Analysis by the Amherst Securities Group shows that the residential property market in the US will worsen as a delayed pipeline of foreclosed loans begins to liquidate.

The analysis also indicates that the Government’s Administration’s Making Home Affordable Modification Program (HAMP) will have no lasting effect on keeping delinquent loans current. It said that signs of stabilisation in the property market that are being hailed as a recovery may soon recede as an overhang of the shadow inventory of foreclosures waits to enter the market. The general outlook that the housing market has bottomed is ‘premature’ optimism, according to the report.

Amherst estimates that there is a ‘shadow inventory’ of around seven million housing units, or 135% of a full year of existing home sales, compared with 1.27 million in early 2005.

The report said: ‘The backlog is due to high transition rates, low cure rates and a longer timeline for loan liquidation. In other words, loans continue to transition into the delinquency/foreclosure pipeline at a rapid pace, but are moving out at a very slow pace.’

It said the loans are ‘destined to liquidate’ and will impact on the signs of recovery seen in recent months by pulling down house prices through distressed sales.