NEW YORK (MainStreet) -- On the list of neighborhood favorites, distressed properties rank right up there with raccoons and potholes. But as low an opinion as homeowners have of those troubled homes, banks certainly don’t like them any better.
That’s why it’s good news for both that distressed properties ¬– foreclosures and other bank-owned residences – are beginning to thin out, since they lower property values by selling well below the average market value for homes in a specific neighborhood. Data from the Federal Reserve Bank of Atlanta show that foreclosures can trigger discounts in nearby home values by anywhere from 20% to 50% depending on the neighborhood.
But the picture is starting to clear on the foreclosure front – and that’s one big, fat silver lining in an otherwise dour economic landscape. Standard & Poor’s just released a new report showing that the volume of “shadow inventory” (foreclosed homes, real-estate owned properties or nearly-foreclosed homes that aren’t for sale yet) is down by five months for the second quarter of 2011.
What S&P is saying is that it now will take 47 months for banks and other lenders to clear their inventory of distressed homes, down from 52 months in the first quarter of 2011. S&P says that’s the largest quarter-to-quarter decline since 2008.
According to Diane Westerback, an analyst at S&P, the U.S. housing market just might be stepping back from the abyss.
“While the volume of these distressed U.S. non-agency residential mortgages remained extremely high at $405 billion in the second quarter, it has declined every quarter since mid-2010, including the most recent,” she writes in the report. “In conjunction with stable liquidation rates, we believe these are positive signs that the amount of time it will take to clear this ‘shadow inventory’ should continue to decline over the next year.”