Why haven't banks dumped REO's onto the market yet?

The Wall Street Journal examines the expected flood of foreclosures that hasn't (yet) occurred:

For more than a year, housing analysts and investors—some with piles of cash waiting to pounce on distressed markets—have puzzled over a question: Where is the expected flood of bank-owned foreclosures, or REOs?

The number of properties in the foreclosure or delinquency pipeline has grown to record highs, yet volumes of bank-owned properties have fallen steadily over the past year.

What’s happening?

• Some delinquent loans have “cured,” either naturally or through loan modifications. Even unsuccessful loan modifications have stretched out the amount of time that it takes to move a loan through the foreclosure process.
• Banks are getting better about approving short sales, where a home is sold for less than the amount owed, even though the process is still far from seamless.
• And even when a foreclosure happens, more investors are buying the properties from banks at courthouse auctions, which means that the property won’t show up as REO, even though it could ultimately hit the market.

So can we expect more foreclosures to move onto the market? Eventually, yes. ...

But Ivy Zelman, chief executive of Zelman & Associates, notes that “it’s not going to be a flood” ...

A more likely outcome is that foreclosures stay at elevated levels over a longer timeframe. That could stave off another crash in home prices, but it could lead to several years of no home-price appreciation.