As I reported in this post, banks are selling more homes than developers. That's not good news. What makes it worse news is that for every home presently for sale, there are two more waiting to go on the market. If all those homes were put on the market now, the already shaky (and declining) housing market would collapse entirely and real estate values would head for the cellar. Those homeowners trying to sell their homes would be crowded out of the market and would be forced to sell them for far less than the homeowner might owe, meaning it would be cheaper for the homeowner to either walk away or declare bankruptcy and let the bank take it. In each scenario both the homeowner and the bank would lose and yet another home would have it's value reduced to almost nothing.
This is not a new situation.
Back in the early 90's a similar housing bubble burst and millions of homes were foreclosed upon. It wasn't uncommon to see 20 pages of foreclosure auctions in the newspaper (or at least in the statewide paper here in New Hampshire). The Resolution Trust Company, an entity created by the federal government to dispose of these bank-owned properties, had over $1.3 billion (~$2.1 billion in 2010 dollars) worth of real estate to sell in New Hampshire alone. As now, they couldn't dump all of those properties on the market at the same time without destroying what little was left of the real estate market at the time. It took the RTC years to dispose of all those properties, putting them up for sale as the demand rose.
Is it possible the same thing will be required again to prevent the worst from happening?
