Add 2.1 million houses to the glut

There's a large number of homes, either already repossessed by lenders or very seriously delinquent, that are poised to be added to the already glutted regular supply of homes on the market.

This "shadow inventory" jumped 10% during the past year, to an eight-month supply at the current rate of home sales, according to a report issued Monday.

According to CoreLogic, a financial information provider, there were 2.1 million homes in this uncounted inventory as of the end of August, up from 1.9 million units 12 months earlier.

Adding the shadow inventory to the visible supply of homes on the market boosted the total housing-market supply to 6.3 million units from 6.1 million in August 2009. At the current sales rate, it would take 23 months to go through the entire visible and shadow inventory of homes -- more than three times the normal rate of six to seven months.

The potential extra supply raises the risk of further home price declines, according to Mark Fleming, CoreLogic's chief economist.

"[Weak demand] is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time," he said.

The shadow inventory has been growing as banks take a long time to process defaults.

Home prices expected to slide another 8%
Many banks have been slowing the foreclosure process because they already own a glut of homes, according to Rick Sharga, spokesman for RealtyTrac, the online marketer of foreclosed properties.

He said the banks are "managing" their inventory and not pushing delinquent borrowers quickly through the foreclosure pipeline so they don't have to repossess homes that will take a long time to sell.

It's better for the banks to allow borrowers to stay in these homes, doing the maintenance and protecting them from vandalism, than leaving them vacant for months in moribund markets.

Foreclosures: Where does your state rank?
The recent "robo-signing" scandal has further lengthened the foreclosure process. Several servicers temporarily froze foreclosure actions amid questions about whether many of the foreclosure documents were signed without proper review, raising questions about the procedure's validity.

Florida, Michigan, and California have the highest ratios of properties 90 days or more late compared with home sales. Texas has the lowest ratio of distressed properties to sales.