One broad trend across the country has been a consistent and steady decline in shadow inventory. There is already a shortage of visible inventory. So a shorter shadow – those properties with serious mortgage delinquency or in some stage of the foreclosure process – will not help relieve the inventory situation. With new home construction still sluggish the housing inventory shortage could last longer. Home price increases in many parts of the country are nearly assured as a result. The price gains in some cases will be too fast and not good for the overall health of the local real estate market.
The shadow made up 4.5 percent of all mortgages, down from nearly 10 percent a few years ago. In terms of foreclosure starts, the latest figure of 0.46 percent is essentially back to normal. Due to the thinning out of the shadow as well as from rising home values, the share of distressed property sales is now hitting the single-digit percentage. This means, home prices will strengthen (since there will be fewer deeply discounted properties).