Report suggests distressed sales will hurt housing market for some time to come

A report released today by CoreLogic shows that, while the overall inventory of homes for sale has remained the same in the past year at 4.2 million new and existing homes for sale as of August, the number of homes in “shadow inventory” has grown from 6.1 million a year before to 6.3 million as of August, 2010.

CoreLogic defines “shadow inventory” as properties on which the mortgage is seriously delinquent (90 days or more), in foreclosure or already foreclosed on and owned by lenders but not currently listed on the market for sale.

While we have seem some encouraging signs lately in terms of mortgage delinquencies starting to slow, seeing the shadow inventory grow tells me that we are going to be dealing with a high rate of distressed sales in the housing market for some time, probably the next two years in my opinion. One of the many problems with distressed sales is the downward pressure they put on home prices making it difficult for sellers to compete.

I think the next couple of months are going to be critical in terms of what happens with mortgage delinquencies and foreclosures….if the rates decline and can continue somewhat of a decline through winter then I think the market will see a little life in spring. However, if delinquencies and foreclosures hold steady or worse yet, increase, through the winter then they could wreak some havoc on the spring market. Stay tuned…

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