Shadows Shrink on More Distressed Sales and Fewer Delinquencies

The shadow inventory of repossessed and soon-to-be repossessed homes not yet visible to the market has been trimmed, according to new data released by CoreLogicWednesday.

The company reports that as of April 2011, the industry’s shadow supply fell to 1.7 million units, down from 1.9 million units 12 months earlier.

CoreLogic attributes the decline to fewer new delinquencies and a high level of distressed sales – a combination which has helped to reduce the deluge of foreclosure properties that threatens to upend an already fragile market beset by a supply and demand imbalance.

CoreLogic estimates current shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services that are delinquent by 90 days or more, in foreclosure, and real estate owned (REO) by lenders. Shadow inventory is typically not included in metrics of unsold inventory.

The company’s April 2011 estimate is 18 percent lower that the shadow inventory peak of 2 million units hit in January 2010.

Mark Fleming, chief economist for CoreLogic said, “The shadow inventory has declined by nearly one-fifth since it peaked in early 2010, in large part due to a reduced flow of newly delinquent loans in recent months. However, it will probably take several years for the shadow inventory to be absorbed given the long timelines in processing and completing foreclosures.”

Of the 1.7 million properties currently in the shadows, CoreLogic says 790,000 are seriously delinquent, 440,000 are in some stage of foreclosure, and 440,000 are already in REO.

The overall sales pace has slowed so even with 200,000 fewer homes in the dark, the current shadow inventory represents five months’ worth of supply, according to CoreLogic’s calculations. The larger shadow inventory from a year ago also constituted a five-month supply. At the peak in January 2010, the supply was 8.5 months.

The total shadow and visible inventory was 5.7 million units in April 2011, down from 6.2 million units a year ago, according to CoreLogic. The decline occurred in both the visible and shadow inventories. The shadow inventory accounts for 29 percent of the combined stock.

CoreLogic notes that in addition to the current shadow inventory, there are 2 million borrowers who are current on their payments but “upside down” or in negative equity by more than 50 percent, or $150,000.

The company says these loans have increased risk of entering the shadow inventory if the owners’ ability to pay is impaired while significantly underwater.