| -A A +A Shadow Inventory Continues to Weigh on Market

The nation has about 1.6 million homes that loom in shadow inventory, 22 percent lower than the peak in January 2010. Despite the decline, the shadow inventory is still dragging down home prices, housing experts say. Shadow inventory is when homes are either in foreclosure or repossessed by banks but have not yet hit the market. While CoreLogic recently reported the drop in the shadow inventory as a “positive sign for housing,” the number still remains high and is weighing on the market, housing experts say. The states with the largest shadow inventories are California, Florida, Illinois, Georgia, and Ohio, according to RealtyTrac. For example, California has nearly 270,000 homes in its shadow inventory. "It's absolutely an impediment," Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, told the USA Today. "It's hanging over the market." The high numbers are blamed from a moratorium on foreclosures in 2009 by legislators as well as delays from lenders as they try to find a workout solution with home owners to keep them in their homes. According to Standard & Poor's, the national shadow inventory of homes--worth an estimated $405 billion--will take four years to clear. It’s a catch-22 for banks: If they clear the shadow inventory too quickly, the inventory will overwhelm the market and could drive prices down further. On the other hand, if they clear the shadow inventory too slowly, it will prolong the housing market recovery, the S&P report noted. Source: “Shadow Inventory Depresses Sale Prices,” USA Today (Oct. 4, 2011)