Everybody's talking about a bottom in real estate

"Of all mortgages covered, at year-end slightly more than 10 percent were nonperforming, meaning behind on payments, compared to about 7 percent nonperforming in September. "

From: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/03/BUU716RR4Q.DTL

Article is a good read, with some nifty graphics.

Here in the Sacramento area, I've seen homes listed as short sales for a very long time at unreasonable prices. I made an offer on one, an incredibly risky all-cash offer, and the bank didn't accept it. The house is now in the process of foreclosure, and I would not offer the same price for it today (the market has fallen since then, and the house has had a full year of not being maintained). Generally, when a house goes from short sale to foreclosure, the bank drops the price to a reasonable price, sometimes even a fabulous price. Sometimes, although it's rare, we see short sales at reasonable prices. Why are some so incredibly over-priced that they cannot sell, while others are priced almost as low as foreclosure prices?

It appears that the banks are only willing to be reasonable on short sales if the buyer stops making payments. As long as the buyer is paying, the bank will insist on an unreasonably high price. I base this observation on another observation - over-priced short sales sit on the market for a long time, some go well over a year, which suggests that the borrower is continuing to pay (otherwise the banks would have foreclosed). Well-priced short sales, if they do not sell as short sales, come back on the market rather quickly as foreclosures, which suggests that they were in foreclosure (not making payments) while listed as short sales.

So some of the increase in "seriously delinquent" mortgages may actually be a sign of buyers catching on to the bank's tricks, rather than an indication of increasing illiquidity. Still, the fact that serious delinquencies are increasing even as the government hands out free loan modifications, coupled with the overhang of inventory that is not presently on the market, suggests that the bottom may not yet be here. The article says that 10% of all mortgages are non-performing; when you think about the fact that many, many people have less than 10 years remaining on their mortgages, many people bought their homes in the 1980's for less than $30,000, a whole lot of people owe very little on their homes, 10% of all mortgages is a LOT. Then again, at least in Sacramento, there are homes priced so low that they cash flow even at very low rent assumptions, even if expenses are rather high (like if the owner hires a property manager). So, bottom, top, I don't know, but caution is still warranted. Not inaction, not abject terror, but caution. As I look to buy, I keep reminding myself of the old saw, "markets can stay irrational longer than you can stay liquid."