According to CoreLogic, the residential shadow inventory totaled 1.6 million units in October, representing a supply of five months. Though down from 1.9 million units a year before, October's shadow inventory was approximately the same level as reported in January 2009.
The shadow inventory represents about half of the 3 million properties that are seriously delinquent, in foreclosure or in real estate owned (REO) status, CoreLogic explains. Of the 1.6 million properties in the shadow inventory, 770,000 units (2.5 months' supply) are seriously delinquent, 430,000 (1.4 months' supply) are in some stage of foreclosure and 370,000 (1.2 months' supply) are already in REO.
"The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults," says Mark Fleming, chief economist at CoreLogic.
According to CoreLogic, a healthy housing market should have less than one month's supply of shadow inventory, which would be easily an absorbed stock of distressed assets with little impact on house prices, unless the inventory was geographically concentrated. More than a third of October's shadow inventory was concentrated in Florida, California and Illinois. The top six states, which also include New York, Texas and New Jersey, account for half of the shadow inventory.
Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed sales, says CoreLogic.