Real Estate Inventory Overflow Threatens Housing Recovery

If you had a crystal ball and could look into the future you could probably answer the question as to how many more foreclosures will happen in the U.S. Since economists don't have that magic ball, they're trying to calculate not only the current shadow inventory (those homes already foreclosed, but not on the market), but also the "shadow" shadow inventory (those homes yet to enter foreclosure).

The "shadow" shadow inventory is purely speculative because it looks not only at those homeowners now delinquent, but also those whose homes are underwater (and who may walk away), as well as those who lose a job and end up in foreclosure. So you shouldn't take any bets on the "shadow" shadow inventory just yet.

Trends shown in the recent Mortgage Bankers National Delinquency survey indicate both good news and bad news. The MBA found decreases in the number of foreclosure starts. Also, there's a drop in the inventory of homes that are at some point of the foreclosure process. In fact, the MBA's chief economist, Jay Brinkmann, said: "The fact that both the 90-plus delinquency rate fell and the foreclosure-start rate fell means that a significant number of these seriously delinquent loans have been successfully modified and reclassified as performing, current loans."

So maybe the modifications are working out better than expected and the number of homes yet to enter foreclosure are not as high as the pessimists predicted.