Depending on whose foreclosure data you believe, the case is that more than five million units make up the current excess housing inventory in the United States. CoreLogic reports that north of 1.6 million units are in the foreclosure process, with more than 750,000 units that are “seriously delinquent,” meaning that the attached mortgages are 90 or more days late. During the last three years these numbers varied to some degree, however the general picture they illustrated was the same: we continue to endure a historic housing crisis. 

For the last three years however, many major foreclosure markets have had steadily declining available units available for sale on the market. For consumers and local real estate communities, few units being available for sale is counterintuitive.  

Given the backdrop of our current foreclosure crisis, how could we have fewer units? Yet, anecdotally from real estate practitioners in Sacramento, the Inland Empire region of California, Phoenix, Las Vegas, or South Florida, extremely competitive multiple offer situations are still common. 

As many of us know by now, the reasons why fewer units get to the market today are varied: relaxation of mark-to-market accounting, attorney general and other legal settlements, “robo-signing,” aggressive foreclosure outreach efforts, foreclosure moratoriums, and politics. All of these combined have effectively slowed foreclosure processing leading to housing units that are stuck in backlog, without a clear timeline back to sale in the local real estate market for final disposition and recovered value.

I regularly hear from the general real estate community that financial institutions and the government should get out of the way of foreclosure processing, and let properties naturally come back to the market. They talk of allowing the real estate market to work itself out. Given that our economic health and banking system is tied to the current real estate market, simply flooding local communities with housing inventory is not a good option. 

Instead, we need to have a structured approach in solving the backlog of housing inventory. The goal is to bring housing back to stability. We know that current unemployment rates do not create enough demand to absorb five million houses. As such, temporary government policy and guarantees paired with investor capital can provide the backbone for plans that can stabilize real estate. Government and private capital can begin to exit from real estate as the general economy, real estate markets, and financial institutions begin to recover.

Matt Martin is the CEO of Matt Martin Real Estate Management.