Just How Large is the Shadow Inventory

The Wall Street Journal Takes a Stab At This Ever “Elusive” Number….

Note:  The housing “problem” will not go away until this inventory is at more normal levels…..

Call it what you will—the “shadow inventory,” the “distressed inventory,” the “foreclosure pipeline”—but if you ask five researchers how many houses or mortgages we should worry about, you’ll probably get at least five completely different answers. Given this, Developments examined these worrisome numbers and see how they stack up. Here’s a roundup of distress numbers, and how researchers arrived at them:LPS

Applied Analytics Number: 4 million loans. Explanation: This is the number of loans that have either been delinquent for 90 days or more or are in foreclosure. The latest report showed that the number of new loans entering delinquency was slowing, but the number of homes in foreclosure that have not been sold remains fairly flat, mainly because the foreclosure process has been bogged down by legal issues in many states. LPS doesn’t use the term “shadow inventory.”

Amherst Securities. Number: 8.2 million and 10.3 million loans. Explanation: Laurie Goodman, a trusted authority on housing finance issues and managing director at bond-trader Amherst, recently presented this whopping estimate of loans “that may be subject to distressed sales over time.” Amherst divides the nation’s 55 million mortgages into five categories: non-performing loans; loans that were once delinquent but are now performing and likely to re-default; performing loans that are underwater by more than 20%; performing loans that are underwater by less than 20%; and performing loans with some equity in them. Amherst considers loans that are 60 days delinquent to be troubled – most other estimates start the clock on their definition of distress at 90 days.

Barclays Capital. Number: About 3 million loans. Explanation: Barclays Capital’s Chief Housing Economist Michael Gapen produced a report looking at loans delinquent for 90 days or more, foreclosures, and REO, or bank-repossessed properties. His report does not include 30-day or 60-day delinquencies. “If you included those categories…it would be a much larger number,” a spokesman for the bank says.

CoreLogic. Number: 1.6 million homes. Explanation: Sam Khater, an economist with CoreLogic, said that CoreLogic’s shadow estimate is so low because the company uses “roll-rate analysis” to predict how many of the 90-plus-day delinquent loans out there will “roll over” to REO, meaning, how many of the country’s seriously delinquent loans will be repossessed by the bank. Then, the company estimates how many loans, once the house is repossessed by the banks, will end up listed on public multiple-listing services (making them no longer “shadow” inventory), and removes those.

Capital Economics. Number: 4.3 million homes. Explanation: Capital Economics has estimated the number of homes “waiting in the wings [that] will eventually add to the supply of properties for sale” and “prevent a normalization in the visible inventory for several years yet.” Their number is comfortably middle-of-the-road. Their definition does not include REO inventory, and it admits that in the worst-case scenario, there could be a shadow inventory of 15.3 million, using the widest possible definition of the term.

Source: The Wall Street Journal


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