In some markets, this analysis is correct. However, there are certain states that still need to clear through a backlog of foreclosed properties which were delayed by the court procedures in those states.
The National Mortgage Settlement gave the banks a clear path for releasing these distressed properties. Therefore, in several states, there will be a new supply of discounted inventory coming to market over the next six months. Whether that increase in supply will be fully offset by the increase in demand is still unknown. If not, home prices in those markets will still be under downward pressure.
In Charleston, we are seeing inventory dropping (about 6,500 active listings) and demand slightly increasing. We are experiencing more multiple offers on the good properties, and more ugly properties sitting on the market.