Even though distressed sales and listings have been declining at a steady pace since late 2010, there is still a long road to recovery for the Florida housing market.
According to a Florida Realtors study called “The Distressed Property Market and Shadow Inventory of Florida: Estimates and Analysis,” which looked at the recent history of distressed property listings and transactions relative to normal market data, foreclosures, REOs and short sales will effect the Sunshine State’s real estate market through the end of this decade.
One of the main reasons why Florida’s housing market will continue to struggle in the future is its shadow inventory. At the end of 2011, Florida’s shadow inventory was 550,000 housing units, a 9% decline from its peak in Q1 2010.
However, this still represents nearly one-third of the total shadow inventory nationwide, meaning that it will take years to work off. The national shadow inventory declined from 1.8 million units in January 2011 to 1.6 million this January, according to figures compiled by CoreLogic.
Currently, the flow of new seriously delinquent loans moving into the shadow inventory has been offset by the equal flow of distressed sales within the state.
Florida mortgages 90 or more days delinquent through February were down 11% from the prior year, while foreclosures and REOs also declined during this time period by 7% and 40%, respectively.
“This points to a growing reluctance of lending institutions to take property into inventory, and an increasing willingness to do whatever it takes to smooth the transition back to a ‘normal’ market,” said John Tuccillo, chief economist for Florida Realtors.
Tuccillo said the state’s housing industry is in a revival mode now because investors are buying distressed properties and converting them into rentals, hoping to sell these assets for a profit in five to seven years. This has caused the supply of inventory of properties for sale on the market to be at 5.9 months, down from nearly 12 months a year ago.
However, 28% of Florida homes as of February 2012 had mortgages that were underwater, which will only hurt the state’s overall recovery efforts.
“We do know that distressed properties will remain visible and significant part of the market for the balance of this decade at least,” Tuccillo said in the report. “As long as these properties are present on the market, they will compete with normal properties and put a brake on potential real estate price increases.”
