The number of foreclosed and repossessed homes owned by lenders but not yet on the market is up 54 percent in the third quarter over a year ago. The 1.7 million homes currently in the “shadow inventory” significantly increases calculations of the inventory of homes for sale, according to a new report from First American CoreLogic.
The current total unsold inventory (which combines the visible and “shadow” supply) was 5.5 million units in September, down from 5.7 million a year ago. The total months’ supply was 11.1 months, down from 12.7 million a year ago. However, including the shadow inventory increases total inventory 42 percent above the widely used 7.8 months estimate.
Shadow inventory estimates real estate owned (REO) by banks and mortgage companies as a result of foreclosures and other actions, such as deeds in lieu, as well as real estate that is at least 90 days delinquent.
Record numbers of foreclosures and repossessions have swamped lenders’ ability to process properties for sale in many markets, delaying their entry into the market. In some markets, especially those with extraordinary numbers of foreclosures, lenders have been accused of sitting on REO properties in order to get better prices when local inventories fall and values stabilize.
“This indicates that while the visible months’ supply has decreased and is beginning to approach more normal levels, adding in the pending supply reveals there is still quite a bit of inventory that will impact the housing market for the next few years, especially in the context of the current increase in home sales, which is in part due to artificially low interest rates and the homebuyer tax credit,” the report concluded.