JPMorgan Chase: Shadow Housing Inventory Down 1.2 Million in 2012

by Peter Thomas Ricci


The Shadow knows: through modifications, short sales and REO transactions, the nation’s largest banks have been tackling the large shadow housing inventory

Shadow housing inventory declined by 1.2 million in the first half of 2012, according to a new study by JPMorgan Chase of the ominous housing stock.

The shadow market peaked at six million in 2010, and JPMorgan estimates that banks, through handling troubled mortgages and foreclosed properties, could decrease the shadow markets by as much as two million by the end of 2012.

Banks Tackling Large Shadow Housing Inventory

As HousingWire noted, the $26 billion foreclosure settlement from earlier in the year has been quite influential in the distressed property market, and has led to more short sales and modifications from the nation’s largest banks.

  •  According to the JPMorgan Chase study, nearly 335,000 short sales were completed in the first half of 2012, compared to 420,000 modifications and 470,000 REO transactions.
  • Because of the foreclosure settlement, JPMorgan Chase analysts are expecting 100,000 principal reduction mods from the nation’s largest lenders, with each borrower saving an average fo $100,000; however, as HousingWire notes, just 7,000 had been completed through June.
  • By the end of 2012, current projections are for 950,000 foreclosed home sales, 670,000 short sales and 800,000 modifications.

Negative Home Equity and the Shadow Housing Inventory

For the purposes of its study, JPMorgan Chase only analyzed seriously delinquent mortgages; as we’ve reported before, the actual size of the shadow housing inventory is somewhat controversial, considering that other analysts, such as those at Morgan Stanley, also count foreclosed properties and all delinquent mortgages in their studies.

And though there are still quite a bit of homes in the shadow housing inventory – more than five million, according to some measures – the various modifications, short sales and REO transactions that the banks are pursuing have made the first sizable dent in the inventory since 2008, and as the JPMorgan analysts noted, such actions ultimately aid home prices as well.

“Although re-defaults and new delinquencies will continue to keep shadow inventory elevated, the rapid decline should prevent downward pressure on home prices going into 2013,” analysts said.

Indeed, Chase estimates that a 10 percent increase in prices could lift 1.8 million borrowers out of negative equity, a view that is consistent with earlier research by CoreLogic.

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