I found the same craziness when I studied stats on short sales. On average, short sales sold for a higher price per square footage when compared to comparable properties in the same neighborhoods that were NOT short sales. If you are interested in reading the details, I posted the numbers on my blog. The bottom line for me; banks are not motivated sellers. This review was for the San Jose areas hit hardest on the East side of 101.
This is one major reasons why short sales are not closing at alarming rates, and banks are not taking huge losses on these. Most servicer's might be more willing to let a home to foreclose then make a loan adjustment or short sale. This is just my opinion and the opinion of many others in the industry lately talking to more and more professionals.
When you see these foreclosed properties go back on the market as REO's they are adjusted to market values in most cases and are treated as listings from any seller. They donot discount just to fire sale.
I do agree with you that banks will have to be a little more reasonable to get SOME money back out. Especially in area's like Stockton/ Merced and parts of the Bay Area.
What I have seen locally is that the banks start out at a price and usually adjust down in 30 days if there is no activity. The proper way to do this is to start AT THE RIGHT PRICE and get it sold instead of having to drop/drop/drop.
It's the same for regular home sellers right now...it's important to PRICE AHEAD OF THE MARKET to make sure that YOUR home sells and the other 10 down the street are the one's that are still sitting!
The original purchase price you are viewing is not telling the whole story.. You'd have to do some title research for a property to get the real story.
The reference below shows you what is going on in just one community in Las Vegas concerning the original purchase prices and the current asking prices.
Can't say whether the banks are going to drop prices in your area, but it is happening in Las Vegas.
I hope this answer will help you
The banks are in business to make money and if there is an opportunity for them to increase the net profit they will not hesitate. having said that I also need to say that banks are not in the real estate business meaning they don't want to hold on to properties and are willing to cut their loss and sometime take a fraction of the what they put in to a home just get rid of it. I think the particular instance you gave as an example is an exception and not the norm.
The prices for real estate have held up very strong particularly in the bay are due to the demand and the strength of the local economy. Whether the prices will fall or raise is something I cannot tell. However with the increase in limit for confirming loans there is a good chance for increased demand for local housing market. We'll have to wait and see.....