By Mike Colpitts
The inventory of U.S. homes that have not yet been foreclosed but are in financial jeopardy recognized as the shadow inventory has declined by 200,000, according to real estate research firm Core Logic. The current residential shadow inventory is 1.8-million units, which represents a nine months supply of inventory at present sales volume.
The company estimates the shadow inventory by calculating the number of distressed properties that are currently not listed by multiple listing services (MLS) throughout the country by Realtors that are seriously delinquent more than 90 days, in foreclosure or already in lenders’ REO status.
Some 870,000 units are seriously delinquent, more than three months. Another 445,000 homes are in some stage of the lengthy foreclosure process, which is now averaging more than two years to complete and an estimated 470,000 additional homes are in REO (real estate owned or bank-owned) status.
There are also more than 2-million additional mortgages with negative equity that are more than 50% upside down that are likely to become part of the troubled shadow inventory in the near future, according to Core Logic.
The shadow inventory has declined, but not enough with the growing inventory of troubled upside down properties for industry experts to feel more comfortable about the market. “The short term weakness in prices and longer term weakness in the drivers that affect the housing market imply excess supply will remain high for an extended period of time,” said Core Logic chief economist Mark Fleming.
The highest number of distressed properties or mortgages that are 90 days or more delinquent are in New Jersey, Illinois and Maryland. The driving force behind the momentum of troubled properties in the most severely affected areas is a combination of lower sales activity and high unemployment in most regions.
States with the lowest distressed property levels included areas where a major boom and bust did not broadly develop during the real estate bubble in North Dakota, Alaska and Wyoming. Texas also had the lowest level of distressed supply during the month of January.