Foreclosure Properties May Take 5 Years To Be Absorbed Into Market

Even switching into high gear, the nation’s banks have far to go to catch up with processing an unprecedented number of foreclosures. This could potentially delay recovery for …

Even switching into high gear, the nation’s banks have far to go to catch up with processing an unprecedented number of foreclosures. This could potentially delay recovery for another half decade according to Housing Predictor. Although the true extent of this shadow inventory is unclear, foreclosures have topped 7 million in just the last 3 years. See the following article from Housing Predictor for more on this.

The shadow inventory of homes and other residential properties exceeds 6 million, which will prolong the recovery of the U.S. housing market. The inventory of properties that have not yet been completed as foreclosures, but are under distress represent a growing inventory to be absorbed by the market.

The shadow inventory is composed of homes with delinquent loans, bank owned properties and foreclosures that are not yet accounted for under banking regulations. Accounting rules allow banks to keep foreclosed properties off their balance sheets until a property is resold. The record number of homes in the shadow inventory will pressure housing prices in the majority of markets, but should not depress prices as much as earlier levels, according to analysts.

Bank servicing companies have added staff and upgraded computer systems to handle the record volume of foreclosures. But they are running as much as 30-months behind in some areas of the country, particularly in hard hit California, Florida and Nevada. As a consequence, the time it takes to get foreclosed properties to the market and re-sell them has been delayed.

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Banking analysts are reluctant to say how many foreclosures are in the pipeline due to public outcries over the foreclosure crisis. A high placed analyst with one of the nation’s largest lenders says it’s impossible to “really tell the magnitude of the problem.” However, a study of more than 100 markets by Housing Predictor heavily impacted by the housing crisis shows that there are at least six million residential properties in the shadow inventory.

The number of homes already seized by banks in foreclosure proceedings over the past three years has topped 7-million, according to Senate Banking Committee Chairman Chris Dodd (D-Conn.). A flood of foreclosures could act to further pressure housing prices, but since bankers are slowing the foreclosure process down the market will have more time to absorb the inventory. The efforts by bankers are an attempt to begin to stabilize home prices in a larger portion of the country.

Government programs started by the Obama administration have produced at least some amount of stability in especially hard hit markets in California, Florida and Nevada. Home sales have risen in most of Florida as prices decline. But the inventory of homes has tightened in many areas as a result of fewer foreclosures. California housing prices have been sliding as a result leading to a rise in bank seizures.

The housing market took a decade to recover from the downturn triggered by the Savings and Loan Crisis in 1988, and even longer after the housing bust that accompanied the Great Depression. However, prices had not increased as much as they have in the last thirty years during the 1930s. After the industrial revolution America went through massive changes, and it seems as though more sweeping changes are in store as the nation comes to grips with the digital age.

The artificial housing inflation triggered by derivatives traded on Wall Street that supplied the mortgage money coupled with the toxic new creative mortgages set the stage for the financial crisis.

Housing Predictor analysts project it will take at least another five years for the shadow inventory of foreclosed properties to be absorbed by the market. For home buyers there will be plenty of deals as the shadow inventory is marketed and sold off.

This article has been republished from Housing Predictor. You can also view this article at
Housing Predictor, a real estate analysis and forecasting site.



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