“And its going to stay this way as long as the damn banks are sitting on the inventory!”
I have a theory about why banks are holding onto their REOs like they are pure gold. Basically, I believe the REOs are marked at a much higher price on the banks’ books than they will sell for. Further, I believe that if the banks were to lower their prices enough to actually sell them that it is very likely that many banks would then be insolvent.
If this is true (and keep in mind that my theory is pure speculation), then the banks actually have a perverse incentive to hold onto their REOs as long as possible in hopes that something will cause the market to pick up. The banks have a choice between slow death through carrying costs or quick deaths through foreclosure auctions. Not surprisingly, they’ve chosen the slow death because it’s the only thing that gives them a chance at survival. I also believe this same phenomenom applies to the builders, such as Standard Pacific.
The next stage in the housing crash we are likely to see is bankruptcy for banks and home builders. At that point, we will have not only flippers competing against REOs, but also bankruptcy trustees thrown into the mix as wells. Because trustees are accountable to all creditors, they will have an incentive to sell their housing inventory quickly. This should drive prices down nicely. Well, at least according to my totally speculation-based theory.
Also, I’m not buying this tech strength in the stock market. I think the tech stocks are still running off the easy credit that existed until just a few weeks ago. Soon enough tech stocks will be feeling the pinch also. We’re still on course for a housing crash (and likely a recession also). We just have to give it time to play out.
