S&P: 44 Months to Clear Distressed Housing Inventory

January 4, 2011 No Comments »

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Wondering whether 2011 is the right year to buy that new home?

Well consider this; S&P warned this week that it will take 44 months to clear all the distressed homes out there, many of which aren’t actually on the market.

That’s nearly four years, up from the second quarter estimate of 40 months.

This so-called shadow inventory consists of homes that will eventually end up on the market, thanks to default and subsequent foreclosure.

However, many of these properties are being held by mortgage lenders until home prices improve.

Traditional housing inventory numbers don’t factor these in, painting a rosier picture than reality suggests.

As of the end of the third quarter, the principal balance of foreclosed homes was more than $450 billion, representing roughly a third of the non-agency residential mortgage-backed securities market, those not guaranteed by Fannie Mae and Freddie Mac.

New York Shadow Inventory up to 10 Years

In the New York metropolitan area, it will take nearly 10 years to clear the shadow inventory, twice as long as 20 other top metros analyzed by S&P, and nearly three times the national norm.

This has to do with the judicial process used in New York, which used to take around two years, but now takes nearly three in some cases.

Fourth quarter data has yet to be analyzed, but foreclosure timelines continue to grow, meaning inventory will run high for quite some time.

The only good news is that new foreclosures seem to be slowing, though loan modifications are no guarantee.

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