Race You To The Bottom!

A few little bits of disturbing real estate news have come out over the past week – not enough to shake the markets on their own, but reason enough to fear that these little tremors might be first sign of a long-awaited elephant stampede.

Industry data firm First American Core Logic recently released a report on distressed sales, finding that in January they made up 29 percent of the market – a mark that’s close to last year’s nadir. (In January ’09, REOs and short sales were 32 percent of total sales; they haven’t hit 29 percent of any monthly total since last April.) In addition, JP Morgan announced that the bank’s own projection suggests its REO portfolio might nearly double by the end of the year to 45,000 properties.

Could it be that banks are finally foreclosing on all the delinquent borrowers on their books, and moving those properties onto the market? It could if you believe a senior vice president at Bank of America. A California blogger has reported that at a recent builder’s conference, Ken Gaitan, the west coast manager of REO property for BofA, let slip that the bank is planning on increasing its rate of foreclosures to a peak of 45,000 a month by the end of the year, or more than 300,000 in total.

Allow The Teller to put that into perspective for you: Last year BofA was foreclosing at a rate of about 7,500 properties per month, or 90,000 a year.

If a giant like BofA were to speed up its write-downs, the other big banks might have to follow, potentially sparking a race to the bottom and another plunge in the housing market. Your Teller thinks the only place to get a proper perspective on that prospect might be the bottom of a highball glass…