From his latest weekly market comment,
"[A]bout 22% of mortgages are underwater, with mortgage debt that exceeds the market value of the home. Likewise, banks have taken millions of homes into their own 'real-estate owned' or REO portfolios, and have dribbled that inventory into the market at a very gradual rate. All of that means that the availability of existing homes for sale is far smaller than the actual inventory of homes that would be available if underwater homeowners were able, or banks were willing, to sell. Accordingly, much of the volume in 'existing home sales' represents foreclosure sales, REO and short-sales (sales allowed by banks for less than the value of the outstanding mortgage). That constrained supply of homes available for sale is one reason why home prices have held up. At the same time, constrained supply means that new home buyers face higher prices and fewer choices for existing homes than they would if the market was actually clearing properly. Given those facts, buyers who are able to secure financing (or pay cash) often find it more desirable to build to their preference instead of buying an existing home."I'm seeing this in the former bubble markets. Sold out new developments, while tons of vacant (but not for sale!) property rots, unused.
All the same, this strategy might actually work, if they can slooowly bleed those REOs out. The good news is that REOs don't cost much with interest rates this low.