"Shadow Inventory" - A Threat to Housing Recovery?

It's been a while since I've heard talk about the looming "shadow inventory", all of those houses in pre-foreclosure which are waiting in the wings to hit our market and destroy our fledgling housing recovery, where are these homes now?  Could they hurt our market just as it's starting to turn the corner?  I read an interesting blog at www.nwi.com which offered some good insight on the topic.

CoreLogic, Inc., a Santa Ana, California housing research firm defines "shadow inventory" as any home either in the foreclosure process or homes that have actually been re-possessed by the lender but haven't yet hit the market yet as an active listings.

CoreLogic's numbers, based on the above definition, show that nationally, the shadow inventory is declining, currently at 1.5 million homes and down substantially from 2.1 million in 2010, so the overall outlook is positive.  It should be noted; however, that there is a huge variance in this inventory from state to state.  This is because in many states, a court proceeding (judicial foreclosure)is required in order to move the foreclosure process forward, which of course, slows the process considerably.  In states which do not require this judicial foreclosure process, the shadow inventory does not threaten the housing prices due to the efficiency at foreclosures and short sales and the ability to move quickly through the process.

States where these issues are most pronounced are those states where delinquency rates are still continuing to climb.  Unfortunately, these states do include much of the Northeast, as well as New Mexico, Missippi, Oklahoma, Florida, Nevada and Illinois. 

A quick look at Realtytrac, a website that tracks foreclosure activity, shows that foreclosure activity is very low in our local market, so, my guess would be that the shadow inventory in our area will probably not be a hindrance to the continued improvement here.  In speaking to lenders and other Real Estate professionals in the local community, we do expect that the recovery will more than likely continue at an uneven pace and there may even be dips.  Primarily due to the fact that as soon as we see a rise in prices, homeowners who have been waiting for price improvements, quickly flood the market, which could level-out the price increases, at least temporarily.