Sunday, October 19, 2008

Real estate prices are not in free-fall

Tonight I spoke with my nephew who does mortgage lending in the Inland Empire for a major bank (Southern California real estate that lies about 35-45 miles east of Los Angeles). He related something remarkable: Just the other day he was one of 15 buyers bidding on a home that his bank had foreclosed on and was selling at auction. The home last sold about 3-4 years ago for $780K. The bank was asking $400K, in addition to requesting that bids include a minimum down payment of 20%. My nephew’s job is to prequalify all those who want to bid. He hopes that if they have the winning bid they will finance the purchase with him. He says he is doing lots of business, which is why he wanted to bid on this house. It turns out that the minimum bid was $400K, exactly what the bank was asking, and the winning bid was $430K, with a 30% down payment! My nephew did not have the winning bid. He is going to have to be more aggressive the next time around.

Does this sound like a real estate market that is melting down? I don't think so. I think prices in many areas have fallen much more than the general public perceives, and these prices are attracting plenty of buyers. Therefore I think we are getting very close to the bottom in real estate prices.

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