Distressed Dispositions Outpace New Delinquencies as Shadows Shrink

The industry’s shadows are shrinking, according to CoreLogic. The residential shadow inventory of unlisted REOs and soon-to-be REOs stood at 1.6 million units as of July 2011, based on the analytics firm’s calculations. CoreLogic says that tally represents a supply of five months and is down from 1.7 million units in April and 1.9 million units in July of 2010.

“The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets,” CoreLogic said in a report released Tuesday. CoreLogic estimates the current stock of properties in the shadow inventory by calculating the number of distressed properties not currently listed on multiple listing services that are seriously delinquent (90 days or more), in foreclosure, and real estate owned (REO) by lenders. Of the 1.6 million properties currently in the shadow inventory, CoreLogic’s study shows that 770,000 units are seriously delinquent (2.2-months’ supply), 430,000 are in some stage of foreclosure (1.2-months’ supply) and 390,000 are already in REO (1.1-months’ supply). As of July 2011 the shadow inventory is 22 percent lower than its peak level, reported by CoreLogic to be 2 million units, or an 8.4-months’ supply, in January 2010.

The company also highlighted the fact that the aggregate current mortgage debt outstanding of the shadow inventory was $336 billion in July 2011, down 18 percent from $411 billion a year earlier.

“The steady improvement in the shadow inventory is a positive development for the housing market,” said Mark Fleming, chief economist for CoreLogic. “However, continued price declines, high levels of negative equity, and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

Based on CoreLogic’s market assessment, the total housing inventory – including both the shadow inventory and visible inventory listed for sale – was 5.4 million units in July of this year, down from 6.1 million units 12 months earlier.
The shadow inventory accounts for 29 percent of the combined shadow and visible inventories.