The latest report from Core Logic shows that the “shadow inventory” of houses (those owned by banks) peaked in January of 2010.
The number of foreclosures has remained steady since July 2009 which means we are not out of the woods yet but the fact that the shadow inventory is falling is a good sign – especially for the health of banks. At the rate of decline of 200,000 units per year, if it remains steady, the shadow inventory will be down to normal levels (approx. 200,000) in 9 years. Japan experienced it’s “lost decade” – it appears that the U.S. is on the same track. It is likely to take a while to dig out of this very deep hole – but the good news is that we are making progress.
Here is the complete report from Core Logic:
Total Shadow Inventory Declines to 1.8 Million Units
Summary
Current residential shadow inventory as of January 2011 declined to 1.8 million units, representing a nine months’ supply. This is down slightly from 2.0 million units, also a nine months’ supply, from a year ago. CoreLogic® research indicates that although a material portion of the shadow inventory can be optimally treated via modification or short sale, only a small share can be effectively remediated from the shadow supply.
Shadow Inventory (by quarter)
Data Highlights
- The shadow inventory of residential properties as of January 2011 fell to 1.8 million units, or nine months’ worth of supply, down from 2.0 million, also nine months’ supply from a year ago.
- Of the 1.8-million unit current shadow inventory supply, 870,000 units are seriously delinquent (4.2 months’ supply), 445,000 are in some stage of foreclosure (2.1 months’ supply) and 470,000 are already in REO (2.2 months’ supply).
- For the first time, CoreLogic has examined how loan modifications and short sales could reduce shadow inventory levels. The analysis took into account optimal treatment methods, based on net present value calculations, as well as expected severity and re-default rates for loan modifications and short sales.
- In addition to the current shadow inventory supply, there are nearly 2 million current negative equity loans that are more than 50 percent “upside down” that will likely become shadow supply in the near future.
- The highest levels of distressed months’ supply, which is the ratio of the number of properties that are 90 days or more delinquent to the number of home sales, are in New Jersey, Illinois and Maryland. The states with the lowest distressed months’ supply are where the boom/bust did not occur and include North Dakota, Alaska and Wyoming. The largest state with the lowest level of distressed months’ supply was Texas.
“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.” said Mark Fleming, chief economist for CoreLogic.
