The Shadow Inventory of Distressed Loans to Stay at Elevated Levels Through 2016

A new report from John Burns Real Estate Consulting estimates that the ‘shadow inventory’ will peak this year at 4.7 million units, or 10 month supply of homes, and will ultimately result in lower prices.

WSJ: “The report also estimates that the distressed share of home sales will rise to around 40% of all home re-sales through 2012. And that the [potential foreclosures and other distressed loans] will stay at elevated levels through 2016.

The rising share of distressed sales could send prices down faster because banks are less likely to wait to reduce prices on their inventory of bank owned homes. The Irvine, Calif.-based housing consultancy estimates that prices will fall by 8% to 11% through 2012, though the declines will be worse if the economy deteriorates or interest rates rise significantly. The firm estimates that distressed sales will peak next year at 2.36 million, up from 2.05 million this year and 1.5 million in 2009.”

Burns RE also says however, that supply could shrink to as low as 4 million units or spike to as high as 5.6 million homes depending on how many delinquent loans actually move through to foreclosure.

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