Shadow Inventory Drop Helps Residential Prices

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SANTA ANA, CA-Recent CoreLogic research shows that the current residential shadow inventory as of April 2012 fell to 1.5 million units, representing a supply of four months. This was a 14.8% drop from April 2011, when shadow inventory stood at 1.8 million units, or a six-months' supply, which is approximately the same level as the country was experiencing in October 2008.

Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been approximately offset by the equal volume of distressed (short and real estate owned) sales. CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties that are seriously delinquent, in foreclosure and held as real estate owned by mortgage servicers but not currently listed on multiple listing services.

“Since peaking at 2.1 million units in January 2010, the shadow inventory has fallen by 28%. The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices,” says Mark Fleming, chief economist for CoreLogic. “This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases.”

In another recent CoreLogic report, the Santa Ana-based company says that home prices nationwide, including distressed sales, increased on a year-over-year basis by 2% in May 2012 compared to May 2011. On a month-over-month basis, home prices, including distressed sales, also increased by 1.8% in May 2012 compared to April 2012. The May 2012 figures mark the third consecutive increase in home prices nationwide on both a year-over-year and month-over-month basis.

Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 2.7% in May 2012 compared to May 2011. On a month-over-month basis excluding distressed sales, the CoreLogic HPI indicates home prices increased 2.3% in May 2012 compared to April 2012, the fourth month-over-month increase in a row. Distressed sales include short sales and real estate owned transactions.

The CoreLogic Pending HPI indicates that house prices, including distressed sales, will rise by at least another 1.4% from May 2012 to June 2012. Excluding distressed sales, house prices are also poised to rise by 2% during that same time period.

“The recent upward trend in US home prices is an encouraging signal that we may be seeing a bottoming of the housing down cycle,” according to Anand Nallathambi, president and chief executive officer of CoreLogic. “Tighter inventory is contributing to broad, but modest, price gains nationwide and more significant gains in the harder-hit markets, like Phoenix.”

According to Fleming, “Home price appreciation in the lower-priced segment of the market is rebounding more quickly than in the upper end. Home prices below 75% of the national median increased 5.7% from a year ago, compared to only a 1.8% increase for prices 125% or more of the median.”