NEW YORK (TheStreet) -- How healthy is the housing market? Data on prices and sales show a pretty nice recovery, but the standout stat is foreclosures: The "foreclosure inventory" dropped by 35% in the 12 months ended in February.
That's the number of homes in the foreclosure process or likely to be because homeowners are seriously behind in their payments. Because homes in or near foreclosure typically sell at a deep discount, a large foreclosure inventory, including a "shadow inventory" of homes that could tumble onto the market, puts damper on sales, which can hurt prices. So a reduction in the number of troubled homes is a force for the good.
"The stock of seriously delinquent homes and the foreclosure rate are back to levels last seen in the final quarter of 2008," says Anand Nallathambi, president and CEO of CoreLogic, the housing-data firm. "The shadow inventory has also declined year over year for the past three years as the housing market continues to heal, including double-digit declines for the past 16 consecutive months."
Shadow inventory peaked at about 3 million homes early in 2010 and has since fallen to about 1.7 million. That's still high compared with the 600,000 to 700,000 in the years just before the financial crisis, but the drop represents a significant improvement nonetheless.
Homeowners in trouble are like a slow-moving train wreck as they fall behind, get warning notices and enter what is often a sluggish foreclosure process. So it's not surprising the shadow inventory is still higher than before the crisis. But the decline means fewer and fewer homeowners are getting into trouble.