About 1.8 million homes that are delinquent or in foreclosure loom as additional supply for the struggling U.S. housing market, according to CoreLogic Inc.

The so-called shadow inventory amounted to a nine-month supply of properties as of January, about the same as a year earlier, the Santa Ana-based real estate data service said in a report Wednesday.

The company measured homes ranging from 90 days delinquent on mortgages to properties seized by lenders in foreclosure proceedings.

Rising inventory threatens to further depress home values as sales slump. There was an 8.6-month supply of homes for sale on the open market in February, the National Association of Realtors reported March 21. A healthy market has about a six-month supply, according to the Realtors group.

The shadow inventory "illustrates the distressed pipeline that has to filter through the market before the market is normalized," Sam Khater, chief economist for CoreLogic, said in a telephone interview from Virginia. "It's going to be a negative drag for some time."

Home prices in 20 U.S. cities fell an average 3.1 percent from a year earlier in January, according to the S&P/Case- Shiller index. The decline was the biggest on a year-over-year basis since December 2009, the group said yesterday in New York.

CoreLogic, which has its own price gauge, estimates values will fall another 5 percent before bottoming, Khater said. The company's index has



dropped about 33 percent from its peak of April 2006, the company said in a March 10 report.

The total shadow inventory in January was down from about 2 million properties a year earlier, according to CoreLogic. Mortgage modifications helped reduce the number, Khater said.

About 608,000 homeowners started permanent loan modifications under President Barack Obama's Home Affordable Modification Program as of Jan. 31, up from 117,000 a year earlier. The House of Representatives voted 252-170 Tuesday to eliminate the program, which pays banks and mortgage servicers to modify monthly payments for delinquent borrowers.

Neil Barofsky, special inspector general for the Troubled Asset Relief Program, has called HAMP "a failure" and said it pales in comparison to the record 2.9 million foreclosure filings in 2010.

Mounting foreclosures and a U.S. jobless rate close to 9 percent are depressing home sales. Purchases of previously owned homes dropped 9.6 percent last month and the median price fell to a nine-year low, according to the Chicago-based National Association of Realtors.

Oliver Chang, a San Francisco-based analyst at Morgan Stanley, and Laurie Goodman, an analyst at Amherst Securities Group in New York, have estimated that the U.S. shadow inventory includes as many as 8 million properties. The higher projections count homes with shorter delinquency periods and assume more residences will be lost to foreclosure, Khater said.

There were about 4.36 million U.S. home loans that were 90 days late or in foreclosure in February, down 16 percent from a year earlier, Lender Processing Services, a mortgage-data company reported March 28.

New Jersey's shadow inventory represented more than 20 months of supply as of January, the most of any state, according to CoreLogic. It was followed by Illinois, Maryland, Florida and Delaware.

States with the shortest supply -- North Dakota, Alaska, Wyoming, Montana and Idaho -- never experienced a housing bubble, Khater said.