The US housing market is soon to be hit shadow houses, as their numbers showed a 10 percent year-on-year increase in August, to 2.1 million units, according to a report issued by mortgage data company CoreLogic. This suggests that prices would continue to decline.
The shadow inventory consists of estates whose owners have been delinquent for a minimum of 90 days, those in foreclosure, or foreclosed but unlisted for sale.
CoreLogic estimated that, based on the current numbers, sorting through the shadow inventory would take some eight months, compared with five months last year. Adding the shadow houses to the 4.2 million homes already on the market, it would take about 23 months to work through what the market has to offer at the present tempo of sales.
One of the main threats to the weak home market, experts say, is exactly this shadow inventory. Should bankers decide to put all the foreclosed homes into the market at this point, they would revive a vicious mechanism that could lead to even further depression of the real estate market as well as provoke more foreclosures and defaults.
The problem is further complicated by errors in processing the many foreclosure cases, as it was the situation with US’s largest mortgage lender Bank of America Corp., as well as other financial institutions.
Failures to provide proper documentation in front of the courts have lead to a buildup of paperwork and cases of repossession, while the companies are still struggling to secure their procedures. Banks are in the face of a nationwide investigation conducted by state attorneys general.
CoreLogic’s chief economist Mark Fleming stated that the low demand for housing brings a significant increase in the risk of further declines in price on the housing market. This situation is aggravated by ever-growing shadow inventory. Moreover, the shadow inventory is expected to carry on for a long time due to the slow liquidation processes experienced by the servicers.
A Campbell/Inside Mortgage Finance survey among real estate agents, problems that occur in the foreclosure processing have made buyers of properties in distress cautious. Their caution can be seen in statistics. While problematic properties accounted for 47.5 percent of transitions in September, by the end of October there was already a visible slip to 44.3 percent. Furthermore, the survey shows that 14 percent of homebuyers and 6 percent of real estate investors refuse to be presented with foreclosed properties.
