The amount of time it would take for the housing market to move through properties lingering in the foreclosure system is finally improving. Standard & Poor’s analysts estimate it would take 47 months for the housing market to work through the shadow inventory, according to their second quarter research note. They revised that down from 52 months in the first quarter, the first decline since the middle of 2009. At the end of last year, S&P said the market would need 44 months to move through the inventory and at the end of September 2010, analysts estimated it at 40 months. S&P analyzed loan-level private-label residential mortgage-backed securities data from CoreLogic (CLGX) to calculate its estimates. It defines the shadow inventory as a collection of properties in 90-day delinquency or worse, foreclosure and REO. The unpaid principal balance on these properties remains high at $405 billion, but it is a 6.4% drop from the previous quarter and represents less than one-third of the outstanding private-label RMBS market.

“In conjunction with stable liquidation rates, we believe these are positive signs that the amount of time it will take to clear this ‘shadow inventory’ should continue to decline over the next year,” analysts said. Of the top-20 U.S. markets, the shadow inventory looms largest over New York. There, S&P said it would take 144 months to work through the glut of properties, but still down from 146 months in the previous quarter. S&P analysts said even as the market is finally making gains on the overhang, servicers are still working through documentation problems, new regulations and tighter scrutiny. RealtyTrac recently estimated the delays kicked more than 1 million foreclosures to next year. “The shadow inventory will continue to jeopardize the housing market’s recovery until servicers are able to improve liquidation times,” S&P said. “However, if and when that happens, an influx of homes will likely enter the market, increasing supply and driving prices down further.” Write to Jon Prior. Follow him on Twitter @JonAPrior

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