Foreclose, Default, Repeat

Home prices continue to fall, dropping another 18.7 percent in March. The price plunge is being blamed in part on the glut of cheap, foreclosed homes on the market. How cheap are these homes? They’re selling for as much as 31 percent below market value. Of course, deteriorating home prices are a leading driver of mortgage defaults, so more foreclosed homes lead to lower home prices, which lead to more foreclosures. [%comments]


"Discount" is not well defined in this case. It often means difference between current price and the price on some previous date, or the current balance of the mortgage, or some such. (In this case the underlying article says "nominal market value", which does not add anything to my understanding).

Almost by definition, the price at which something sells is the market price for that particular thing at that particular time.


"They're selling for as much as 31 percent below market value."

Which is probably close to their true value.


Oye... if the house can only sell at 31% of market value... that means the market value is 31% lower than you think it should be. It IS the market value. The market has dropped.


I'm not an economist or anything, but isn't whatever price they are selling for "market value" by definition?


Housing prices didn't fall 18.7% in March, they fell at an annual rate of 18.7%.

Ian McKay

Perhaps it is a bit too easy to default on a mortgage. There should be more significant penalties. This whole may have been prevented if there were in the first place.


None of these homes selling for 31% below market value appear to be in Los Angeles.


Let them fall! I'm saving up a down payment on my first home. I've payed way more than I otherwise would have in rent over the years during this housing bubble. Who's looking out for the people who DIDN'T overextend themselves?

Avi Rappoport

Certain areas seem to be exempt from real discounts, I have a friend near San Diego who has been house-hunting for months. She is not trying to rip anyone off, wants to pay the asking price, and other people outbid her!

The realty people seem to have noticed this as well:

Life is too weird.


Ian, the whole point of a collateralized loan is that if you default the lender gets the collateral.

It doesn't make much sense to me to say that not only do you have to give up the collateral if you default, but you also can't default in various circumstances. If the issue is that the collateral is insufficient to cover the loan amount (as here), then the real problem is the lender accepting insufficient collateral. Which is precisely what happened here, actually: a bubble in house prices means that the collateral on the mortgage loans is insufficient, unless the down payment amounts required increase. Which they didn't, of course.


I agree with both No, 7 and No.9

We looked for two months for a house in these areas and there is NO drop in value. Most gained:

Anaheim Hills
Huntington Beach
Newport Beach
Yorba Linda

Pretty much Southern California is exempt. We were outbid on a home and THEY PAID IN CASH FULL PRICE.

The one we are currently in escrow on had 4 offers and we had to pay close to full price (actually it's a little overpriced.)

Saying that the market is down everywhere is a joke.


Saying a foreclosure sell at market value is a bit idealistic, as the situation in more foreclosures is far more complex than a regular sale. When a homeowner is selling their house willingly, they will do everything they can to maximize the perceived value so they can make the maximum profit, and usually will if not naturally make more rational decisions in the negotiations, will eventually give into their real estate about it. In foreclosures the profits go to the bank that is "stealing" your home. Your motivation is to do what you can to lower the property value and act emotionally. The house won't usually be as desirable as it could be if the seller was willing.

Marcus Vinicius

Welcome to the bubble Blow out!

Sameul B

The 2 bedroom 1 bathroom condo above me just sold for $425 thousand (I live in a gentrifying neighborhood in Washington DC). This price was 10k more than the asking price. The condo had been on the market for almost a year, the price was never reduced, and then a bidding war started out of nowhere.

This was a suburb bubble; the cities are doing fine. I think people have come to realize that the large yards and horrible commutes are not worth the price. Expect to see even more of an urban renaissance in the coming years.