'Shadow inventory' imperils housing market - East Valley Tribune: Business

'Shadow inventory' imperils housing market

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Posted: Wednesday, November 24, 2010 5:00 pm

There's more evidence that the housing market is likely to get worse before it gets better. The number of houses that are in foreclosure or headed that way is increasing dramatically, according to a new report from CoreLogic, a real estate research firm based in Santa Ana, Calif.

As of August this "shadow inventory," which includes all distressed sales not yet on the market, has grown 10 percent since last year and will continue to lurk through the market for some time, the report says.

Analysts are keeping a close watch on how many distressed sales are in the pipeline because of the effect they have on home prices throughout the market. Foreclosures put downward pressure on prices because they can be immediate competition for traditional listings, and they often become comparables when appraisers are trying to determine the value of a property. Plus, bank-owned listings are often boarded and untended, making nearby houses seem less desirable.

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

The problem is that because sales aren't keeping pace with new listings, overall inventory levels are rising. In Minneapolis-St. Paul, for example, inventory levels were up 10.4 percent as of Nov. 13 compared with a year ago, according to a report released Monday by the Minneapolis Area Association of Realtors.

Nationwide, the "visible supply" of houses on the market -- those currently listed -- rose from 11 months a year ago to 15 months in August. By combining the visible and shadow inventory, the overall supply of unsold homes nationwide rose to 23 months from 17 months a year ago.

The market is considered at equilibrium when there's a six- to seven-month supply.

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