Real Estate Shadow Inventory Shrinks in January 2011

Econintersect:  According to research firm CoreLogic, the shadow inventory of homes fell in January 2011.  The shadow inventory, simply put, is the homes not currently for sale, but will be on the market real soon.

The CoreLogic Shadow inventory declined to 1.8 million units – and includes homes very deliquent in mortgage payments, foreclosures underway, and foreclosed homes not on the market.  Currently there are 3.5 million units up for sale (analysis here).   At the current home sales volumes, this amounts to approximately 18 to 20 months of inventory.

“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.

In other words, the inventory is down but so is the rate of home sales.  According to CoreLogic:

• 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.

There are three levels of home sales inventory: 1) homes for sale; 2) shadow inventory; and 3) homes that would be for sale but either under water or the owner not willing to sale at current prices.  Econintersect believes there may be more than 10 million homes in inventory.

source: CoreLogic