Three F's in Housing Spell Trouble

Now that we've gotten the Q3 reports from Fannie, Freddie and the FHA, the picture of housing's future is becoming ever clearer.

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The combined Real Estate Owned (REO) inventory of the three rose 24 percent quarter to quarter and 93 percent year over year.

In real numbers, at the end of Q3 there were a record 293,171 REO's sitting on their books. This of course doesn't count REO held by the banks and private label securities. That's up from 153,007 at the end of Q3 2009.

Granted, the GSE's and FHA have disposed of (sold) an awful lot of properties. In the first 9 months of this year they've sold over 200,000, but that still leaves us, net, with the above numbers, which are also rising at a fast clip.

Now let's add the foreclosure mess.

The numbers I just reported don't account for the foreclosure sale freezes that are still in place in many states, because the freezes didn't happen until the very last few weeks of Q3. REO inventory will likely drop precipitously in Q4, as all those foreclosures sit in limbo with no sales and no evictions, only to surge again once the banks get the paperwork flowing again.

None of this should come as any surprise, given that the number of bank repossessions surged to new record highs at the end of the summer.

So why am I bombarding you with all these numbers? Because as I have always said, over and over, housing's recovery is based almost entirely on inventory.

We can talk prices, affordability, confidence, foreclosures, scandals, politics, whatever you want, but in the end it comes down to supply and demand.

We are looking at a ballooning supply coupled with dwindling demand. You do the math.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick