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2011-02-04 08:57:58
Shadow Inventory 2/4/2011

'Shadow' real estate inventory may take 4 years to clear

S&P: Slower liquidation rates to blame

By Inman News
Inman News™

February 02, 2011

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 Services 

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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