Austin Kilgore | 01.26.09 www.dsnews.com

Inventories of REO properties are all an all-time high and market statistics are bleak, but some analysts warn things are even worse than they seem because of foreclosed homes that aren't back on the market yet, according to a CNN Money report.

It is believed the number of REO properties that are not in the multiple listing services [MLS] has skyrocketed, creating a so-called ghost inventory of properties for sale that can't be tracked.

Pat Newport, an analyst with IHS Global Insight told CNN, “That's not good news. [Excess] inventory is the biggest problem in housing these days, and it leads to lower housing prices, which leads to more foreclosures.”

According to the report, RealtyTrac found it has more foreclosed properties listed in the database it compiles from courthouse records than there are listed in the MLS.

Comparing its records to the MLS listings in California, Maryland, Florida, and Wisconsin, RealtyTrac found the MLS listings only had one third of the REO properties it has in its database.

National Association of Realtors (NAR) chief economist Lawrence Yun told CNN, “Many properties that should be listed on the MLS are not listed on the MLS.”

In November, NAR statistics indicated there was an 11.2-month supply of existing homes, up from a 10.3-month in October. But now it seems those staggering statistics could be even greater, and increased inventory means lower sales prices, and a longer recovery time for the economy.

Members of the real estate industry are seeing this phenomenon first hand out in the field.

L.J. Jennings, a real estate broker with Pyramid Real Estate and Investments in Oakland, California told CNN, “There are a number of properties in my area that have actually been taken back by the banks, but have not hit the market yet,” he said. “Once a bank repossesses a property, in some cases, it can take more than six months to hit the market.”

Many blame system overload for the ghost inventory. The primary business of lenders is to sell mortgages, not REO properties, and the infrastructure to handle the glut of properties just isn't there.

RealtyTrac spokesman Rick Sharga told CNN, “Either lenders are overwhelmed and can't get these properties back on sale quickly, or they're deliberately slowing down.”

Lenders said they try to move homes off their books as quickly as possible, but one analyst said it's possible lenders would hold back or stagger listings of properties if it owned many homes in an area.

Michael Youngblood, a financial analyst and founder of Five Bridges Capital, an asset management company, told CNN, “If lenders have a significant number of properties in a limited area, they may want to stagger putting them back on the market,” he said.

Another explanation for the ghost inventory is that lenders try to sell homes in bulk and at auction sales, John Mechem, public affairs director for the Mortgage Bankers Association told CNN, and that it's also taking longer to repair REO properties for sale because the foreclosure process is taking longer and homes deteriorate, and former owners cause damage on their way out.