Housing Overhang/Shadow Inventory Is An Enormous Problem To The Recovery Of The US Housing Market

The Good News Is That Dallas Is In Pretty Good Shape With Regard To “Shadow Inventory”


According to “Amherst Mortgage Insight” from Amherst Securities Group, investors may be premature in believing the housing market has bottomed and is beginning to recover. Amherst estimates there is a housing overhang in the US of 7 million units. They are talking about loans that are destined to ultimately default and liquidate, creating a huge “shadow inventory.” This is 7 times what the estimate was in 2005.

The Mortgage Bankers Association quarterly delinquency survey showed that at the end of the 2nd quarter of 2009, 13.54% of mortgages in the U.S. were in some stage of delinquency: 4.3% were in foreclosure, another 3.88% were 90+ days delinquent, 1.68% were 60 days delinquent, and 3.68% were 30 days delinquent. Only a small percent of the loans that are delinquent will actually recover; most will foreclose. The MBA estimates that of the 13.54% total distressed inventory 12.42% will actually liquidate. That’s 6.94 million units. With existing home sales totaling around 5.2 million units, the 6.94 million units of overhang is about 1.35 times 1 year of existing home sales! This number does not include those loans that will become delinquent next month and the month after.

The effect of the huge “shadow inventory” varies dramatically from city to city. The report has a chart showing the 20 cities it reports on with dramatically different results. It compares actually listings of houses for sale in the city to the total inventory of houses potentially for sale including the “shadow inventory.” The “shadow inventory” is made up of real estate owned by banks not yet listed for sale, loans posted for foreclosure sales not yet owned by banks, and all of the loans that have received notice of default.

The total inventory in a city is equal to the listings plus the total “shadow inventory.” The worst situation is in Las Vegas, Nevada . . . it had 16,765 listings with a total inventory of 69,614. The total inventory is over 4 times the houses listed for sale!

The 5 cities that had inventories that were 2 times or greater than the actual listings were Las Vegas, San Diego, Los Angeles, San Francisco, and Phoenix. Dallas was the 3rd best on the list with a total inventory equal to 1.17 times the actual listings. Dallas had an actual listing of 30,530 houses and the total inventory was 35,757. I think that means that we are likely to see a much quicker housing recovery in our area than in the more distressed parts of the U.S.

It appears that housing prices have stabilized because there is a seasonality aspect to housing prices. The favorable seasonal factors will disappear over the coming months and the reality of this 7 million housing overhang is likely to set in. This could further exacerbate the problem if it causes a further home price depreciation which could lead to an even higher volume of defaults.

(Go to http://www.scribd.com/doc/20351562/Shadow-Inventory-Report-Amherst-9-23-09 to read the entire report).