The shadow inventory of homes with delinquent mortgages yet to move through the foreclosure process would take 47 months to clear at the current sales rate in the market, according to a newly-published housing finance report from Morgan Stanley (MS). The report which takes a broad overview of the market, shows the trend for originations flattening, as credit availability remains "negative" and the desire of Americans to form households is "neutral". The inaugural issue of Housing Market Insights is aptly titled: "The Long Road Home" and is generated by the investment bank's securitized credit department. Mixed with the above consumer sentiment and market realities, the analysts also note some hard figures. Roughly 7.5m first-lien borrowers fell behind on their mortgage as of March 2010, about 15% of the 51m total borrowers. Of the 7.5m, more than 5m made a payment in the last three months, which means more than 10% of all mortgage borrowers are seriously delinquent, according to the report. While many believe the shadow inventory represents the foreclosed inventory that has yet to reach the market. Since the US government introduced delays in the foreclosure process, such as the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) program, Morgan Stanley measures the “shadow inventory” as the amount of homes that will need to be liquidated through the REO process. The shadow inventory includes all loans behind by 90 days or more, already in foreclosure and a vast majority of laons that are 30-to-60 days delinquent. Morgan Stanley even includes a portion of current loans that will eventually default. Morgan Stanley put the total number of homes in the shadow inventory at 8m at the end of Q110, and at the current sales rate, that would take 47 months to move through. Morgan Stanley is not the only firm trying to measure the shadow inventory. Barclays Capital reported that it could peak at 4.7m in the summer of 2010. The research firm, Capital Economics, said the shadow inventory could reach 5.5m by the end of 2011. “Given the sheer number of potential homes for sale and the weak pace at which demand is trending, the bottom of the housing market may last another 3-4 years, during which annual appreciation may reach only as high as inflation or income growth, meaning real asset values will remain unchanged or lower throughout this period,” according to the Morgan Stanley report. Write to Jon Prior.