On the supply side, I believe the distressed inventory should remain low, because:
a. Institutional Investors are buying at trustee sale and rent these properties out
b. FNMA is doing bulk sale to investors (outside of mls)
c. Banks are not in a hurry to foreclose
d. Since prices are going up, upside down property owners are more reluctant to let go, (if the under water portion is not significant). Instead, they modify or refi.
e. FNMA rehabs reo's before resale and try to keep prices high.
There are more regular sales, but that should not keep prices down.
HUD has released more inventory, but these properties can only be bought by owner occupants for the first 30 days, so it should not have a large impact.
On the demand side, we see a come back of the previously foreclosed buyers (boomerang buyers).
Bay Area and other investors are racing to buy, since they are afraid they might miss the boat.
Economy is improving, so new households are now starting to buy again.