Shadow Inventory Levels Greatly Improved Since Peak

Freddie Mac’s August 2012 U.S. Economic & Housing Market Outlook examines the so-called shadow inventory and whether there are a significant number of distressed properties soon to hit the market and erase recent price gains. The concern over the shadow inventory stems from the theory that there are a large number of these soon to be foreclosed properties that will eventually flood the market and send home prices tumbling downward. But, though there is evidence of some excess inventory, the number is far less severe than it has been. According to Freddie Mac’s chief economist Frank Nothaft, much of the shadow inventory has been absorbed over the past few years as fewer new homes were being built and household formation was rising. Now with rental markets in balance and continuing shrinkage of the vacant housing stock, Nothaft believes improvements in home prices are stable and the recovery may be strengthening. According to the Mortgage Bankers Association’s National Delinquency Survey, the number of seriously delinquent loans has fallen by nearly 1.4 million since its peak in 2009. More here.

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