Lise Howe just wrote a post about where we are in the recovery and where we are going with it. Will it be an "L", a "V: or a "W"?  I agree with her suggestion that we are probably looking at a "W".

And you know what?  It's the banks, stupid!  And that scares me.

For this real estate craziness to end, these things have to happen.

• First, the banks have to start doing what they used to do, and that is make loans - loans that make sense.  The must start offering good products to qualified buyers, like they used to in the old days.  This way there will actually be buyers for their unsold inventory.
  
• Second, they are going to have to become good property managers, helping people who could feasably stay (with a little mortgage restructuring) and getting all of the folks who are not willing or able to pay a mortgage out.  Or maybe let them stay as tenants - or rent some of their properties to other tenants so they are not unproductive assets.  This approach could also help to keep huge numbers of properties from flooding the market all at once.
  
• Third, they have to find an orderly way to deal with and expidite short sales.  The unreasonable response times are lowering the value of their assets to possible buyers, and they are in many cases influencing buyer brokers to sell competing "normal" listings.
• Finally, the banks have to learn how to be good sellers.  If they are going to get their unsold inventory (current and future) off their books, I think they would be better served to avoid the wholesale selling approach they've been taking.  Instead of listing huge numbers of properties with a single REO agent, they would be better served to try a higher quality approach.  They need to adequately compensate agents who will actually monitor and market the property - and follow up showings and return phone calls.  Nothing fancy.  Never mind staging and all that, just be sure it is reasonably clean and secure, although staging wouldn't hurt.  And I think they could see higher prices.

Of course, what happens around the country with employment will play a big part in the shape of the recovery.  But even with a huge improvement in the employment rates, we will need smart banks to make it all work out.  And yeah, that is a pretty frightening thought.