Shadow Inventory Up 10 Percent

The “shadow inventory” of homes expected to eventually sell as distressed properties increased by approximately 200,000, or more than 10 percent over the past year, according to new estimates.

That means a bigger potential inventory that the housing market must work through before returning to normal levels of supply. All told, the total supply of unsold homes, including shadow inventory, would take 23 months to work through at current sales rates, according to financial data firm CoreLogic, which produced the report.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” said Mark Fleming, chief economist for CoreLogic. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”

The size of the shadow inventory is a significant issue for the housing market, as it represents future foreclosure sales, which tend to depress home prices.

CoreLogic estimated the shadow inventory, also called pending supply, at 2.1 million units in August 2010, up from 1.9 million one year earlier. The figure includes seriously delinquent properties where the mortgage is past due by 90 days or more and which are expected to eventually go into foreclosure, as well as properties currently in the foreclosure process and repossessed properties that are not currently listed for sale by banks.

The total number of unsold homes on the market was estimated at 4.2 million units, unchanged from August 2009, putting the total estimated unsold housing supply at 6.3 million units. Since a six or seven month supply is considered “normal,” the current total inventory is approximately three times the normal supply.

One year ago, the estimate was that total housing inventory represented a 17 month supply, with the six month increase primarily due to slowing home sales since then.