A state-by-state breakdown of "shadow inventory" suggests that while Nevada, Arizona and California have the highest foreclosure rates in the nation, buyers will clear those properties from the market at a faster rate than in most other states.

The analysis, by National Association of Realtors Research Economist Selma Hepp, shows the impact of shadow inventory is likely to linger for much longer in states like New York, New Jersey, Florida, Illinois and Washington, where distressed properties make up a smaller percentage of sales.

In New Jersey, where distressed properties have accounted for only about one in five sales during the past year, Hepp estimates that it will take 51 months to clear the state’s shadow inventory. The analysis showed New York may have 34 months of shadow inventory in the pipeline, Florida 29 months, Washington 28 months and Illinois 25 months.

With distressed properties making up nearly 70 percent of sales in Nevada, however, the Silver State has the lowest months’ supply of shadow inventory of any state in the nation — seven months — except Mississippi.

Arizona (nine months) and California (11 months) are also on the low end of the scale for months’ supply of shadow inventory, even though those states are ranked by RealtyTrac as having the second- and third-highest foreclosure rates in the nation, behind Nevada.

Shadow inventory is a term that’s applied to homes that have been repossessed by lenders but not yet placed on the market for sale. Many analysts, including Hepp, also include distressed properties that are likely to end up being taken back by lenders in their shadow inventory estimates.

Analysts track shadow inventory because the flow of foreclosed homes onto the market could impact existing-home inventories — and home prices — for years to come. Hepp’s analysis shows that the pace of distressed property sales is just as or more important as the raw number of homes headed for lenders’ real estate owned (REO) inventories.

In terms of raw numbers, Florida, California, Illinois, New York and Texas have the greatest numbers of homes classified as "shadow inventory." But in terms of months’ of supply, California and Texas rank among states with the smallest foreclosure inventories.

Utah, New Mexico, Louisiana, Iowa, Maine are among states with relatively small numbers of homes classified in the analysis as shadow inventory, but where the months’ supply of homes is estimated at more than 20 months.

For the analysis, Hepp relied on 2010 sales figures and NAR’s Realtors Confidence Index (RCI) survey, in which Realtors disclose what share of their transactions were short sales or foreclosures. The survey also helped Hepp calculate the share of distressed properties already on the market, and REOs not currently on the market.

Any change in the rate of existing-home sales from 2010 would affect the months’ supply of shadow inventory, and the proportion of distressed sales will continue to vary widely between states and also within states, she noted.

A settlement of the controversy surrounding loan servicers’ alleged "robo signing" practices could also have a "significant impact" on shadow inventory, she said.

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