If you've been trying to keep track of the "shadow inventory" of homes that are destined to be foreclosed and come onto the market within the next few years, you'll be glad to know that the hard-to-determine statistic has been narrowed down: It's either 1.7 million houses or 12 million houses.
That's the skinny from a site called CapitalGainsAndGames.com, which cites some comments made last week by Amherst Securities analyst Laurie Goodman:
Laurie Goodman told the National Economists Club today in D.C. 7.2 million are already in the delinquency pipeline, and 250,000 are going delinquent each month bringing the total to 12 million. "Once you're 60 days delinquent, a foreclosure is highly probable," she said. Goodman is a Senior Managing Director of Amherst Securities and is widely recognized as the best housing finance economist on Wall Street.
She emphasized that negative equity is the main problem, and that any program which doesn't significantly reduce principal won't work. She estimated that under the most optimistic assumptions, President Obama's HAMP program would avert 1.1 million foreclosures. Goodman added that banks aren't renegotiating underwater mortgages in which they hold a second lien, "a huge conflict of interest problem."
She noted that FHA loans are still the whole market and suggested that the homebuyer tax credit, due to expire at the end of this month, and other housing incentives have borrowed so much demand forward that the only way left to stimulate the market would be for FHA to ease its requirements and allow investors to participate.
I hate Goodman's infinite-intervention plan to employ "one modification plan after another until a plan is successful." But I love her dire view of the foreclosure landscape, and her useful debunking of the common belief that unemployment is the main cause of mortgage defaults.
In congressional testimony in December, Goodman had the shadow inventory at 7.2 million properties. I'm not sure how she's getting to 12 million houses, especially when DataQuick says first-quarter notices of default declined more than 4 percent in California, the most populous and one of the most troubled of the delinquency states.
The shadow inventory will be an important drag on house prices for years, which will in turn prompt more efforts to use your money to prop up the sagging market (or as we say in the second quarter of 2010, "spur the recovery"). So it's important to get a handle on how large this inventory is. Best estimate as of this time: One crapload.