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For every two homes currently for sale, a third is lurking in the nation’s “shadow inventory” of housing that’s either already been foreclosed by banks or is secured by seriously delinquent loans likely to fall to foreclosure, a new report from financial analysts at CoreLogic suggests.

Nationally, the shadow inventory totaled about 1.6 million units as of January 2012, an amount that’s been roughly static since the group’s last report covering October 2011.

This represents about six total months’ worth of real estate transactions, 400,000 of which are already owned by the banks that foreclosed on them.

Figures do not include other homes that, while not currently delinquent, are considered likely to go into default according to CoreLogic’s calculations.

Locally, the numbers may be even higher – California is one of three states harboring the largest inventories of distressed and bank-owned homes not listed for sale. Our state combines with Illinois and Florida to make up fully one-third of such properties.

“Almost half of the shadow inventory is not yet in the foreclosure process,” says Mark Fleming, the chief economist at CoreLogic.

The analysts expect that lenders are waiting to see how strong the spring looks for real estate sales before opening the floodgates on their backlog of delinquent properties, which could result in a glut of foreclosures soon coming to market.

“As we move into what is traditionally the peak selling season for real estate, servicers will certainly be watching closely to see if now is the time to move more inventory out of the shadows,” said Anand Nallathambi, president and CEO for CoreLogic.

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Comments

samanthaalex April 11, 2012 @ 1:47 p.m.

I continue to be confused by conflicting information about the housing market.

I understand that this article is saying 1.6 million foreclosures are in the "shadows" waiting to be released. However, it also says that almost half the inventory is not yet in the foreclosure process.

Given that banks don't want properties to go into foreclosure, because it costs more than short selling or keeping people in their homes, and given that about 58% of homes in foreclosure end up being refinanced (according to a U-T article), how does this translate into "opening the floodgates on a backlog of delinquent properties?"

I asked a realtor (yes, a biased source but nevertheless one that provides a counterpoint, which this article does not), and here's what he said:

"I have a very hard time believing what I read as failed logic used in [this] article

1) It says [almost half of] this “shadow inventory” has yet to be termed delinquent...so at this time the loans are current and performing. 2) Next, it talks about banks flooding the market with this same “shadow inventory,” which has yet to even go delinquent.

I fail to understand how a home which is not delinquent currently could ever be foreclosed upon and sent to market by an institution which has no control over it. Secondarily, this same institution doesn’t want to foreclose on any of these homes because they make a far lower return. Furthermore, as most areas have hit their gross rent multiplier level, it is cheaper to own that rent, so all of the “shadow buyers” out there waiting in the wings continue to buy great deals and lock in their housing expenses for the rest of their lives/foreseeable future, while those renting will be faced with continued rental increases throughout the upcoming inflationary period."

Can anyone comment on this to help me and other readers make sense of what's really going on?

Can the author of this article provide CoreLogic's response to this realtor's take?

Thank you.

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Dave Rice April 17, 2012 @ 7:56 a.m.

Hi samanthaalex,

Banks don't just keep track of who's already delinquent on their mortgage, they have a complex set of algorithms that help them determine which properties are likely to go into foreclosure in the future, and at what rate. So if 800,000 properties not currently delinquent are expected to fall into foreclosure, it could be because forecasters have determined, for example, that there are 2.4 million houses more than $100,000 "underwater," and that roughly 1/3 of those homeowners have historically shown a likelihood of strategic default. I'm not saying this is the exact methodology used (the truth is likely much more complex), but hopefully this helps explain that just because a property isn't currently in foreclosure doesn't mean it's not at risk.

I'm sorry your agent friend feels CoreLogic's analysis of the market consists of "failed logic," but would have to suggest she or he contact the firm directly to express displeasure.

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