Shadow Inventory Variants Could Trigger Regional
Price Declines: Report  

By: Carrie Bay                                                                                                                                 		 
Regional variations in the shadow inventories of distressed U.S. Mortgages could be an indicator of the new direction home prices will take , according to reports published by Standard and Poor's Rating Services.

The company's analysts say differences in the backlog of distressed properties point to which markets will see home prices stabilize or even increase , and where additional declines may still be in store. 

The volume of residential properties has been growing in nearly every US state since 2005, S&P said, and borrower nationwide are now defaulting on their mortgages faster than existing defaults are being resolved through liquidation. 
These trends are have given rise to a large " shadpw inventory " of distressed properties.

S&P estimates that the shadow inventory
backing just private-label residential mortgages mortgage back securitiies will take nearly three years to clear at current resolution rate. 

The ratings agency defines inventory  as properties that are 90 days or more deliqinuent, in foreclosure, or REO, but haven't yet hit the market. S&P 
concludes that the original principal balance of this inventory overhang  amounts to a roughly $480 Billion or 30 percent of the entire private-label
non-GSE maket. 
                                                                           
                                                                   		       "Given this backlog, we believe that the average  home
       price will fall again if demand if demand doesn't rise in
       step  with the potential influx of supply," said
       Diane Westerback, a credit analyst with S&P. The 
       reports notes that  although shadow inventories remain
       above historical averages in most regions of the US,
       inventory levels and trends among cities varies
       significantly. 

       S&P's review of the 20 major metro statistical areas
       included in the S&P/Case-Shiller Price Indices 
       revealed that inventories appeared to be falling from 
       recent peaks in some areas while plateauing at 
       historical highs or continuing to rise in others. 

      "For instance, we estimate that the shadow inventory
       New York City metro area will take the longest to
       clear at 103 months, assuming the current liquidation
       rates," West explained. 

       This is almost 3-5 times our estimate for the national
       average at 34 months, and far exceeds the level for the
       Phoenix Metro area, which has projected 16 months of
       inventory to clear, the lowest of the 20 MSA's, she
       said.

       S&P's analyis included all first-lein, prime, alternative
       A, and sub-prime mortgages that appear in non-      
       agency RMBS transactions.