Glenn at Instapundit had the following yesterday:
UPDATE: Reader Bob Molyneux writes:
My wife and I are in the market for a house in the Duluth, Georgia area and we have seen a ton. So many are junked up–don’t you folks know what a garbage bag is? Are banks really that uninterested in selling foreclosed houses that they make it almost impossible? I don’t know about a buyers’ market but our credit rating is great and our current locked in interest rate is 4.97%, we have money in the bank, and this will be an oldie but goody: a “conventional” loan. Maybe we are picky but I would guess that you are right that the better houses are 10-20% high. The bad houses are 90% high.
Yeah, I think people are still in denial. Don’t know why the bankers aren’t better about prepping these houses for sale.
I don't have any personal knowledge of the business decisions that go on inside banks on these foreclosed properties, but from my experience with other businesses (especially "big" businesses), it seems to me that there's just no process at the bank to do the prep work.
The only person at the bank that actually looked at the house is most definitely someone with no authority at the bank (how many bank CEO's are doing property tours of their run-down assets?) So whoever actually looks at the dilapidated properties would have to convince someone at the bank to fork over money to sell an asset for which they have already lost money. That money would have to be accounted for at some point, and it would be entirely subjective. So there's no reward for the individuals in the bank to clean up the property.
There used to be a market for this sort of thing - speculators would buy up foreclosed properties, "flip them" and sell for a profit. But with the housing downturn, nobody wants to buy anything, and in addition, speculators can't get loans to do it.
So the buyer in Glenn's post is going to see a lot of really crappy, overvalued homes while looking. If he can get past the garbage and look at the house from a non-cosmetic standpoint, he might stand to make a heck of a deal in this market.
I agree with his consensus that prices are too high. People are in denial right now. Soon they will be moving to the anger side. That's when the federal government will be pressured to "step in". My only worry is that someone is going to make the case that vast swaths of housing will need to be bulldozed to drive down prices, in line with the fallacious "broken window" theory of economics.