Where is the housing market heading - interesting report from mortgage lender

I get these weekly mortgage updates from Kevin Pangle at Evergreen Mortgage in Bend, OR and below is some excerpts from this week's newsletter. I will be looking into some of the sources cited for more ecoomic news.

Here is part of the report:

"What is lurking in the shadows? Or shadow inventory to be more specific? Concerns are rising that something is lurking that could derail the housing recovery.

We understand the concern; the numbers are not very encouraging. First American CoreLogic estimates 1.7 million of these "shadow" homes (homes either in serious delinquency or in the foreclosure process ) were ready to hit the market as of September 2009, up from 1.1 million from the same year-ago period. CoreLogic estimates that at the current rate it will take 3.3 months to exhaust the supply compared to 2.4 months last year.

Economists and opinion makers, in turn, are concerned how banks will dispense this inventory. The preferred method is to do so at a controlled, measured rate. At least a few opinion makers balk at that prospect: Economy.com forecast another 5% to 10% drop in home prices for 2010, while Fiserv continues to stick with its more pessimistic forecast that prices will fall 11.3% nationwide by the middle of next year.

But we can't overlook the fact that home prices have been rising in recent months or that overall inventory has been shrinking. On the latter, the supply of new and existing homes has been whittled down to 3.8 million units compared to 4.7 million units this time last year. At the current sales pace, it would take 7.8 months to move the existing inventory, a considerable drop from last year's 10.1 months."