The market is ravenous for more REO-to-rental properties, but the inventory is struggling to keep pace.

According to the latest report from the Federal Housing Finance Agency, REO inventory increased slightly in the fourth quarter as property acquisitions outpaced dispositions for the second consecutive quarter.  

The total number of property acquisitions dropped 13% while dispositions decreased 7% during the quarter.

Along with that, completed third-party sales and foreclosure sales continued a downward trend with a 15% reduction in the fourth quarter and foreclosure starts down 3%.

But this comes with news of the market continuing to heal.

The FHFA also reported that Fannie Mae and Freddie Mac completed more than 3.1 million foreclosure prevention actions since the start of conservatorship in 2008, helping more than 2.5 million borrowers stay in their homes.

Meanwhile, the inventory of REO homes steadily declined year-over-year since 2010.

However, over the past three quarters, inventory started to push back up, especially in Florida, which jumped from 18,000 in the fourth quarter of 2012 to 28,000 in the fourth quarter 2013.  

For two months straight, acquisitions outpaced dispositions, with 49,149 acquisitions and 46,673 dispositions in the fourth quarter of 2013 and 56,794 acquisitions and 50,277 dispositions in the third quarter of 2013.  

The last time acquisitions were greater than dispositions was in 2010 when the numbers, granted, were much larger. 

Lynn Effinger, noted in a HousingWire blog, “Many note that with so much government intervention over the past several years with programs such as foreclosure moratoria, HAMP, HAFA, and others purportedly created to help struggling homeowners avoid foreclosure, the for sale REO market began drying up in late 2009.”

But since homebuyers are getting squeezed out of the home-buying process and underwriting standards are tightening, the demand for rental properties increased as well.

“This, naturally, has attracted numerous investors to the REO-to-Rental space. It makes good sense and is a good use of investor dollars,” Effinger said.