The shadow inventory of distressed homes in the United States will take four years to clear, according to Standard & Poor’s Rating Services’ fourth quarter report for 2010. That time span marks an 11 percent increase over the previous quarter, and a 40 percent increase from fourth quarter 2009.
“Our recent estimates of months to clear have increased primarily because of the deceleration of the distressed property liquidation rate rather than a rise in overall distressed property levels,” according to the S&P report. It seems that 90-plus-day delinquent loans and foreclosed properties are taking longer to become REO, which is lengthening the overall timelines for resolving troubled assets.
Shadow inventory is defined as distressed properties in which borrowers are 90 days or more delinquent on mortgage payments and where properties have recently fallen into foreclosure or are real estate owned.
In New York, the S&P predicts it may take up to 10 years to fully clear the city’s shadow inventory--twice as long as any of the other top 20 metro areas S&P studied. Los Angeles has the largest shadow inventory overhang balance but it is expected to clear its inventory in 50 months or in about 4 years.
The following is a list of cities where shadow inventories are expected to take the longest to clear, according to S&P’s most recent fourth quarter 2010 data.
* New York: 130 months
* Boston: 71 months
* Charlotte, N.C.: 65 months
* Miami: 60 months
* Chicago: 59 months
* Seattle: 59 months
* Cleveland: 57 months
* Tampa, Fla.: 57 months
* Dallas: 56 months
However, S&P notes there is a bright spot: The number of overall distressed loans continues to fall and loan cure success rates have been improving since the second half of 2008.
Source: “Fourth-Quarter Shadow Inventory Update: Drop in Liquidations, Stable Cure Rates Indicate Increased Foreclosure Timelines,” Standard & Poor's Ratings Services (Jan. 25, 2011)