Any hope of a housing market recovery next year may be dashed, if state attorneys general and the major mortgage servicers can't reach a settlement by August, according to economists at Wells Fargo

Wells Fargo senior economist Mark Vitner described the current housing market as "dead in the water" and he is worried about the 2012 spring selling season.

The inventory of foreclosed properties and seriously delinquent loans has been building due to the lack of a settlement with regard to foreclosure practices and violations.

"If we can't get an agreement so lenders feel comfortable enough to dispose of foreclosure properties by August, then I am afraid that there is not going to be enough time to clear out inventory before the spring home buying season," Vitner told NMN.

"If you miss the spring selling season, you can write off the year," he added.

The economist said the inventory has to be reduced to a level where it is no longer a drag on house prices.

If settlement talks continue into the fall, he noted that it will be difficult to sell "enough inventory" during the winter months to make a difference.

"I don't know what the magic number is" in terms of REO sales. "I tell people they need to sell enough so it is no longer part of the discussion," Vitner said.

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