The National Association of Realtors (NAR) has compiled state by stated foreclosure and delinquency data in an effort to estimate the impact of the shadow inventory on the housing market.  In referring to "shadow inventory," the research strives to approximate the number of homes that are either already in a foreclosure process, or in serious delinquency, but have not yet reached the resale market as foreclosure or bank owned sales.

Although the number of loans in serious delinquencies (90+ days late) decreased by 38 percent nationally in the last quarter of 2010, there is a significant number of properties that are expected to hit the market in the coming months.

Using data from their Realtors Confidence Index survey, the NAR extrapolated the share of distressed sales in the current market.  Nevada (69%), Arizona (55%), California (52%) and Florida (46%)  ranked the highest in distressed sales as a percentage of total sales.  This map provides a state by state breakdown.

Then in calculating the number of REO properties not currently on the market the data from the RCI was compared to the OCC OTS Mortgage Metric survey, which published the number of mortgage modification actions by state in the 3rd quarter of 2010. With an assumption of a 30% default rate on modified loans, the NAR report projected a count of of the total number of properties comprised in the shadow inventory and estimated the number of months it will take to clear that inventory. 

As one would expect, Florida and California had the largest number of properties in the estimate of shadow inventory.  The top ten states are listed below, along with the estimated months to clear are listed below. 

State Count Months to Clear
Florida 441,451 29
California 227,961 11
Illinois 121,226 25
New York 107,485 34
Texas 93,761 11
New Jersey 92,072 51
Ohio 88,549 16
Michigan 74,660 14
Georgia 74,445 12
Pennsylvania 68,314 29

The amount of time it will take to clear the shadow inventory is based upon the percentage of distressed sales in the current market divided by the estimated shadow inventory.  Since much of the data is either extrapolated from one quarter of 2010 or, in the case of total sales, the full year of 2010, the report must be considered to be an extrapolated estimate of the number of homes and the amount of time required to clear through the market.  Additionally, continuing debates over the foreclosure process are drawing out the length of time for seriously delinquent properties to even begin a foreclosure filing.  This can have a major impact on the timing for these homes to reenter the market as distressed sales.