Most people are under the misconception that a foreclosure or short sale means purchasing power for pennies on the dollar which we know is not true. In the wake of jumbo loans, the foreclosures are not the steals they used to be. Mortgages amounts defaulted on were commonly in the hundred or several hundred thousand dollar range) In Grandma's day a foreclosure meant picking up a home far below the current Market Value. The amounts borrowed back then were minimal compared to the jumbo loans of today due in part to the fact that back then there was no 100%- 125% financing. They had actually put money down on the home.  

BANKS GOT A LESSON FROM THE SCHOOL OF HARD KNOCKS 

Out of area lenders forgot one vital schoolhouse rule- Real Estate is local. Many Loss Mitigation "Experts" failed to take a good hard look at the States the mortgages were held in. This is particularly true in Florida. As a result, the rush to foreclose gave them a false sense of security and skewed perspective on the volume of competition they were facing. By the end of 2007 many realized too late, they failed to achieve their objective.  They chased the dollars which made no sense.

As inventories became bloated with unsellable properties the banks had gorged themselves on, they had an ephiphany. They would have to actually declare the losses to their investors.  For months they carried the homes they had foreclosed on at "Market Value" inthe assett column.  By the end of the year they would have to declare the loss. That shift changed everything. Again a matter of chasing dollars which made no sense.

LEGISLATORS GOT A WAKE UP CALL

Jim Cramer, a financial expert  was one of the first to pull the firehouse alarm back in March.  He made an empassioned highly emotional plea to the Fed to open the discount window and lower interest rates and get the economy moving again. Cramer said "It is a different kind of market" and "The fed is alseep" followed by reports of the Sub Prime Mortgage Mess, the media went on a feeding frenzy. The result was a paralysis based on fear and a wait and see mentality among consumers. Driving the market down further.  Eventually the Fed responded and lowered the cost of the money banks use to fund loans.

Eventually, the Senate Finance Committee had to evaluate the data and discovered what Real Estate Professionals and small private investors  (landlords)  had been saying all along... Family Income had not risen in proportion to Property Taxes. So they began to address that issue and local government would have to reassess property values in an attempt to bridge that gap.

                  RINGING IN THE NEW YEAR

After sounding the fire alarm, Builder's began liquidating excess inventory homes and reducing the costs of owning a new home. Some responded too late, Levitt & Sons for example, filed for Bankruptcy Protection in October of 2007 failing to sell its homes in Turtle Creek (St. Cloud, Florida) Others chose not to exercise purchase options for expansion until the current inventory homes had been sold.  Resales from investors (in developments such as Stevens Plantation) added to the high volume of homes for sales. Many had to take a loss to sell.  When it was said and done home prices decreased an average of 30% in Florida.

This began to bring new qualified buyers into the market. As prices returned to more normal levels, sales were slowly being achieved.  In Florida, the promise of an increase in Homestead Exemption and Reduction in Property Taxes in the New Year, consumer confidence began to elevate.

Consumers confused by the term "Buyers Market", began to experience some competition on home purchases as well as rejection from bank owned properties.  For many, the offers they made were simply too low and the homes were sold to other qualified buyers looking in the same price range.  This has stirred some healthy competition in reasonable priced homes both new and existing. A Buyer's Market is term used to describe the more than adequate supply of homes (inventory)

While not all areas of the country will respond in the same time frame, perhaps Florida is a petri dish or sorts. What germinates here eventually migrates westwardly. 

2008 is an Election Year. It is a Leap Year. and it is also an opportunity for consumers to turn the economy around.  Pressure from Real Estate professional to cut the fat out of asking prices has produced a healthier market for buyers who have good credit and waited to see what would happen.

What is happening is the market is showing signs of increased activity.  A new pattern of migration will reflect that retirees are seeking tax relief in other states,(such as Tennessee, South Carolina, and Georgia and the gain in the strength of the British pound may lead to a new wave of buyers from Europe (Ireland, Italy and Germany) where the conversion rate favors buying vacation homes at steeply discounted prices.