US Housing Market Endangered by Potential Market Glut

Millions of Home Could Flood the Market, Further Dropping Prices

by Erin Scobie on August 22, 2011

As the U.S. housing market slowly begins to stabilize, storm clouds are growing on the horizon. Whether or not it rains depends entirely on the owners of millions of pieces of property which may or may not be put up for sale in the coming months. A sudden influx of homes for sale would cause real estate values to drop even lower.

Standard & Poor’s, the credit agency which recently made the news for lowering America’s credit rating, has released a report outlining how long it would take banks to rid themselves of the properties, or “shadow inventory.” While the time span was calculated at 47 months, it is actually better than the 52-month estimate released in the first quarter of this year.

This same report also found that the total value of the loans on these properties continued to fall compared to the first quarter marks. Because they are not backed by Fannie Mae, Freddie Mac, or the Federal Housing Administration, they are known as non-agency loans. The value of these non-agency loans fell from $433 billion to $405 million in the span of three months.

“It’s good news that things are starting to slow down and we’re getting closer to the end of the problem,” said Diane Westerback, Standard & Poor’s managing director of global surveillance analytics. “It could mean a gradual recovery for the market.”

While a brighter outlook has been projected, do not confuse it with an actually promising future. To go back to the storm clouds, the S&P report is simply painting them in a slightly lighter shade of grade. They are still in the sky. In fact, S&P estimates that the total number of properties in the “shadow inventory” could be as high as 5 million. No matter when these properties are put up for sale, the deep discounts that will have to be placed on them will not help the housing market.

Since the properties will have to be sold eventually, government agencies have begun taking a pro-active strategy. As previously reported, the White House has already announced that it will begin listening to proposals on how to offload over 92,000 foreclosed properties. The shadow inventory properties

The need to hurry is readily apparent. The Mortgage Bankers Association has reported that the number of properties with delinquent mortgages has started to rise again.

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