When will the "shadow inventory" come to light?

We keep hearing about  shadow inventory and what will happen when it comes to light. After a while it's like predicting earthquakes. We all know that one will happen, we're just not sure when it's going to come and if we prepared for it.

The latest report form CNNMoney, says.

There were 1.7 million homes either owned by the bank or in some stage of foreclosure at the end of the third quarter of 2010, according to a recent report by Standard & Poor's. It would take 44 months, at the current rate of sales, to sell them off -- a 25% increase from the beginning of 2010. (S&P does not count home loans backed by Fannie Mae and Freddie Mac.)

If this is the case, it's only a matter of time before the banks have to start unloading this inventory. The question then arises, what does this mean if I'm considering selling my home? Since the housing market is based on the simple, supply/demand theory, it can only mean that housing prices will have to drop to compensate for the uptake in supply. This will be compounded if interest rates continue to go up because this again will drive the demand down. If you think about it, every time the interest rate goes up .25%, at least one potential buyer has dropped to a lower price point. Could this be the buyer for your home? If there is almost 4 years of inventory that hasn't even hit the market yet, it can only drive prices down once that happens. Unless of course, more buyers come to the table.

My suggestion. If you need to sell your home for whatever reason, sell now rather than wait. This also holds true for the buyer out there. If you're thinking of buying, do it now. You don't know when the inventory is going to change but you also don't know when interest rates are going to spike up. Unless your crystal ball is working better than mine, it may not be worth the money you potentially lose by waiting.