US Housing: Visible, Shadow, & Ghost Supply

The following chart from Mark Hanson is one of the most bearish on the housing market I have seen. It begins with the left column (green) showing current demand which is running at 4.6 million homes per year.

The remaining columns moving from left to right show the scope and size of both the visible inventory, shadow inventory, and ghost inventory.

The first grouping is the visible inventory meaning when you drive down the street you can see a For Sale sign on the front yard. It is composed of the NAR (National Association of Realtors) listings and REO (bank owned) listings. You can see why based on current supply/demand dynamics of 4.6 million homes chasing 2.89 million listed for sale that in many areas prices are once again rising.

The next grouping is the shadow inventory showing distressed loans (delinquent) and the number of homes that are being sold through the short sale process (banks negotiate a deal with a buyer at below the total mortgage to avoid having to go through the process of foreclosure and selling through an REO listing).

Most analysts argue that that there is far less shadow supply available because of the number of homes moving through the short sale process. You can see that at only 600,000 homes, it makes up a very small piece of the pie.

Next up there are modifications or workouts which fail 75% of the time. So while this chart estimates this number at 6 million, it can really be estimated at 4.5 million homes that will ultimately move back into the shadow inventory.

The author then takes it into the "ghost" inventory which shows the number of homes with "effective" negative equity meaning they cannot sell their home and pay a Realtor without pulling cash out of their pocket. This total is a staggering 24,990,000 homes that are ready to enter the shadow inventory pipeline.

Let's hope Bernanke and the federal government can force mortgage rates down below 1%, which will help buyers bid up (overpay) for homes and get some of those 25 million homes back above water. This will force the maximum level of losses back on the tax payer and allow the monthly cost of living to stay as high as possible, something every American seems to think is very important.

For more on housing inventory see US Real Estate: Where Is The Inventory?

h/t The Big Picture