Decline in shadow inventory
The residential property shadow inventory in the United States currently stands at five months, down to 1.6 million units from 1.9 million units from a year ago, according to the latest published figures.
The data from CoreLogic suggests that the moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets.
‘The steady improvement in the shadow inventory is a positive development for the housing market. However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time,’ said Mark Fleming, chief economist for CoreLogic.
Meanwhile, the latest figures from the National Association of Realtors shows that pending US property sales are down but still higher than a year ago.
The Pending Home Sales Index, a forward looking indicator based on contract signings, declined 1.2% to 88.6 in August from 89.7 in July but is 7.7% above August 2010 when it stood at 82.3. The data reflects contracts but not closings.
Lawrence Yun, NAR chief economist, said the decline reflects an uneven market.
‘The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August. But broadly speaking, contract signing activity has been holding in a narrow range for many months,’ he explained.
The PHSI in the Northeast fell 5.8% to 63.6 in August but is 1.3% higher than August 2010. In the Midwest the index declined 3.7% to 76.2 in August but is 8.2% above a year ago. Pending home sales in the South rose 2.6% to 96.9 and are 7.6% higher than August 2010. In the West the index declined 2.4% to 108.1 in August but is 10.5% above a year ago.
Yun said the market is underperforming given a pent-up demand in household formation.
‘We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit, a factor in elevated levels of contract failures,’ he said.
‘Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing home sales closer to 5.5 million, but are expecting just over 4.9 million this year. The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy,’ he added.
Although economic growth as measured by the Gross Domestic Product is expected to remain positive, uncertainty is causing some consumer hesitation, he pointed out.
‘We need to remove the road blocks to the housing recovery for people who are trying to take advantage of excellent affordability conditions. Unfortunately, some buyers also will face notably higher mortgage rates on jumbo loans because of a lack of competition in the banking industry,’ said Yun.