Seven Million Strong Foreclosure Overhang to Depress Home Prices

September 24, 2009 No Comments »

overhang

It seems all the positive housing sentiment is taking a turn for the worse again, thanks in part to a new report from Amherst Securities.

The company’s analysts warned that a massive shadow inventory consisting of seven million homes has yet to hit the market.

The “shadow inventory” refers to homes repossessed by banks and mortgage lenders (or soon to be) that have yet to make it back onto the market.

Once these properties are eventually listed, inventory will swell and home prices will be pressured down; couple in the end of the home buying season and things could get ugly fast.

Amherst analysts noted that the pending supply of foreclosed homes has risen thanks to more borrowers going into default, fewer being able to catch up once they do, and longer time periods involved in seizing property thanks to various foreclosure moratoria and loan modifications.

Even with loan workout efforts factored in, the shadow inventory would only be dented by about one million units in the most optimistic account, and those with modified loans that remained in a negative equity position would likely re-default anyways.

Oh, and they attributed the recent run up in home prices to a simple shift from distressed properties to more traditional sales as the distressed share dwindled.

It would take 1.35 years to sell the shadow inventory assuming no other properties were on the market.

The often overlooked backlog is up from 1.27 million units in 2005, and clearly has room to grown if home prices continue to fall and unemployment continues to rise.

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