'Shadow' real estate inventory may take 4 years to clear
S&P: Slower liquidation rates to blame
By Inman News, Wednesday, February 2, 2011.
Flickr image courtesy of kretyen.
It may take more than four years to clear the "shadow inventory" of distressed homes lurking on the sidelines in the U.S., a factor that’s likely to undermine real estate prices as the backlog clears, analysts at Standard & Poor’s Ratings Services say.
At 49 months, the estimated time needed to clear shadow inventory at the end of the fourth quarter of 2010 was up 11 percent from the previous quarter and 40 percent from a year ago. With the lone exception of Miami, the months’ supply of shadow inventory grew in almost all of the nation’s 20 largest metro markets.
But much of the increase in the estimated months needed to clear shadow inventory is due to the fact that it’s taking longer for lenders to liquidate distressed homes — not because the number of distressed properties is growing, analysts said.
Standard & Poor’s defines shadow inventory as properties with borrowers who are 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REOs).
Although shadow inventory peaked in the first quarter of 2008, loans that are 90-plus-days delinquent and foreclosed properties are taking longer to become REOs. That’s once again lengthening the overall timeline for resolving troubled assets, Standard & Poor’s analysts said.
Shadow Inventory: top 20 U.S. markets
MSA
Months of inventory, Q4 2010
Change from Q3 2010
Change from Q4 2009
Atlanta
49
+13%
+41%
Boston
71
+14%
+30%
Charlotte
65
+26%
+49%
Chicago
59
+14%
+41%
Cleveland
57
+20%
+60%
Dallas
56
+24%
+39%
Denver
38
+10%
+36%
Detroit
31
+3%
+43%
Las Vegas
33
+9%
+62%
Los Angeles
50
+11%
+38%
Miami
60
—
—
Minneapolis
38
+10%
+77%
New York
130
+9%
+31%
Phoenix
25
+10%
+49%
Portland
51
+12%
+65%
San Diego
39
+12%
+43%
San Francisco
42
+11%
+53%
Seattle
59
+10%
+42%
Tampa
57
+3%
+12%
Washington, D.C.
50
+13%
+52%
U.S. total
49
+11%
+41%
Source: Standard & Poor’s Ratings ServicesÂ
At the current, slower rate of liquidation in the New York metro area, Standard & Poor’s analysts estimate it will take 130 months to clear $116.7 billion in shadow inventory there — 2.7 times longer than the average for the U.S. as a whole.
That’s despite the fact that the Los Angeles metro area has a larger "overhang" of troubled mortgages — $173.1 billion, or 31.5 percent of all outstanding mortgages.
The good news is that the overall level of distressed loans continues to decline, and loan-cure success rates — often the result of loan modifications — have been improving since the second half of 2008.
Although 45 to 50 percent of loans modified or cured in the fourth quarter of 2009 redefaulted within the first year of modification, that’s an improvement from the nearly 80 percent redefault rate on loans modified or cured during the first quarter of 2008.
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‘Shadow’ real estate inventory may take 4 years to clear | Inman News
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