New figures released by Fitch Ratings put the industry’s shadow inventory at 7 million homes. The agency defines the shadow supply of properties as loans that are delinquent, in foreclosure, or real-estate-owned (REO) by the servicer.
According to the ratings agency’s analysis, the latest industry trends indicate that it will take more than three years (40 months) to sell the properties of loans that are currently seriously delinquent, in foreclosure, or REO. Fitch says for judicial foreclosure states, such as Florida, it is expected to take longer than the national average of 40 months to resolve the distressed loans, while for nonjudicial foreclosure states, like California, the inventory will likely be resolved faster.
The agency points out in its report that the market’s ability to absorb the supply of distressed homes has been affected by limited demand for home purchases. While interest rates are near historical lows and affordability has improved, fewer potential buyers can qualify for new loans due to the heightened credit standards, Fitch says. Additionally, high unemployment, weak consumer confidence, and uncertainty about the future of home prices have prevented some potential buyers from entering the market.
“Fitch is currently assuming approximately a further 10 percent home price decline nationally, with the majority of the adjustment occurring by the end of 2012. However, the timing of the adjustment will be affected by the timing of the distressed inventory resolution,” the agency said in its report.
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