Behind the scene: Washington’s shadow inventory of homes

Washington State’s  ‘shadow inventory’ projected to last over two years…

Nationally the mortgage delinquency situation is mostly improving… In the last quarter of 2010, serious delinquencies, those 90+ days late, fell over the past year in all but four states, Washington, New Jersey, New York, and Vermont.

The National Association of Realtors’ (NAR) recent report, Economists’ Outlook, gives us a map showing the number of months shadow inventory by state:

NAR’s methodology

The map shows the number of months it would take to clear the shadow inventory by state. The months’ supply is estimated by dividing the shadow inventory and the monthly number of distressed sales. The numbers range broadly from 51 months in New Jersey to 7 months in Nevada. When looking at months’ supply it is important to keep in mind that this estimate highly depends on saturation of distressed sales. Given that New Jersey over the past year on average reported about 20 percent of existing home sales to be distressed sales, it will take a longer period for the shadow inventory to clear. In contrast, Nevada’s distressed sales averaged a considerable 70 percent share of the existing sales and at that rate the current shadow inventory would clear in 7 months.

Bottom Line… a ‘Catch 22’?

Appreciation of residential real estate will not take place until a region works their way through the shadow inventory that exists. Prudent release of the backlog of bank-owned foreclosed inventory is crucial as pricing would be chaotic if all the inventory were released at once.

A housing ‘Catch 22’?!  Yes… A measured release of property prolongs the readjustment process, yet flooding the market with these homes could possibly cause an additional ‘hit’ against our fragile economic recovery.

Reposted with permission from


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