Sales and Starts May Be Up, But Shadow Inventory Looms

the colony texas shadow inventoryThe NAHB recently reported improvements in the picture for homebuilders, and Realtors say sales increased, but a new report today addresses the continuing threat from shadow inventory. CoreLogic reports that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales. Florida, California and Illinois account for more than a third of the shadow inventory. The top six states, which would also include New York, Texas and New Jersey, account for half of the shadow inventory, which presents competition for new home sales and potentially manufactured housing. “The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” says Mark Fleming, chief economist for CoreLogic.

(Photo Credit: Eric Miller)

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