S&P says four more years of inventory overhang drag on most big markets.

Standard and Poor’s in late January released an update of their annual report of the impact of the overhang of distressed homes on the real estate markets of some of America’s biggest real estate markets. The news was not good! S&P estimates that it will take an average of 4 more years to clear out the distressed home overhang. That’s 4 more years of home values being dragged down, of homeowners being reluctant to try to sell their homes and real estate in general being in a funk. To read the entire report, go to http://tinyurl.com/4mob6kh.

I guess things could be worse. After all that is an average. New York is at the upper end of the curve with a projected 10 years worth of overhang. That’s a long time to live with this mess.

According to S&P, the following is a list of cities where shadow inventories are expected to take the longest to clear:

• New York: 130 months
• Boston: 71 months
• Charlotte, N.C.: 65 months
• Miami: 60 months
• Chicago: 59 months
• Seattle: 59 months
• Cleveland: 57 months
• Tampa, Fla.: 57 months
• Dallas: 56 months

I’m happy that the Detroit area didn’t make this list. According to S&P data we are at 43 months of distressed inventory right now, which would have made the Top-20 list, but which isn’t all that bad either.

The S&P report also showed that in late 2009 the number of homeowners in some state of default who successfully modified their loan rather than go fully into default actually crossed the default line and now makes up a higher rate of resolution than foreclosure and liquidation. As much as they have been maligned, that must mean that some of the federally mandated loan mod programs are having an effect. S&P also reported that the recidivism rate for those who work out a loan modification has fallen, but is still relatively high – between 40-50%. S&P reported that the total impact of successful loan modifications is only about 14% of all default situations, so that isn’t going to cure things, just moderate them a bit.

What this all means is different, depending upon your point of view. For sellers this is 4 more years of a tough to sell environment with home values and prices being dragged down by this mass of cheap houses. For potential buyers and investors this is great – 4 more years of cheap foreclosed houses to pick and choose from. For buyer agents this may mean 4 more years of showing 10-20 houses in the $20-50K price range, writing tons of offers (many low-balled) that get rejected and generally making a heck of a lot less off the sales of cheap houses. For listing agents it’s four more years of dealing with REO negotiators and asset managers and REO management firms and irate buyer agents. And for our towns and villages and cities and counties this means 4 more years of lower home values and lower tax revenues, with more belt tightening and layoffs and project and program cuts.

We’re in the midst of a rather harsh and snowy winter for many and almost everyone is sick and tired of it. I’d venture to say that most of us who live in the real estate world are sick and tired of our real estate winter. The S&P report is akin to Punxutawny Phil seeing his shadow and forecasting a late spring, except that the groundhog just adds a few weeks to the winter, not a few years.