By the end of the third quarter the estimated number of homes heading toward foreclosure but not yet included in "unsold inventory" figures reached 1.7 million, up from 1.1 million a year earlier, according to new First American CoreLogic data.

The increase in this estimate of real estate-owned by banks and mortgage companies as a result of foreclosures and other actions is affecting home sale rates and is in contrast to the shrinking visible supply of unsold inventory, which decreased from 4.7 million in the third quarter of 2008 to 3.8 units during the same period this year.

The visible inventory supply fell to 7.8 months in September 2009, down from 10.1 in 2008. But the supply of REO home estimates, also referred to as "shadow housing inventory," is at 3.3 months, up from 2.4 months a year ago.

Combined, the total unsold inventory by September 2009 reached 5.5 million units, down from 5.7 million in 2008. Shadow housing inventory is comprised of mortgages that are 90 days or more delinquent and that are not included in unsold inventory.

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