A November 22, 2010 report from CoreLogic states that pending supply (shadow inventory) of homes is up more than 10% (2.1 million vs. 1.9 million units) from a year ago. So what, exactly, is ‘shadow inventory’ and what does it mean to us?
Shadow inventory has a couple of parts. The first part is lender foreclosed upon properties that are not yet on the market. We know that the rate of foreclosures is unfortunately ‘robust’, but we’re not seeing those properties hit the market. Hence the term ‘pending supply’. The other part is an estimate based on seriously delinquent home loans. In this case that means homes that haven’t been foreclosed upon, but are 90 days or more in arrears. The likelihood of many of them reaching foreclosure is high.
The bad news for Michigan is that we have one of the highest levels of ‘distressed months supply’, or a high ratio of properties that are 90 days or more delinquent to the supply of total housing inventory, homes that are listed and available to consumers.
If lenders let these ‘pending supply’ properties onto the market in a short time frame, the fear is that housing prices will plummet even further and faster than what we are currently experiencing. That is not good for them or for the economy in general.
It is possible that some of the seriously delinquent homes will be sold as ‘short sales’, and it’s also possible that some home owners will find other ways to avoid foreclosure, but the trend is disturbing. For buyers, this reinforces that it is a good time to buy, especially with the record or near-record low interest rates. Sellers that do not have a strong reason for selling may want to hunker down and try to ride this out, but all industry expectations are that we’re in for a long, bumpy ride to get back appreciating home values.
CoreLogic is a leading provider of consumer, financial and property information, analytics and services to business and government.
The full report can be found at:
http://www.corelogic.com/uploadedFiles/Pages/About_Us/News/CoreLogic%20Shadow%20Inventory%2011-22%20FINAL.pdf
