Saturday, February 20, 2010
Shadow Inventory Amounts to Nearly Three Years of Home Sales
According to a report from the credit rating agency Standard & Poor’s (S&P), the “shadow inventory” of bank-repossessed properties, as well as distressed mortgages facing foreclosure, will take nearly three years to clear at the current sales rate.
The “shadow inventory” of homes includes all delinquent loans and real-estate owned (REO) property that has not reached the market. REO property are foreclosed homes taken back by the bank for liquidation.
On average, $14.5 billion of seriously delinquent loans or REO property liquidates each month.
S&P estimates the inventory to equal a 33-month supply of homes. All of that inventory will further drive down home prices.
“Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market,” according to the report.
“We believe that the recent constriction in the supply of foreclosed homes on the market is a temporary one,” said the analysts.
According to the S&P report, homes are falling into serious delinquency faster than REO transactions are closing.
Following current trends, S&P analysts predict that 70 percent of the mortgages that have received a loan modification will re-default.
The total balance of these re-defaulting loans and the current amount of serious distressed loans will reach $473.4 billion, nearly 30 percent of the total outstanding balance on all privately securitized loans.