Following a busy week of housing news, S&P has just posted its second quarter shadow inventory update, and the top line isn’t pretty (our emphasis):
The volume of distressed residential mortgage properties in the U.S. continues to remind the market that the fledgling recovery has yet to have a meaningful impact on the housing market. While our estimates for the time it will take to clear the supply of distressed homes on the market, or those that need to be liquidated and re-sold because previous borrowers defaulted, have declined after reaching a peak in mid-2008, the number has been on the rise again since fall of 2009. We estimate that the principal balance of these distressed homes amounts to about $460 billion, representing nearly one-third of the nonagency residential mortgage-backed securities (RMBS) market currently outstanding.
This gets at something we’ve been repeating here, which is that the excess supply of houses on the market will continue to make it difficult for prices to recover — especially, as S&P notes above, while the length of time to sell continues to increase.
Here is more from S&P, including a chart showing that the months to clear the supply of distressed homes has gradually climbed:
Given the pace of residential defaults during the housing downturn, the market’s inability to quickly absorb the excess volume has created a large “shadow inventory” of distressed properties—which we define as outstanding properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REO).
The growth in the shadow inventory is having three primary effects in the housing market:
– Low liquidation rates artificially skew the visible supply of distressed homes available for sale.
– The growing inventory negatively pressures existing home prices.
– When the backlog clears, market home prices will adjust. …
Separately, S&P on Tuesday released the latest results for the S&P Case-Schiller Index, revealing that seasonally adjusted prices declined for the first time in four months.
Calculated Risk has the chart:
As the index is a rolling three-month average and was still including a period before government tax credits to home buyers expired, don’t expect significant improvements anytime soon.
Related links:
S&P/Case-Shiller Home Price Indices – S&P
US home prices slip in July – FT
Existing home sales rebound from disastrous July – FT Alphaville