Is There Light At The End Of The US Foreclosure Tunnel?
More than one in every three homes sales in the US in April and May was a foreclosed home according to the National Association of Realtors. The ratio is dropping however from 37% in April to 31% in May. According to CoreLogic Inc's chief economist Sam Khater this is still over six times the ratio of distressed to regular sales typical in a healthy real estate market.
CoreLogic's housing market data also says that the shadow inventory accounts for only five months of inventory at the current market sales rate. This shadow inventory consists of homes with a delinquent mortgage that are set to be foreclosed upon. Given that foreclosed homes tend to sell at lower prices than regular equity sales, they bring surrounding house values down and diminish buyer confidence.
Are home values dropping or rising right now across the US? Standard and Poor's Case Shiller Index says that Q1 2011 saw a 4.2% decrease in values across the 20 Metropolitan Statistical Areas in which it tracks sales data.
The FNC Residential Price Index started to track a modest 0.6% rise in April 2011, the first monthly increase since the Tax Credit boosted sales and values in April 2010.
RealtyTrac which tracks foreclosures across the nation says that the foreclosure rate in May was the lowest in four years, but this doesn't necessarily diminish the size of the shadow inventory. Several government sponsored initiatives such as the Emergency Homeowners' Loan Program are designed to put the brakes on new foreclosures, and may just control the rate that foreclosed homes enter the market.
So while CoreLogic estimates that 1.7 million homes are in the shadow inventory, this doesn't include the homes that are expected to receive a loan modification.
Mary Miller, the Assistant Treasury Secretary said that the shadow inventory was closer to 3.8 million homes in an address earlier in June.
Despite lower foreclosure rates at present, the shadow inventory is still lurking out there, and no matter which measure of its size you choose, it's going to be impacting home prices for some time to come.
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