'Shadow Inventory' Threat Continues to Recede, CoreLogic Says

The number of homes in the "shadow inventory," once considered a serious threat to a real estate recovery, continues to drop as the housing market absorbs foreclosures, analytics firm CoreLogic said in a report it released today.

The shadow inventory refers to the pent-up supply of homes that are either in foreclosure or have seriously delinquent mortgages and are expected to eventually hit the market. The supply of the shadow inventory dipped from 2.6 million in October 2011 to 2.3 million in October 2012, CoreLogic said.

Housing experts warned for years that this supply of homes, which swelled in the wake of the housing bust, could persistently bloat home inventory. That, along with the fact that foreclosures sell at steep discounts, would keep home prices down, experts said.

However, investigations into forged foreclosure paperwork (aka "robosigning") and other illegal practices by lenders, and an increase in mortgage modifications and short sales, have helped chip away at the supply of these homes.

Now, as home prices and sales rise amid strong demand for distressed properties from investors, the specter of the shadow inventory continues to recede, CoreLogic experts and other market observers say.

"The size of the shadow inventory continues to shrink from peak levels in terms of numbers of units and the dollars they represent," said Anand Nallathambi, president of CoreLogic. "We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold."