• Banks repossessed a record 102,134 homes in September. That is the highest monthly count ever recorded, and the first time monthly repossessions have surpassed the 100,000 mark.
• Repossessions also hit a quarterly high. Banks took back 288,345 properties between July 1 and September 30, seven percent more than the previous quarter and 22 percent more year-on-year.
• During the third quarter of the year, banks scheduled auctions on 372,445 properties. That is a record high, up five percent from the previous quarter.
• Sales of properties in foreclosure — whether entering foreclosure, or bank-repossessed — accounted for 31 percent of total sales in September.

Banks are repossessing more homes. That is, of course, difficult for families, but ultimately important for the housing market, as banks take the houses back, resell them and clear their books. But the foreclosure fraud crisis is stymieing and slowing that process, in a way that might cause home prices to slide six months or a year from now.

Why? Rather than selling repossessed homes, banks are holding them — and as foreclosures work through the system, that pool of houses will grow. Eventually, though, when the fraud crisis is worked out, banks will start pushing that backlog of houses onto the market. That will flood the housing market with properties, leading to, analysts fear, another nationwide decline in housing prices. (This is, in part, why the White House is resisting a national moratorium on foreclosure: Nobody wants to seize the entire housing market, one-third of which is comprised of foreclosed properties.)

Nobody quite knows how the foreclosure fraud crisis will shake out. But housing analysts and Wall Street are worried that while prices might go up in the short term (with fewer houses on the market), they will drop in the long term.

Last month, housing slumped to its worst state in decades. The National Association of Realtors said home sales declined 27 percent to a 15-year low. And the Commerce Department said sales of new single-family houses dropped 12.4 percent between June and July, to the lowest level in the 47 years the department has kept the data. Foreclosures remain high. And many economists predict a second national decline in home prices.

Reviving the Obama tax credits might halt or slow that second leg down, and it might be worth doing for that reason. But some data indicates the credits merely convinced people who were going to buy houses anyway to buy sooner, rather than bringing in new juice. And mortgage reduction seems a better way to keep families in homes and stabilize housing.

On top of that, the Commerce Department said sales of new single-family houses dropped 12.4 percent between June and July. That makes July sales — of 276,000 houses — the lowest level in the 47 years the Commerce Department has kept the data. Most economists expected sales to rise to 334,000 homes.

The two reports ginned up fears that the United States might be headed for a second leg down for housing — many economists see prices continuing to fall again, nationally — and even a double-dip recession. The New York Stock Exchange plummeted, as did indexes in Europe. Oil prices fell.

But what do poor home sales have to do with a double dip? A lot. For one, housing makes up a huge part of the U.S. economy. If realtors and homebuilders and mortgage brokers and other associated businesses are ailing, a lot of the economy is ailing. Additionally, falling home prices can be catastrophic for homeowners. They mean that more people cannot sell their homes — hurting housing-related businesses, and meaning less labor mobility. A reader of Andrew Sullivan’s blog demonstrates how:

I lost my job in May. I finally got an interview with an out of state firm last week.  The thought of moving my family across the country was hard enough to consider. They made me an offer. It would be a cut over my last job but still it would provide health insurance – heck they even would chip in on living expenses.  Talked to my real estate agent today.  We are under water by about twelve thousand. My choices are stay unemployed or walk away from the house. I have till tomorrow to make this choice.

He’ll put the proceeds and cash from savings into his bid to unseat Sen. Michael Bennet in the Aug. 10 primary, a bid severely lagging Bennet’s $7.5 million fundraising total. While political observers said they considered the loan a desperate move in an underfunded campaign, Romanoff described the move with the mixture of defiance and humor that has marked his underdog effort.

“I’m never home anyway,” said Romanoff, who has lived in Washington Park since the late 1990s. “Plenty of Americans are taking a lot bigger hit than me. I spend a lot of hours asking other people to do the same.”

Romanoff is facing an uphill battle against incumbent Sen. Michael Bennet (D-Colo.). He trails heavily in fundraising and also down by over 10 points in most polls. He did, however, manage to snag an endorsement from former President Bill Clinton, who endorsed Romanoff in spite of the White House’s support for Bennet.

“Existing-home sales that close in June will remain elevated, but we’ll then see a notable decline for July and August,” Lawrence Yun, NAR’s chief economist, said in a statement. “Without the tax credit, there will be more aggressive price negotiations between buyers and sellers. The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year. We’ll also keep a close eye on market conditions on the Gulf Coast.”

He stressed that home prices depend on unemployment starting to decline. And this is one more sour report in advance of tomorrow’s June unemployment report.

That is the slowest sales pace since the Commerce Department started keeping track in 1963. The prior monthly record low was in September 1981, when new homes were selling at a 338,000 rate. Economists expected a rate somewhere around 400,000. Home sales dropped most precipitously — by more than half between April and May — in the West, though sales in every region dropped more than 25 percent.

To some extent, this is not unexpected. The housing market remains extremely weak, with home value declines likely to continue in some regions. The homebuyer tax credit borrowed buyers from other months, creating an surge in March and April. Still, it is a sign of continued softness in the market, possibly auguring another decline in housing. The above chart shows annual rates for all years since 1963 — this spring’s sales increases are smoothed out.

Foreclosure sign in the Southern California desert (Flickr: jeroen020)

As foreclosures continue at a record pace, homeowners in trouble have watched the government devise a $700-billion rescue plan for Wall Street, buy shares in nine major banks and extend credit to insurance companies like AIG. What they haven’t seen is much of anything coming their way.

Now the Treasury Dept. and the Federal Deposit Insurance Corp. are putting together a plan to offer as many as 3 million homeowners lower loan payments for at least five years. Lenders will be covered for some of their losses should the restructured mortgages go bad. Some details of the $40 to $50 billion plan leaked out this week — and it seems that homeowners at the center of the crisis may finally get their turn at a helping hand from the government.

Illustration by: Matt Mahurin

But, in the end, can they get the help they really need?

The Bush administration isn’t entirely on board with the plan, The Washington Post reported. The White House — which aggressively led the way in pushing for a bailout of the financial system — quickly went on record to say it hadn’t made decisions on any proposals for homeowners.

In contrast to the urgency with which the administration pushed the bailout package, whatever might be aimed at homeowners apparently will take a while to become a reality.

Even if the plan gets approved, loan modifications haven’t shown themselves yet to be a fully effective curb on foreclosures. To critics, they have been oversold as a way to keep people in their homes, with policy-makers continuing to push them despite any evidence that they really work.

Redoing a loan for someone who still can’t pay it only leaves the borrower worse off than where he started, said Joshua Rosner, managing director of the investment firm Graham Fisher, and a longtime critic of loan modifications. Early in the downturn, failed subprime lender New Century Financial had loan modification default rates of 50 percent, he said.

Adding to the problem: Restructurings don’t work all that well even in the best of times. Redoing loans while housing prices fall means the homeowner could once again find himself underwater, even with his restructured loan, and in a position to default once again.

Before the government launches mass loan modifications, it should be gathering and analyzing redefault rates, to see if the whole thing is worth it, Rosner said. To him, Congress supports loan modifications as a way to let regulators eke out a patchwork of solutions.

Then it can avoid making a bold but controversial move, like creating something similar to the Home Owners’ Loan Corp., which purchased and refinanced delinquent home mortgages during the Great Depression.

“They’re just trying to declare victory and do nothing,” Rosner said. “We really should be having a public discussion, with facts and figures on loan modifications and redefault rates. Modifying loans in this environment is very risky.”

Others also don’t think the Treasury and FDIC are going far enough. The modification plan simply means they are offering another carrot to entice lenders to restructure loans — but that’s all. It’s a far cry from the unprecedented, sweeping action taken to rescue banks.

The government could direct Fannie Mae and Freddie Mac to undertake mass restructurings, since it controls the two agencies. Housing advocates say both continue to foreclose and to refuse to do restructurings on a large scale.

The government could also issue waivers giving securitizers authority to make decisions on restructuring loans, allowing them to bypass the problem of putting back together again mortgage-backed securities that have been sliced into pieces and scattered around the world.

No one’s sure the new government plan will be able to navigate around this roadblock, which has held up many loan modifications. It could mean that only a small percentage of homeowners will get help.

The government could also take an entirely new turn, and back proposals gaining steam lately that would encourage lenders to allow former homeowners to rent their properties, either for the short- or long-term. Supporting rental policies would keep a property occupied and a homeowner in a home, or would help people who can no longer afford to own their homes find alternatives.

Even with foreclosures jumping by 71 percent in the third quarter, the government’s latest response to homeowners has fallen far short of any decisive intervention — and that’s a different posture from its moves to prop up the credit markets.

“Clearly, banks are the priority,” said the economist Dean Baker, co-director of the Center for Economic and Policy Research.

In the meantime, it’s been an uphill battle for agencies trying to kickstart loan modifications.

After taking over the failed subprime lender IndyMac in July, the FDIC decided to try a mass modification of its mortgages, with the goal to setting an industry standard. FDIC Chairwoman Sheila Bair has been an outspoken advocate of mass loan restructurings, and has pushed for more lenders to try them.

But a look at the FDIC numbers that Bair reported last week shows how hard this task is. Of IndyMac’s 60,000 borrowers, 40,000 who were more than 60 days late on their loans were deemed eligible for restructurings.

The FDIC sent out 15,000 letters in the first round of its modification attempt. Of that total, some 3,500 borrowers accepted modification offers, and more are being processed. But it’s still not clear yet how many of them actually will qualify for new loans, spokesman David Barr said.

To financial blogger Tanta at Calculated Risk, the totals prove what she suspected all along: the FDIC wasn’t going to be any better at loan modifications than the private sector:

Certainly 3,500 modifications successfully completed in two months is better than nothing. Then again, I don’t think IndyMac’s modification rate prior to the FDIC takeover was exactly “nothing,” either. Bair doesn’t address that, so we still don’t know if the FDIC’s “expedited” approach has really been measurably better than what IndyMac was already doing. At best, it’s probably only marginally better, which wouldn’t be so much of a problem if Bair hadn’t spent so much time earlier in the year scoring cheap rhetorical points about uncooperative servicers not doing enough to help. In any event, the Bair Plan doesn’t seem likely to bring the mortgage crisis to a screeching halt by year-end.

Not everyone agrees, with some advocates praising the FDIC approach as the best way to tackle loan modifications, because one-on-one negotiations are just too lengthy and arbitrary. All loan modifications usually involve lowering the interest rate, reducing the amount of money owed on the loan or stretching out repayments. Borrowers also have to prove they can afford to stay in the home, with the modification.

Under the FDIC approach, borrowers in arrears sign a standard modification agreement that lowers their loan amount. Then they mail in a check for the new payment, along with verifying their incomes.

Barr declined to draw a conclusion from the agency’s progress so far. He said “it’s too early for optimism,” and that the agency’s early results may reflect the easiest and most cooperative borrowers to work with.

To Alan White, a Valparaiso University professor who studies subprime loan modifications, a loan workout is just what it seems — a work in progress. Counselors, agencies and lenders are all getting better at doing them, as they get more experience and as servicers increasingly sign on.

That wasn’t the case at the beginning of the economic crisis. In a sample of a pool of subprime loan modifications begun in 2007, White found not a single loan showing a reduced loan amount, and many loans with higher monthly payments.

Since then, however, some subprime loan modifications have improved, White said. The $700-billion bailout included legal protections for servicers regarding loan modifications, which has helped.

The biggest problem remains that some servicers will restructure loans — and others won’t even try.

Countrywide, for example, does its loan modifications all the same way — by rolling in late payments to the balance and reconfiguring the monthly payment, which usually ends up higher. That’s not a real modification.

“Servicers have been all over the place,” White said. “But what we’re having is a process where things are getting marginally better.”

But that marginal progress is matched by the foreclosure machine’s rapid pace. That means something to stop foreclosures has to be happening at the same time loan modifications are underway, White said. States like Massachusetts, that require some mediation before foreclosure, have had some success in slowing down the process, at least temporarily, he said.

Because servicers don’t make money doing workouts — but do collect fees for foreclosing — a better avenue for Treasury might have been paying servicers $1,500 or so for every loan workout, giving them a financial incentive, White noted. Like Rosner, he also believes modifications have to evaluated for their effectiveness, and targets should be set for new modifications.

Nonetheless, the new approach by Treasury and the FDIC is a step forward, he believes — with a caveat. This is a very positive proposal,” he said. “My concern is that there is such resistance to doing sufficiently aggressive loan restructuring, on the grounds of moral hazard and fairness, that they will produce needlessly stringent guidelines.”

In White’s view, “moral hazard has gotten thrown out the window with the banks” and shouldn’t impede loan restructurings.

Still, unless the government writes some restrictions into its plan, it could create a different kind of moral hazard, said Rosner, the financial analyst. Servicers might rewrite anybody’s loan, whether it would work or not, because they’ll be bailed out by the government in any case. “They could stick it to the homeowner, and to the taxpayer,” Rosner said.

Loan modifications have never been particularly popular with the lending industry. Some believe even government guarantees won’t change that.

Christopher Whalen, an investment banker and research analyst who follows the financial services industry, and who once worked for Bear Stearns, said lenders and servicers aren’t enamored with either workouts or with the idea of becoming rental property managers. If the numbers don’t show someone can afford a house, it’s time to get the foreclosure over with and get that property back on the market, as a first step toward stemming falling home values.

“Lenders are ill-equipped to hold hands with people,” Whalen said. “They don’t want to become a social-services organization. Their goal is to get all this resolved as quickly as possible.”

For people on the brink of losing their homes, the policy debates offer little of anything that’s useful.

Iris Pulliam, 51, who lives in Prince Georges County, Md., thought her loan was restructured in July, through the Neighborhood Assistance Corp. of America, a housing advocacy group. But even that group, which attempts mass loan restructurings, hasn’t been able to get her servicer to sign on. She struggles each month to keep up with her payments. “This is very stressful,” she said. “I feel like I’m losing my patience.”

Just like many homeowners, who see everyone else’s hand out for a government bailout, with only theirs coming up empty.

Wikimedia Commons

Subprime mortgages have ruined banks and insurance companies and brought the global economy to its knees. Now it looks like they’re also causing the spread of deadly West Nile disease.

In a weird new wrinkle in the story of the exploding mortgage crisis, the housing market in Bakersfield, Calif., was tied to a 276 percent increase in the number of West Nile virus cases, according to the November issue of the scientific journal, Emerging Infectious Diseases.

It’s easy to find correlations between seemingly unrelated events; epidemiological journals are full of stuff like this which doesn’t mean a thing. For example, as ice cream consumption increases, so do drownings. But it’s not because ice cream causes drowning.

Illustration by: Matt Mahurin

In this case, though, the cause-and-effect link is pretty clear. Delinquent mortgages in Bakersfield and the surrounding community caused people to abandon their houses, and mosquitoes carrying West Nile virus bred in their untended swimming pools. The resulting outbreak is a epidemiologists’ textbook case of the unintended consequences of economic turmoil. It’s not the first such example, and undoubtedly won’t be the last before the crisis ends.

“We’ve had problems with West Nile in California since 2004, but in 2007 the housing market really went south and it resulted in a lot of neglected swimming pools,” said lead author William K. Reisen, an entomologist at the University of California, Davis. “They’ve always had problems with homeowner neglect of pools. But all of a sudden, it went through the roof.”

There were 140 confirmed human cases of West Nile virus in the Bakersfield area in 2007, the largest outbreak in California, and the worst mosquito-born encephalitis virus outbreak in Kern County since 1952. At least two patients — one, a 96-year-old woman — died of the disease, which can also cause brain damage.

The outbreak spread to several other counties and led Gov. Arnold Schwarzenegger to hold a news conference and release $6.2 million in emergency mosquito abatement funds.

West Nile virus outbreaks intensified in other parts of California this summer, in particular in Los Angeles. This could well be related to the swelling foreclosures in that area, Reisen said.

Insect-borne microorganisms thrive in times of economic crisis and dislocation. For example, mosquito-borne dengue fever has surged in the growing cities of Asia and Latin America in the past decade; as people move into urban areas that lack running water, they store water in tanks that are perfect breeding grounds for mosquitoes like Aedes aegypti, the leading dengue vector.

Bakersfield, CA (Flickr: Alice Chaos)

Count the Kern County West Nile outbreak in that category. “What’s worrisome is that most U.S. mosquito abatement districts are funded by property taxes,” said Reisen. “As their revenue falls, it’s going to be harder to keep up with the abandoned swimming pools.”

West Nile has spread gradually across the United States since the first cases were reported in 1999 in New York City. It’s carried by several different species of mosquitoes and can infect many birds and mammals — from crows and chickens to cats and horses. In different areas of the country, the epidemic has generally slowed after the virus kills off a large enough number of the birds that carry it from place to place. Only about one in 100 people exposed to the virus become ill; about three percent of those it sickens die from this disease.

No one in Kern County had anticipated the 2007 outbreak. Winter and spring rains were light, and the Kern River, which flows through Bakersfield and sometimes leaves pools of water where mosquitoes can breed, was dry. In fact, water was so short that it changed the bird ecology of the region, resulting in an expansion of house sparrow flocks. Unlike other bird populations in the area, most of the sparrows lacked protective immunity to West Nile virus.

The county Mosquito and Vector Control District conducted an aerial survey of the town that showed an extensive number of green or neglected pools, “most of which were producing mosquitoes,” according to the article in Emerging Infectious Diseases.

“The likely reasons for neglected pools,” reported the journal, which is published by the Centers for Disease Control, “are the adjustable rate mortgage and associated housing crises in Kern County and throughout California, which have led to increased house sales and abandonments.” Kern County suffered a 300 percent increase in delinquencies in the spring quarter of 2007 compared with the same period in 2006.

As chlorine-based chemicals deteriorated in the abandoned pools, “invasive algal blooms created green swimming pools that were exploited rapidly by urban mosquitoes, thereby establishing a myriad of larval habitats within suburban neighborhoods.”

By California law, properties with swimming pools must be surrounded by six-foot-high fences, and so it has been difficult for mosquito control agents to enter foreclosed properties. “They can’t just go breaking the doors down,” said Reisen. “It’s kind of a mystery how to get access to these properties.”

The major carrier of West Nile during the 2007 outbreak was the common mosquito Culex pipiens. But by this year, Culex tarsalis, a more efficient West Nile carrier that typically colonizes rural areas, had moved into some of them.

That said, no human cases had been reported in 2008 as of Oct. 23, though the disease continued to infect mosquitoes and kill birds and horses. Kern County officials have been vigilant in spraying the abandoned pools or stocking them with larva-eating fish.

Then too, West Nile outbreaks are sporadic, and seem to depend on complex factors in the virus’ hosts. High temperatures, raising the viral load of mosquitoes, are one such factor; a die-off of the crow population, causing the virus to run out of hosts, can also play a role.

The Bakersfield story presents another such factor: the crashing of American dreams.

Finally, home sales have begun to rebound. But as Mary Kane points out in an insightful analysis, the rising sales of foreclosed homes are more a sign of the housing market’s troubles than a harbinger of better economic times.

Read all about it here.

Illustration by: Matt Mahurin

For the first time in more than a year, the nation’s decimated housing market is showing a spark of life. But like everything else that’s been turned upside down by the credit crunch, it’s not clear whether foreclosed homes selling at fire-sale prices are an encouraging sign — or just a false hope of a rebound that’s still nowhere on the horizon.

In hard-hit Southern California, sales of existing houses shot up by 65 percent in September, compared with a year earlier — the biggest annual increase in two decades, according to the real-estate information provider MDA DataQuick. Sales rose the most in areas where foreclosures drove down prices, the data showed. In the San Fernando Valley, the sales jump was even higher — 82 percent, with foreclosure sales spurring the spike.

Illustration by: Matt Mahurin

In Prince William County, Va., the heart of the exurbs of Washington, foreclosure sales are so hot they’ve set off a buying frenzy, with realtors who had long time on their hands busy once again. Foreclosure sales are also spiking in Atlanta, parts of Florida, Nevada and even in neighborhoods in Detroit, which barely experienced much of a housing boom to begin with.

The uptick in sales comes after a brutal 12 months for the housing market, which has been in free fall since the meltdown of subprime mortgages last year and the credit crunch that followed. In July, the nation’s inventory of unsold homes hit an all-time high of nearly 4.7 million, the National Assn. of Realtors said.

At the same time, home prices recorded their sharpest ever annual drop, falling 16.3 percent, according to the Standard & Poor’s/Case-Shiller Housing Index, a closely-watched measure. Meanwhile, foreclosures in the third quarter rose by 71 percent over the same period last year, RealtyTrac reported.

Given that dismal reality, any kind of movement in the housing market should be cause for celebration. But it’s way too early for champagne.

At L.A. Land, blogger Peter Viles of The Los Angeles Times took a closer look at the September sales figures for Southern California, and pointed out that sales of homes not in foreclosure actually fell — probably to their lowest levels in recent history. The Orange County Register blogger, Jon Lansner, concluded that sales last month were weakest in the county’s beach towns, which experienced far fewer foreclosures than in communities like Modesto or Stockton.

That helps explain why overall sales are up — while prices are still down. In the nine-county Bay Area, for example, the median sales price fell by 36 percent, while sales soared by 45 percent — leading The San Jose Mercury News to proclaim “Homes Sales Sizzle, Prices Fizzle.” That 82 percent sales jump in the San Fernando Valley, meanwhile, was accompanied by a 37 percent drop in median sales prices.

Even figures for new home sales released on Monday didn’t change the picture. The report from the U.S. Census Bureau showed a slight 2.7 percent increase in September sales, compared to August. But Calculated Risk noted that this marked the lowest September sales volume since 1981, and called the numbers “very weak.”

Foreclosed home in San Diego County, Calif. (Flickr: Sean Dreillinger)

Homebuyers are looking for Basement Bob-style real-estate bargains. And that’s about it.

“You’re going to see a lot of bottom-feeding right now,” said David Wyss, chief economist at Standard and Poor’s. “The vultures are out. But they’re providing a needed ecological service. We’ve got to get rid of these diseased properties.”

Wyss put a Churchillian spin on all this, explaining that selling off foreclosed properties is “a necessary phase” to the start of any housing recovery — it’s the end of the beginning. Still, there are reasons for the lack of enthusiasm among housing experts looking at these foreclosure sales.

It’s not clear yet what kind of buyers are purchasing the homes, said Danilo Pelletiere, research director of the National Low Income Housing Coalition, an advocacy group.

If a buyer is “an individual homeowner deciding to get off the fence” and buy, that’s a positive change, because there’s nothing worse for a neighborhood than a vacant, abandoned property. Plus, it means someone who might not have been able to afford a house in the past finally achieved a dream.

But if buyers comprise mostly investors and speculators, that could be a problem, Pelletiere said. It means the home might stay empty, which does little for the community.

And the property could keep falling into disrepair. Some speculators buy properties in bulk and hold them, which can artificially prop house prices up.

“We just don’t know who is buying the houses,” Pelletiere said. “The other problem is the degree to which the market still has yet to fall.”

In communities like Fairfax County, in Virginia, local governments are preparing to launch programs to buy up foreclosed properties and make them available to middle-income families looking for affordable housing. If the foreclosure market is hot, local authorities will be tempted to get in now and buy the homes.

Fairfax County alone is preparing to spend $10 million and buy up to 200 homes. But if the values of those homes drop, the local government will take a financial hit, Pelletiere said.

All this is a difficult balancing act for local governments, that have to figure out how to time the market correctly — something that has tripped up everyone from Donald Trump to amateur speculators who watch late-night infomercials.

It’s hard enough to do in ordinary times. With a credit crunch, it could become a guessing game. This means the first opening in years for affordable housing will be increasingly difficult to navigate, said Peter Tatian, a senior research associate at the Urban Institute, who studies subprime lending and housing policy.

“This whole situation is unprecedented,” Tatian said. “There is an opportunity here to take advantage — in terms of affordable housing. It looks like people are finding a lot of bargains right now. But it’s also unfortunate that a whole lot of people had to suffer first. That makes it hard to say if the foreclosure sales are a good thing or a bad thing. We don’t know how much they are going to help in the long term.”

The sales spike in Prince William is particularly noteworthy, because prices rose to record highs here during the boom and fell just as hard. Prince William, along with Prince George’s County in Maryland, last spring racked up foreclosures at one of the fastest rates in the nation, according to a study by George Mason University’s School of Public Policy.

Lance Young, a real-estate investor in Northern Virginia, said he’s still shying away from buying foreclosures in Prince William: “It’s too hairy there,” he said, referring to the sharp swings in home prices.

It’s also difficult for investors to buy up the kind of five-bedroom, luxury homes that fill Prince William’s subdivisions and rent them out, because you can’t charge enough to cover the mortgage payment, Young said. He thinks prices still have far to fall, with more foreclosures looming.

“There’s still a lot of pain out there,” he said. “We’re only halfway through this thing.”

In recent months, Young has bought four foreclosed houses inside the Washington Beltway, far closer in to the District of Columbia than Prince William County. He flipped three, and lives in one.

It’s not like the old days of four or five years ago, when you could buy a house, demand any price, and quickly sell it, he said. Young gets his foreclosed houses at a steep bargain, meticulously rehabs them and then sells them for modest profits.

Everything’s different now, Young said. It’s not worth it to buy out in the exurbs like Prince William, because house values have fallen so far, they no longer compensate for the long commute.

Foreclosed houses are often in bad shape, making wading into that market an expensive venture. Young has viewed houses where the former owners let the taps run, locked the doors and left. By the time neighbors saw water pouring from the house, the hardwood floors were ruined.

All around the country, losses on foreclosures have been higher than lenders expected, S&P’s Wyss said. Banks have far more foreclosures than expected on their hands, and they have no experience at managing so many. It’s one reason why foreclosure prices are so low, and may not climb much.

There’s more to complicate the question of a rebound. The foreclosure sales spike happened in September, before the credit markets imploded. Buyers might have gotten loans in September, but they might not get them now. In addition, winter is coming, traditionally a slow time for real-estate sales.

The spikes in foreclosure sales could mean the end of the beginning, as Wyss says. But in a credit crisis in which banks just aren’t lending, and homes that haven’t been foreclosed on aren’t selling, it could also be true that the end of the beginning remains nowhere in sight.