Firm: Baltimore-area 'shadow inventory' at 50,000 homes
Thousands of homes are on the market in the Baltimore region. But as the commercials say, wait -- there’s more.
Tens of thousands of Baltimore-area homeowners are behind on their mortgage payments. At least some of their homes will end up on the market too, either as short sales or repossessed foreclosures.
California-based John Burns Real Estate Consulting, which does market research for homebuilders and banks, estimates this "shadow inventory" in the Baltimore region at 50,000 homes as of June. That’s how many properties the company believes will eventually become distress sales but aren’t yet listed.
"That equates to 14 months of supply based on the average resale sales volume for the area over the last 10 years," Wayne Yamano, a vice president at John Burns, said in an email. "The U.S. average is about 9 months of shadow inventory in comparison."
The sales volume was much larger for most of the past 10 years than it’s been in the last few. At the pace of June sales, it would take 21 months -- almost two years -- to find buyers for 50,000 homes.
The so-called visible inventory, the 17,000 homes actually on the market as of June, represents seven months of supply.
CoreLogic, the real estate data firm, is more optimistic than John Burns about the national shadow inventory, assuming you define "optimistic" as predicting fewer distress sales. This week the company estimated the size of it in July at 1.6 million homes, a five-month supply. That’s down from 1.7 million in April, the company said.
"The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets," CoreLogic said in a statement.
The company calculates shadow inventory differently than John Burns, though. CoreLogic looks at loans that are 90 days or more delinquent, calculating how many of those properties are likely to end up with banks, and adds any homes that have been repossessed by lenders but aren’t yet listed. John Burns doesn’t include the repossessed-but-not-listed; instead, it looks at all delinquent loans -- not just those at least three months behind -- and applies a "liquidation probability" to determine how many will likely hit the market.
Kenneth Wenhold, mid-Atlantic regional director for Metrostudy, another consultant to the homebuilding industry, thinks lenders have no incentive to rapidly turn the shadow inventory into actual inventory. It’s not just that they’re hoping for prices to improve down the road, either.
A foreclosure doesn't dent a bank's reserves until it's sold, Wenhold said. As long as it’s a non-performing asset, "they can keep kicking that can down the street." Add to that the fallout from robo-signing, which has made foreclosure resales a more time-intensive proposition, he said.
"It’s going to be a couple of years of this slow unwinding until the markets start picking up," Wenhold predicted.