The Inventory of “Shadow” Housing in the U.S. is expected to Hit 2 Million

An estimate of the supply of shadow houses about to enter the U.S. markets by August 2010 jumped by over 10 percent from 2009 with an expected 2.1 million homes. The data suggests that home prices will continue to decline.

Based on the figures, the firm CoreLogic suggests that the period required to work through the inventory is eight months, compared to only five months the previous year. Shadow inventory counts the homes of owners who are 90-days delinquent on their mortgages as well as houses that are already in the process or foreclosures and those that have already been foreclosed on, but has yet to be listed.

The estimated number of homes will add to the already 4.2 million homes on the selling block. All in all working through the inventory may take 23 months based on the prevailing rate at which homes are sold. It took 17 months to work through the year’s inventory in 2009.

Experts see shadow inventory as the major threat to the weak housing market, which is already showing renewed signs of further weakening. Economists are concerned that if banks quickly dump their foreclosures on to the selling block, the market will experience declining home values to a point where more defaults and more foreclosures will take place.

The problem is further aggravated by processing errors in multitudes of foreclosure cases handled by the largest mortgage provider in the U.S., the Bank of America Corp. as well as other banks and mortgage providers.

The widespread failure to supply documentation in the courts resulted to further delays in an already convoluted and lengthy foreclosure process and to huge paperwork backlogs. State attorney Generals are now launching probes on the foreclosure operations of banks.

CoreLogic chief economist Mark Fleming is of the opinion that the low demand for homes is exacerbating the risk of home price drops. The ballooning shadow inventory, which is not helping the situation, is even expected to persist for a while because of the lengthier foreclosure process caused by the documentation problems of mortgage servicers.

A poll conducted by the Campbell/Inside Mortgage Finance suggested that 14 percent of the expected buyers of foreclosed homes refuse to buy in October.