I definitely agree that location is a big part. The “sand states” (FL, CA, AZ, NV) typically had bigger bubbles than elsewhere, more insane borrowing than elsewhere, and today are having a higher percentage of their foreclosures be due to being underwater rather than simply due to jobs.

Elsewhere in the country, I’d say jobs are a bigger factor, as there wasn’t quite the same run-up in prices.

BTW the banks DO have a glut of housing. The big story in housing has been the “shadow inventory”, defined as property that is foreclosed but not on the market, property that is in default but not yet actually foreclosed, and property so far underwater that it is expected to foreclose because there’s no hope of a price recovery. Many of the big banks have a lot of 2nd mortgages, HELOCs, etc on these underwater properties, and if the properties are foreclosed, those loans are wiped out. Pushing the shadow inventory through the system would destroy bank balance sheets, so they are stalling.

I have a friend in Lee County who had a home in a gated community who sold his house for a tidy profit of $100,000. He then turned around and bought a house in a newer gated community using the $100,000 as a down payment resulting in a mortgage for $300,000. Six months later homes in the same community were being offered for $125,000 and not selling. He just recently got his trim notice and found that his home with a $300,000 mortgage is valued at $12,000 for tax purposes. At the moment, he is renting a home in another neighborhood while the builder replaces the Chinese drywall that was used for part (first floor) of the home.

I didn’t think he made a wise decision at the time, and in fact, advised against it. He and his wife really thought they were making a great move and could not be dissuaded.

There are many of these stories from that particular county, which I believe has the highest foreclosure rate in the country.

I would think that the banks would have a glut of housing they couldn’t sell, from looking at how long homes have stay on the market. There doesn’t seem to be the renters in waiting here. I think there is a certain amount of fearfulness in moving forward.

Yes and no. Granted, I’m looking at California housing, which is one of the worst cases, but I see a mix of short sales these days:

1) Short sales that were last bought in 2004-2007 for anywhere from 20-40% above current list price.
2) Short sales that were bought 2002 or earlier that are now being sold at or above their last sale price.

(Redfin.com offers sales history on properties).

Anyone who bought 2004-2007 is now selling likely for less than they owe. They made a dumb financial decision by buying when they did, but I can’t fault them for “spending the housing ATM”. Those who bought in 2002 or earlier, though, and are in short sale situations now, have definitely spent the housing ATM. If they’d been paying down their mortgage over time, they’d be in positive equity right now and could sell for more than they owe. But they absolutely must have been borrowing up over the course of the bubble and are screwed now.

In the market right now, it’s a mix. But there is a decent percentage of short sales that should be equity sales if the “owners” hadn’t spent their housing ATM.

Looking at the number of foreclosures, when purchased and the market values of these houses, it is hard for me to believe this statement.