Regional variations in the shadow inventories of distressed U.S. mortgages could indicate where home prices may pick up or continue to stabilize and where additional declines may still be in store, according to a recent report published by Standard & Poor's (S&P) Ratings Services.
"We estimate that the entire shadow inventory of distressed properties currently outstanding that back nonagency residential mortgage-backed securities would take nearly three years to clear at the current average national resolution rate," says Standard & Poor's credit analyst Diane Westerback. "Given this backlog, we believe that average home prices could fall again if demand doesn't rise in step with the potential influx of supply."
The original principal balance of the current shadow-inventory overhang - which S&P defines as outstanding properties that are (or were recently) 90 days or more delinquent, in foreclosure or real estate owned (REO), but haven't yet hit the market - amounts to roughly $480 billion, or 30% of the entire nonagency market.
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