listed.  Once the estimated 1.7 million homes are listed and claimed by lenders, the market will be flooded and property values will naturally take a downward spiral.

One can understand why lenders may be holding off on these foreclosure listings, but I am not sure what they hope to gain in the end.  Holding them will only delay the recovery of the market.  I do understand that lenders are holding inventory in hopes of selling at optimal times, but what if the time never comes?  The longer inventory is held on to, the longer it will take to sort through.

A great fear of many is that the government’s Home Affordable Modification Program will fail in 2010 causing a spike in foreclosures.  This would then flood the market with the rest of the “Shadow” inventory.

The housing market looks to have its fair share of speed bumps next year.  I remain optimistic that we have turned a corner, but I think it’s important that we enter the new decade with a level head.  A combination of failing housing programs and lurking foreclosure inventories leads us to cautious optimism.