MLS underestimates the number of foreclosures

The multiple listing service underestimates the number of foreclosures. This means the MLS also underestimates housing inventory numbers.

There is probably even more excess housing inventory gumming up the market than current statistics indicate, thanks to a wave of foreclosures that has yet to hit the market.

The problem: Many foreclosed homes and other distressed properties that are now owned by banks have yet to be listed for sale. The volume of this so-called 'ghost inventory' could be substantial enough to depress already steeply falling prices when it does go on the market. ...

RealtyTrac, the online marketer of foreclosed properties, recently discovered that it has far more foreclosed properties listed in its database, which the company compiles using courthouse records, than there are listed in the multiple listing services (MLS) maintained by real estate agents. ...

The National Association of Realtors calculates official housing inventory statistics using data from the multiple listing services. By that measure, there were 4.2 million existing homes for sale in November, an 11.2-month supply at the current sales pace, up from a 10.3-month supply in October.

But now it seems quite possible that these figures, which are already at record highs, are underestimating the situation. And if that's the case, it could take much longer for the housing market recovery than analysts currently expect.

Until supply can be brought down to a more normalized level of six to seven months, home prices will continue to come under pressure, according to [National Association of Realtors chief economist Lawrence] Yun.

"It could be a worse problem than we think," he said.

I'd like to commend Lawrence Yun for his honesty on this matter. I have nothing against Lawrence Yun personally, or the organization he works for. What I dislike is dishonesty. When he is honest about the outlook for housing, I will treat him with respect.