Inventory Part 2/The Pre-Foreclosure Market

Are foreclosures really driving the market? In the first quarter of 2007, mortgage lenders sent out 46,760 default notices to California homeowners--the highest level in a decade--according to Data-Quick Information Systems. Many default notices however, fail to become actual foreclosures, as homeowners (or borrowers) have up to three months to rectify matters.

More generally, it's the pre-foreclosure market that seems to be driving things, as borrowers scramble, mortgage consultants re-assess, investors ready, and real estate salespeople make like ambulance chasers.

Realty Trac and other pre-foreclosure tracking sites have become the new real estate porn (displacing Zillow). But does foreclosure or pre-foreclosure equal bargain? Not necessarily, as most properties are sold at market rates, even if the unpaid loan amount is less. The public auction circuit seems to offer the best bargains, but they're a high-wire act, and properties are often sold without contingencies or opportunities to research the title and condition.

In the end it doesn't matter, the Chicken Littles proclaim, inventory becomes bloated, the basis for all value is supply and demand, and prices decline. Will prices decline more, perhaps as rates rise? Probably, and if you plan on buying houses for cash, the waiting might be good. But for the rest of us mortals, nervously watching the bond market, sideline time has its own set of costs.