"Prices Were Surprisingly Low"

For months, Wall Street economists and others prone to frequent bouts of self-delusion and psychotic euphoria have repeatedly suggested that they see a light at the end of the tunnel as far as the bursting U.S. housing bubble is concerned. That is despite economic data and supply-demand fundamentals that continue to go from bad to worse, unrelenting pessimism about market conditions from a wide assortment of savvy industry insiders, and growing evidence that the once free-flowing mortgage gusher is drying up, especially for borrowers with less-than-pristine credit. Since many of these so-called "strategists" work for banks and other firms that profit in one way or another from the real estate business, perhaps the following report from today's Wall Street Journal, "Mortgage Woes Force Banks To Take Hits to Sell Homes," will serve as a wake-up call.

An auction of nearly 100 foreclosed homes here Saturday showed that mortgage lenders are having to accept huge discounts in some cases to unload such properties.

A surge of foreclosures over the past year or so has left lenders struggling to sell a growing backlog of homes. Rather than relying on real-estate agents, the usual practice, some are turning to large-scale auctions to speed up the sale process.

Real Estate Disposition Corp., the Irvine, Calif., company that organized Saturday's auction of lender-owned homes, plans similar sales May 19 in Los Angeles and May 20 in Riverside, Calif.

At the San Diego sale, houses and condos typically sold for about 30% below the previous sale or appraisal prices. In a few cases, the discounts were around 50%.

A four-bedroom home in Oceanside, Calif., attracted a high bid of $495,000 at the auction, 33% below the sale price recorded in November 2005 for the property. One condo in San Diego sold for $120,000, less than half of its previous value.

Jeffrey Frieden, chief executive officer of REDC, called the auction a success. About 90% of the homes offered were sold, he said. Some deals fell through because buyers couldn't qualify for financing. He estimated that 1,000 bidders attended the sale in San Diego's Convention Center, where REDC workers in tuxedos shouted and whooped in the aisles to fire up bidders.

But Ramsey Su, a San Diego investor and former real-estate broker specializing in foreclosed properties, said prices were surprisingly low on some homes and the auction showed that "demand is not that strong."

Many of the bidders were looking for homes to occupy themselves, but investors also turned up. Don Bickel bought two town homes in Chula Vista, Calif., that he plans to use as rental units.

San Diego was one of the hottest housing markets in the country in 2003 and 2004, but prices generally have been drifting lower over the past year. The soaring prices of the first half of the decade priced many people out of the market, and lenders' recent tightening of standards has made it harder for others to get loans. A glut of condominiums also is weighing on the market. Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a research firm here, estimates that at the current sales rate there are enough condos on the market to last about 29 months.

But he and many others expect the market to recover within the next few years, partly because the balmy weather here remains a big draw. "The basic fundamentals of the region are still pretty positive," Mr. Dennehy said.

Then again, maybe the individuals getting paid the big bucks to "forecast" the future of the housing market would prefer to keep focusing on Mr. Dennehy's "basic fundamentals," whatever the heck they are.