Florida Property: Shadow Inventory Too Large

The number of homes throughout the US which are considered to be shadow inventory declined from 2 million in January last year to 1.8 million in January 2011, according to figures released by California research firm CoreLogic.

While the decline is good news, Florida still has one of the largest inventories in the country, with only New Jersey, Illinois and Maryland being higher. Homes are considered to be shadow inventory if they are at risk of going on the market due to the owners being in default of their mortgages, or due to foreclosure.

This type of inventory is seen as being a potential obstacle to recovery within the housing market as the lenders are likely to sell the properties below market value.

At the current rate of sales the nation’s supply of homes would take nine months to sell, as the months’ supply is calculated as being the ratio of the number of properties that are 90 days or more delinquent to the number of home sales.

The trend of shadow inventory supply seems to be downwards but the trouble is that the current weakness in prices may mean that this excess supply hangs around for longer than expected.

CoreLogic also said that short sales and loan modifications could help reduce the shadow inventory by 50%. However this solution doesn’t seem likely as lenders are reluctant to carry on modifying loans as evidence shows that this doesn’t help borrowers who are already in trouble as they will go on to default again.

The only good news is that the Florida Realtors released a pretty upbeat report on home prices in the Broward and Palm Beach Counties, even though it was totally at odds with Standard & Poor’s Case-Shiller home price index.

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