Shadow Inventory, Moving not Falling


According to data reported on Wednesday
by CoreLogic, the residential shadow inventory as of October stood at 1.6
million housing units, a supply of 5 months. 
This was relatively unchanged from figures in July.   In October 2010 the inventory was an
estimated 1.9 million units, a 7 months’ supply.  CoreLogic said that the flow of new seriously delinquent loans into the shadow inventory
has been offset by the roughly equal sales flow of real estate owned and short
.  Some 3 million distressed homes
have sold since January 2009, the point at which prices were falling the
fastest, yet the shadow inventory is at essentially the same level as in that
initial month.

inventory includes homes that are seriously delinquent (90 days or more), in
foreclosure or already owned by lenders (REO) but are not currently listed by
local multiple listing services.  This
formulation does not include the homes that are typically included in official
counts of unsold inventory.

1.6 million units in the shadow inventory represent half of the 3 million
properties that are currently seriously delinquent, in foreclosure, or in
REO.  The shadow inventory includes
770,000 units that are seriously delinquent (2.5 months supply), 430,000 are in
some stage of foreclosure (1.4 months supply) and 370,000 are already in REO
(1.2 months supply.)

Based on current estimates of the
visible inventory (both distressed and non-distressed), the shadow inventory is
approximately half of all visible inventory listings. For every two homes
available for sale, there is one home in the “shadows”

inventory is approximately four times as large as at its low point (380,000
properties) at the peak of the housing bubble in mid 2006.  According to CoreLogic, a healthy housing
should have less than one-months supply of shadow inventory.  This level could be easily absorbed without
impacting house prices unless the inventory was geographically concentrated. 

inventory, however, is concentrated to a large extent.  Florida, California and Illinois account for
more than a third of the shadow inventory. The top six states, which would also
include New York, Texas and New Jersey, account for half of the shadow
inventory.  In addition, the shadow
inventory is often located in suburban and exurban submarkets where those
properties compete with new home sales. 
This may be one reason why new homes are currently running at 7 percent
of all sales rather than a more typical 12 percent.

shadow inventory overhang is a large impediment to the improvement in the
housing market because it puts downward pressure on home prices, which hurts
home sales and building activity while encouraging strategic defaults,”
said Mark Fleming, chief economist for CoreLogic.

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