Shadow Inventory Could Keep Home Prices Down Three More Years, Aspen Homes Condos

Shadow Inventory Could Keep Home Prices Down Three More Years

Analysts are projecting home prices could remain low for another two or three years while as many as 12 million more homes are put on the market. A substantial shadow inventory, or supply of homes in jeopardy of foreclosure which could be placed on the market, is preventing homes prices from hitting a bottom, even though they have already fallen by 28 percent since 2006. In addition to the shadow inventory, there are many vacant homes that owners may put on the market.

The steadily rising supply of homes is threatening to undermine the government's efforts to boost the housing market. More price drops will be necessary for a sustainable recovery that was sparked by stimulus efforts. Sales of both new and existing homes fell to their lowest levels on record in July as the government's tax credits for homebuyers came to an end, and unemployment is hovering around a 26-year high. According to the National Association of Realtors, the median price of a pre-owned home in July was $182,600, about the same as it was in 2003.

Mortgage giant Fannie Mae Wednesday lowered its projection for total home sales this year, forecasting a 7 percent decline from last year. Declining demand after the tax credits expired has lead to falling prices in the third quarter. There were more than 4 million homes on the market in July, and, at the sales pace at the time, it would take 12.5 months for all the homes to be sold. It's the largest such ratio on record.

Analysts say that buyers are remaining on the sidelines because they know a bottom hasn't been reached. Insiders forecast another two million Americans will lose their homes to foreclosure by the end of 2011, and prices could drop another 5 percent by 2013. Historically, after home prices reach a bottom, they recover at a steady 3 percent per year, meaning it would take more than ten years for housing to make a complete recovery.

Prices were down on a year-to-year basis in 36 of the 50 US states in July, with the largest declines reported in Idaho, Alabama, and Maine. The largest gains in prices reported in Maine, South Dakota, and California.

Economists' estimates range from 7 to 8 million as to the number of US homes either sitting vacant or in some part of the foreclosure process. And, according to a recent survey by Zillow, there are 3.8 million Americans who said they are "very likely" to list their homes for sale on the market within the next six months.

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