Are you sitting down..You might want to be after reading this!!

So, are you sitting down..Why is there such a fierce debate about whether the housing market is slowly healing or heading for another free fall? Partly because no one (including myself) can estimate with much confidence how many foreclosed homes banks need to sell or how fast they are getting rid of all that property.

Most of today’s supply comes from homes that have been acquired by banks or mortgage investors through foreclosure. The National Association of Realtors estimates that such “distressed” situations accounted for 35% of home sales in February and March, I don't know about you but I think that is a huge Statistic!!

Analysts at Barclays Capital in New York estimate that banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. That’s far lower than previous estimates.

RealtyTrac Inc., another data provider and one of the few other firms that regularly makes such calculations, estimates that banks and mortgage investors own 758,000 foreclosed homes.

So we have a pretty big gap. Is it 480,000 as Barclays thinks, or 758,000, as per RealtyTrac? Tom Lawler, an independent housing economist who tracks reams of housing data when he isn’t tending the livestock on his farm near Leesburg, Va., figures the total is more than 550,000 but probably less than the RealtyTrac estimate.

Whatever the number of homes that banks, the federal agencies and private mortgage investors own now, it’s likely to increase. Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.

I have mentioned the following in prior blogs and during my Real Estate Marketing minute Webasode... Be aware of the “shadow inventory,” consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.  Check out this very informative Graph..I think you will get the message!!

Barclays expects 1.6 million “distressed sales” of homes – mainly foreclosures or short sales – both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. Around 30% of all home sales this year and next will be foreclosure-related. Remember that would be only about 6% in a normal housing market.

I expect that U.S. home prices on average to fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006.

Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country, such as the Las Vegas area and Orange County, Calif., that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.

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