Growing Foreclosure Pipeline To Further Erode Housing Prices

The mounting shadow inventory will cause further erosion for years to come for US housing prices, which are already suffering from depressed demand. Delays in servicing distressed properties are adding to a cumulative supply of unsold homes that is 3 times the normal level.

Shadow inventory continues to climb, and there is now an eight-months supply of these homes, according to CoreLogic (CLGX: 18.52 +0.49%).

The data analytics firm said the number of homes seriously delinquent, in foreclosure or REO and not on multiple listing services rose to 2.1 million units as of August, up from 1.9 million, or a five-month supply, a year earlier.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” CoreLogic chief economist Mark Fleming said. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”

The visible inventory of new and existing homes through August remained flat with the year ago at 4.2 million units and is now at 15 months of supply, CoreLogic said. But the increased shadow inventory boosted the total supply of unsold homes by 3% to 6.3 million or 23 months from 6.1 million or 17 months.

“Although it can vary and it depends on the market and real estate cycle, typically a reading of six to seven months is considered normal so the current total months’ supply is roughly three times the normal rate,” according to CoreLogic.

The company said Florida, California and Michigan continue to have the highest ratio of delinquent properties to sales, and Texas, “which largely bypassed the housing boom and subsequent bust,” has the lowest distressed supply.

Earlier in November, Altos Research said the impact of shadow inventory looms large on the housing market. The firm reported steep declines in housing prices in the areas hit hardest by the bubble burst of three years ago, while Amherst Securities said default rates rose for the first time this year in October.

In September, Standard & Poor’s said shadow inventory represents one-third of the nonagency residential mortgage-backed securities market and will negatively pressure housing prices until the backlog clears in more than three years’ time. Analysts expect it to take 40 months to work through the inventory of mortgages.

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