SAN FRANCISCO (MarketWatch) — Standard & Poor’s Ratings Services said Monday that it’s taking longer for the U.S. housing market to absorb foreclosed homes, which means there may be a major drag on prices for a few more years.

The New York metropolitan area may suffer the most from this, the ratings agency also said.

At the end of the third quarter of 2010, the principal balance of foreclosed homes topped $450 billion, which represents about a third of the nonagency residential mortgage-backed securities market, according to S&P managing director Diane Westerback.

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“While this amount is down about $10 billion from the second quarter, we estimate that it will take 44 months to clear the supply of distressed homes on the market in the U.S. as a whole, which is up from our second-quarter estimate of 40 months, Westerback added in a statement.

When borrowers default on their mortgages, lenders typically seize the underlying properties and resell them. Since the housing bust, there have been so many defaults that the market hasn’t been able to absorb this extra volume of homes for sale, creating a large “shadow inventory” of distressed properties, according to S&P.

“The growing volume of distressed properties remains one of the primary factors hindering a full recovery in the U.S. housing market,” the rating agency said Monday.

A decade in New York

It will take nearly 10 years to clear the shadow inventory in the New York metropolitan area at the current liquidation rate, S&P estimated on Monday. That’s at least twice as long as it will take in any of the other top 20 metropolitan statistical areas monitored by S&P, and nearly three times the average time to clear for the entire U.S.

New York hasn’t been hit as hard by foreclosures as other places like Florida, Nevada, Arizona and California. However, states in the northeast of the U.S. often have a judicial foreclosure process, which takes more time, Westerback noted in an interview with MarketWatch.

“New York and New Jersey have historically had the longest foreclosure times,” she said. “It used to be around two plus years. But it’s extended by nearly a full year at this point.”

S&P hasn’t analyzed data for the fourth quarter of 2010 yet, but Westerback said the clearing time has been extending longer and longer each quarter.

“The clearing process is slowing down, but the good news is that new foreclosures are slowing,” she added.