Lenders are burdened with unprecedented numbers of foreclosed properties in their inventories. To help unload they are discounting prices which sometimes starts a bidding war. This could be an indication that we are nearing the bottom, or may just be wishful thinking.
This is happening the most in places where the bubble burst was the largest. It's true that the higher you rise the farther you fall so now everyone is looking for the lowest price. This is bad news for the average home seller who has to move for a job relocation or other reasons. All the foreclosures and other distressed properties are going to have to go first because all the buyers on the market right now are bargain hunters and only interested in a deal.
The slashed prices are bringing in multiple offers which is what the banks are looking for. This causes the price back up to normal levels but people think it's a deal just because it is a foreclosure. Often times there is so much paperwork and a lengthy bank approval process that the chosen deal ends up falling through anyway. Not to mention the risk that this "deal" isn't a deal at all because we may not have hit bottom yet.
Some lenders go the auction route just because it is faster and more convenient, but you do run the risk of getting less money than you could have on the market. There is just so much inventory that banks just have to get these homes moving. But not only does this get the bank less money but brings values down in that neighborhood. Of course it's debatable whether it's worse to have a low priced home or a vacant home on your block.
The upside is that the bargain hunters are stimulating the economy because without them, nothing would be selling. It helps make others feel more comfortable with the idea of going out and looking to buy again.
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