The nation’s shadow inventory fell to 2.3 million units in July, down 10.2 percent from last July, according to a monthly report, using a new methodology (see below), from real estate data firm CoreLogic released today.

Homes with seriously delinquent loans attached to them made up 1 million of July’s shadow inventory. The balance included 900,000 homes in some stage of foreclosure and 345,000 bank-owned properties. The 2.3 million total units represent a six-month supply, the report noted.

Shadow inventory refers to the number of distressed homes likely to hit the market soon, but which aren’t included in multiple listing services or included in traditional pending supply metrics.

Chart showing the breakdown of shadow inventory by serious delinquency, pending foreclosures and REO inventory. Source: CoreLogic.

"While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country cause these pools of shadow inventory to remain in limbo for an extended period of time," said Mark Fleming, chief economist of CoreLogic.

The value of the shadow inventory in July was $382 billion, a 3.8 percent drop from July 2011 and $3 billion less than June.

The five states where serious delinquencies declined the most in the second quarter 2012 were Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).

In July, just five states made up 45 percent of all the distressed properties in the U.S.: Florida, California, Illinois, New York and New Jersey.

This report included a new methodology for calculating shadow inventory. Shadow inventory estimates now take into account cure rates — the percentage of delinquent loans not progressing to a further stage of delinquency — which has resulted in a significant increase in the number of estimated homes in the shadow inventory.

Chart showing how the new methodology revises CoreLogic’s shadow inventory calculations. Source: CoreLogic.

The delinquency transition rates from "delinquency to foreclosure" and "foreclosure to real estate owned" for distressed homes not listed for sale are now used to calculate the volume of shadow inventory.

The new methodology significantly revised CoreLogic’s numbers, increasing them by about 50 percent in many months.

CoreLogic new methodology for shadow inventory, revised numbers (a sample)

Month in 2012 New Method Original Method Difference
January 2.58 million 1.70 million 879,763
February 2.46 million 1.59 million 865,650
March 2.39 million 1.54 million 849,546
April 2.36 million 1.52 million 833,709

Source: CoreLogic. For complete list of revised numbers see CoreLogic’s document (PDF – download).

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