In A Hole? Stop Digging

Many of the repos I scoped out last summer, before making an offer on my current home, are still on the market. And the banks are continuing to get stupid, rejecting offers for a matter of a few thousand dollars.

Example: my neighbor two doors down, was in trouble and tried to short-sale his home. On the market for six months, he finally got an offer for $259,000. The bank rejected the offer, and countered for $261,000. The buyer walked.
Unable to sell, and the bank unwilling to truly grasp the situation, the owner went repo. The house has been vacant for three months, asking price $235,000.
That's right.
After rejecting the offer, the bank now owns the house and is having tremendous difficulty selling for $24,000 cheaper than the offer they rejected.
Also, as the owner of the house, the bank is additionally liable for the property taxes and association fees that go with it. Every day they own it, they lose money, as taxes are prorated on a per day basis. Figure in the cost of the dude who shows up once a month to whack the weeds, and the liability insurance they are obligated for, and it all adds up to one very stupid bank.

But it's not just one bank. I hear similar stories from my neighbors almost weekly.
My neighbor, who didn't actually own the house, offered to buy it from the bank at market rate (about 60K more than it's current asking) prior to foreclosure. They wouldn't work with him. Flat out refused.

Now that all this stuff is cheap, many folks who were not able to buy at inflated prices can now afford to.
The problem is overly tight lending requirements. The banks got burned by overly loose requirements, and have overcompensated in the other direction.
It's just very difficult to get funding now. And FHA is not making it any easier. They've just upped the required down payment, squeezing even more people out of the market.

This has actually been going on this way for a while. Lenders are too skittish. I gave the escrow company $3000 to start the process last year. FHA came back at me, and wanted to know where I got $3000.
Huh?
Same job for 17yrs. They already knew my level of income, and my current rent payment. Was it really that unusual for a gainfully employed middle-aged guy who had zero credit cards, no dependents, and minimal expenditures to have a couple of months worth of rent languishing in a bank account for a rainy day?
To please them, I had to show my bank statements for a year, just so they could see how such a reasonable sum of cash was acquired.

If they would stop giving prospective customers a hard time, and start lending to people with a steady work history and a halfway decent credit score, most of these empty homes would have people in them by now.
These are very cheap prices considering the size of California wages. Any two-earner couple with average paying jobs can easily afford a home of their own. IF the lending was loosened up to reasonable standards.

But it seems the finance people are chasing away the smaller and reliable good money after playing fast and loose with the large and reckless bad money.
Meanwhile...
Repos stack up, further depressing the already below market cost of reselling them. And the longer the banks holds the properties, the more money they will continue to lose.
It's a vicious circle of their own making.