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Shadow Inventory Supply Stands at Seven Months

JAN 2, 2013 11:45am ET
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The current stock of foreclosed and real estate owned properties deemed to be shadow inventory but not yet ready to sell on the open market as of October 2012 fell on an annual basis.

According to CoreLogic, the October residential shadow inventory level was 2.3 million units, representing a supply of seven months. This is a 12.3% drop from a year ago, when shadow inventory stood at 2.6 million units.

In July, the pending supply was also 2.3 million residential units, but a six-month supply.

Out of the 2.3 million shadow inventory properties nationwide through October, more than 1 million are seriously delinquent and not yet foreclosed upon, approximately a 3.3-month supply. Additionally, 903,000 are in some stage of foreclosure, which is a 2.8-month supply, and 354,000 are already in REO, representing a 1.1-month supply.    

“We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold,” said Anand Nallathambi, president and CEO of CoreLogic.

The Irvine, Calif.-based analytic firm said the latest shadow inventory figures represent 85% of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.

Serious delinquencies—which are the main driver of the shadow inventory—declined the most in Arizona (13.3%), California, 9.7%), Michigan (6.8%) and Wyoming (5.9%).

Meanwhile, Florida, California, Illinois, New York and New Jersey made up 45% of the properties seriously delinquent, in foreclosure or in REO over the three months ending in October 2012. A year ago, these same states accounted for 51.3% of all distressed mortgages that were in REO, foreclosure, or at least 90 days delinquent.

The October 2012 dollar volume of shadow inventory was $376 billion, down from $399 billion during the same time period last year, CoreLogic stated.

Furthermore, CoreLogic said the pending supply of shadow inventory is manageable in 2013 and won’t have a major effect on the supply and demand of the housing market.

“Given the long foreclosure timelines in many states, the current shadow inventory stock represents little immediate threat to a significant swing in housing market supply,” said Mark Fleming, chief economist for CoreLogic. “Investor demand will help to absorb the already foreclosed and REO properties in the shadow inventory in 2013.”

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