Out of Control Policy Blog

Shadow Inventory at 7 Million Homes, Over Three Years of Supply

A new report from FitchRatings today finds that the nation's shadow inventory of homes is roughly 7 million. Furthermore, Fitch projects it will take 40 months to get through all that inventory. The shadow inventory is homes that are currently delinquent (or in foreclosure or ownership by the servicer) and destined to be on the market. From DSNews:

According to the ratings agency, the number of months between the date of the borrower’s last payment and the date of liquidation has steadily increased over the past several years, and is now at more than 18 months on average. Fitch says that is the highest figure on record.

While the volume of newly delinquent mortgages has begun to improve in recent quarters, Fitch says liquidation rates of existing distressed properties have been constrained by weak demand and expanded initiatives to modify loans for troubled borrowers.

On top of that, the agency’s analysts believe the recent discovery of defects in the residential mortgage foreclosure process will further extend liquidation timelines, slowing the resolution of distressed properties in the shadow inventory and preventing home prices from finding a floor.

See the whole article here.

The shadow inventory has been made worse by HAMP and foreclosure moratoriums that have only delayed the inevitable. Some have argued this is okay since it has let a few stay in their homes longer. But by keeping homes off the market the supply of homes is artificially kept lower thereby artificially boosting prices because of supply and demand calculations. Higher prices are also desirable, but not if they are propped up like prices during the bubble because that means they just have to come down again at some point hurting those buying homes right now.

Anthony Randazzo is Director of Economic Research


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