For the second time in less than a week economists have attempted to quantify the amount of shadow inventory currently lurking in the background of the housing market.
Shadow inventory is generally defined as the number of distressed homes either on the market or likely to come on the market through foreclosure divided by the rate at which distressed properties are currently selling. The two studies, one conducted by the National Association of Realtors® and the other released by CoreLogic, follow different methodology but arrive at similar conclusions: shadow inventory is substantial, it will take a long time to clear it out, home prices will be pressured downward and it will strain the economy.
As of January 2011, CoreLogic estimates shadow inventory to be at 1.8 million houses, which works out to a nine month supply. This was a slight improvement from the 2.0 million estimate reported one year ago which also represented a nine month backlog.
Inventory is made up of 870,000 houses with mortgages that are seriously delinquent (4.2 months supply), 445,000 properties in some stage of foreclosure (2.1 months) and 470,000 houses (2.2 months) already in bank-owned inventory (REO).
Mark Fleming, chief economist for CoreLogic commented, “While the trend of the shadow inventory is improving somewhat, the current level and distressed months’ supply remain very high. The short-term weakness in prices and longer-term weakness in the drivers that affect the housing market imply that excess supply will remain high for an extended period of time."
Equally distressing, the CoreLogic study found additional loans, numbering around 2 million that are upside-down to the point that the owners have a mortgage at least 50 percent greater than the value of the home. These the company feels will also become part of the shadow supply in the near future, thus potentially more than doubling the current shadow inventory.
...(read more)
Source: http://www.mortgagenewsdaily.com/03312011_shadow_inventory.asp
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