From HW: ^[1]

Although the drop in default rates shows promise, the amount of shadow inventory still creates a dark loom over the future of housing prices, according to latest results from Standard & Poor’s U.S. Residential Performance Index.

The shadow inventory of unresolved distressed properties is currently at an estimated $405 billion, representation four years of housing inventory and one-third of the outstanding U.S. non-agency residential mortgage debt.

The report states that full recovery will only occur once the supply of distressed properties shrinks to less than a quarter of the current volume.

Additionally, the monthly liquidation and cure rates are at about 2.5%. This stems to an overall resolution rate of 5%, where these rates have lingered in the past nine months. (See chart below)

^[2]

The slowing first default rates seen on the chart allows borrowers to resolve loans and clear out the inventory instead of defaulting and adding more, S&P said in the report.