Realty Check

Published: Wednesday, 8 Jul 2009 | 12:54 PM ET

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Call me old-fashioned, but I still believe in that whole supply and demand thing; that’s why I’m slightly obsessed with the inventory of existing homes floating around the nation’s local MLS’s and more importantly those not floating around the MLS’s. I’m talking about the inventory of foreclosed properties that banks are holding onto, refusing to unleash onto the sales market.

“Out of more than 4 million homes currently owned by lenders, actively in foreclosure, or seriously delinquent, roughly 1 million are captured in the NAR’s [National Association of Realtors] inventory data and listed as “distressed inventory” in MLS,” note Paul Puryear and Buck Horne of Raymond James in a new report.

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Think about that.

Granted, some of those properties will get loan modifications, but a lot more will not, and that means that at some point all those properties will hit an already bloated market and put even further pressure on already-falling home prices.

The report’s authors add, “Based on our analysis of the most recent mortgage delinquency trends (through March), current data shows signs of further deterioration, not stabilization.”

I hear this all over. Delinquencies and foreclosures will rise more before they stabilize, and that means banks will own ever more homes in the coming months. This is why Puryear and Horne predict an “L” shaped recovery: Massive excess inventory, a generational demographic demand shift, and unsustainable levels of government subsidies for housing.

So why are the banks holding on to these properties? Perhaps because the spring season is over, and the system is so clogged they just don’t want to move them. Analyst Ivy Zelman says it’s a “pig stuck but slowly moving through the python.” She blames it on backlog.

Granted many of these homes are concentrated in certain severely distressed areas, but many are not, and I imagine soon we will start to hear more and more stories of bank-owned homes that are either inhabited by squatters or are sitting empty, ripe for crime, fire, or any number of other maladies. There are supposedly many investors out there now looking for bargains. I’m even told that in parts of California, inventory of the distressed homes is pretty low. Perhaps the banks are trying to put a floor on prices by holding off the inventory, but that would be giving them too much credit right now. I think there are other forces at work that we need to watch closely.

• NBC News Report: Foreclosed homes’ pools can be death traps

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