Here in CA we have one million homeowners who are already delinquent, and we seem to be clearing about 25-30k a month based on foreclosures and short sales (which are the only “solutions” that are actually clearing the distress by eliminating negative equity). Divide one million by 30k, and you come to the same 33 month conclusion they reach.
Another interesting part of the report deals with recently cured loans… those no longer delinquent, primarily due to loan modifications. They suggest that these should be included in calculations of shadow inventory, as they have had a nearly 70 percent rate of recidivism – in other words, most become delinquent again because the loan mod failed to address the core problem of negative equity. Seems like a reasonable conclusion to me.
Basically, California has over a million houses sitting in the shadows. Not foreclosed upon, but not paying a mortgage, not including loan mods that will most likely fail within the next 3 years. Likely that means we will see little or not appreciation for the next 3 years and probably depreciation in the upper end of the market.
The government providing intervention in the market and laws to slow foreclosures are actually hampering price recovery. But hey I’m not complaining, if the government wants to delay things 2 or 3 extra years that is profitable decision for me.