US foreclosure inventory: 10 months, page 1

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O.C. has 13 months of unlisted foreclosures

February 19th, 2010, 11:51 pm · 86 Comments · posted by Jeff Collins

Irvine-based John Burns Real Estate Consulting Inc. made national news this past week with a study showing that a new wave of foreclosures will hit the U.S. housing market in the next few years.

According to the Wall Street Journal, Burns Consulting’s study forecast that despite loan modification efforts, the nation has a “shadow inventory” of 5 million units that will be added to the housing market as their delinquent owners lose their homes. This shadow inventory is equal to about 10 months supply of homes.
Wayne Yamano, Burns Consulting vice president, co-wrote the study. We asked him to explain their findings.

Us: What did your study into shadow inventory entail and what were your key findings? How did you define “shadow inventory” for the purposes of this study?
Wayne: In our study, we set out to figure how large the shadow inventory problem is nationally, and to quantify shadow inventory MSA by MSA. We define shadow inventory as the supply of homes that will be lost by currently delinquent homeowners and is not yet available for sale.

Us: Your study says that five million of the 7.7 million delinquent homes will go through foreclosure or a “foreclosure-related procedure.” How is this likely to occur?
Wayne: Most shadow inventory will get out onto the market as an REO or short sale. In any event, it results in the homeowner losing their home, and that home being added to the supply of homes available for sale.

Us: Do the remaining 2.7 million borrowers get their loan payments caught up?
Wayne: Of the 7.7 million delinquent homeowners, we actually think that only about 1.6 million will be able avoid losing their homes, and that the remaining 6.1 million will lose their homes. We say that there is 5 million units of shadow inventory because we estimate that about 1.1 million delinquent homeowners already have their homes listed for sale, and we would not classify those homes as “shadow.”

Us: When will this wave of foreclosures hit, and how will this shadow inventory affect home prices?
Wayne: We don’t believe that the shadow inventory will be dumped onto the market all at once. Although we don’t believe modification efforts will truly save a lot of homeowners from losing their homes, we do believe that these programs are effective in delaying foreclosures and pushing out the additional supply to later years.
In terms of pricing, as long as the economic recovery continues and mortgage rates remain low, we do NOT expect another leg down in pricing, despite the looming shadow inventory problem. However, if the economy takes another dip and mortgage rates spike, we’re certain to see another decline in prices.

Us: Any indication how bad the problem is in Orange County?
Wayne: Orange County has about 13 months of shadow inventory, which is above the national average, but lower than other Southern California metros.

Us: What are the key implications of your findings?
Wayne: Our main conclusion is that prices are likely to keep steady, despite the massive shadow inventory, because the tremendous affordability we have today will create a floor for pricing. However, if the economic recovery stalls or mortgage rates spike, we’re going to see prices tumble again.

From www.ritholtz.com...:
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Coming Soon: 5 Million More Foreclosures

By Barry Ritholtz - February 16th, 2010, 9:30AM

Studies keep showing what we have known for a long time: Fighting foreclosures is a futile — and counter-productive — use of resources.

New studies by John Burns Real Estate Consulting and Standard & Poor’s Financial Services conclude that loan mod efforts only serve to delay the inevitable, resulting in future foreclosures.

The credit bubble allowed home buyers to get in over their heads, to buy more house than they could afford. Once prices came down and the refi pipeline closed down, it was game over for many of these buyers.

The latest estimates are for another five million delinquent mortgages to go through foreclosure (or alternatively, short sales) over the next few years. Currently, there is an estimated 7.7 million households in some stage of pre-default delinquency.

Thus, whatever grudging progress that has been made in clearing out some of the excess housing inventory will likely suffer a set back as these 5 million homes come out of the shadows and enter the real estate inventory of homes of for sale.

5 million homes represent approximately one years sales.

The WSJ reports that the problem is “largely concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas.”
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