U.S. 'Shadow Inventory' Jumps 10% in One Year, Total Unsold Housing Inventory at 6.3 Million

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According to CoreLogic (NYSE: CLGX), shadow inventory of residential property as of August 2010, reached 2.1 million units, or eight months worth of supply, up from 1.9 million, or a five-months' supply, from one year earlier. With visible inventory remaining flat at 4.2 million units, the change in shadow inventory increased the total supply of unsold inventory by 3 percent.

Shadow Inventory

CoreLogic estimates shadow inventory, sometimes called pending supply, by calculating the number of properties that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders and that are not currently listed on multiple listing services (MLSs). Shadow inventory is typically not included in the official metrics of unsold inventory.

According to CoreLogic, the visible supply of unsold inventory was 4.2 million units in August 2010, the same as the previous year. The visible inventory measures the unsold inventory of new and existing homes that were on the market. The visible months' supply increased to 15 months in August, up from 11 months a year earlier due to the decline in sales during the last few months.

The total visible and shadow inventory was 6.3 million units in August, up from 6.1 million a year ago. The total months' supply of unsold homes was 23 months in August, up from 17 months a year ago. Although it can vary and it depends on the market and real estate cycle, typically a reading of six to seven months is considered normal so the current total months' supply is roughly three times the normal rate.

Distressed Supply

In its analysis, CoreLogic also found that the highest levels of distressed months' supply, which is the ratio of the number of properties that are 90+ days or more delinquent to the number of sales, are in Florida, Michigan, and California. Although Phoenix and Las Vegas have high months' supply of total housing inventory, they are not among the markets with the highest distressed months' supply because of the increased number of distressed sales that have been occurring in those markets. The markets with the lowest distressed supply are all in Texas, which largely bypassed the housing boom and subsequent bust.

Mark Fleming, chief economist for CoreLogic commented, "The weak demand for housing is significantly increasing the risk of further price declines in the housing market. 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."

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