by Calculated Risk on 6/01/2008 09:37:00 AM

From the LA Times: Sales of foreclosures are on the rise

THE MARKET may be down, but sales of bank-owned properties are picking up, with multiple offers being made in many cases as lenders drop their prices to move foreclosed homes off the books.
...
"A $650,000 to $700,000 appraisal a year ago in some areas is now worth about $350,000. It took a while for the banks to adjust their mentality to that." [said Earl Bonawitz, general manager for Century 21 Wright in Temecula]
...
John Karevoll, an analyst with DataQuick Information Systems, also is seeing that REO prices have come down and more homes are closing escrow than a few months ago.

"The big question is whether we're in a recession," he said. "If we are, we're in for some more downturn. If we're not in a recession, it's likely that prices have found their bottom and that most of the declines are behind us. That's true for REOs and the market as a whole."

Yes, some REO lenders are finally getting realistic with their pricing, and in areas with significant REO activity (and aggressive lenders) prices may be close to the eventual nominal bottom. This is one of the key points I made in House Price Mosaic.

But this article misses a far more important point: house price changes vary widely by area, not just by state, but even within cities. Over time the equilibrium between different price ranges will return, but the price dynamics will be different. Areas with a large number of REOs have seen much faster price declines - and are probably closer to the price bottom. Areas with fewer REOs will exhibit "sticky prices" and the prices will probably decline for some time.