In addition to all the great information posted here, I'd like to add another not so urban legend to the list. I work in the commercial sector, both finance and real estate and we see many lenders trying to sell both performing and non-performing paper as well as REO portfolios.
These portfolios (we generally see commercial but are asked about residential) tend to be offered at either bargain basement pricing to create a greater amount of single source capital, or at a relatively reasonable discount of what the debt was. This does create a delay in lenders holding REOs for what seems to be longer than one would expect, just like a single home sale there is a negotiation process, draft contracts, due diligence and other legal fair, and then of course the time is wasted when an investor decides they are no longer interested in the portfolio.
In addition to this fact, some lenders are holding more REOs, we've seen Private Equity firms foreclosing on commercial property and sitting on it to use as leverage and balance sheet enhancement to drive their company value up. This puts them in a better position to continue or acquire new LOCs.
What we've noticed with a lender like BofA is that they are releasing property portfolios in a more logistic manner...at least that is what we've noticed in NJ. Northern NJ has more BofA REOs on the market than they do in central and southern, but will be releasing more properties in those areas shortly. I believe it is a logistics issue to some degree with banks, they do not have the manpower to oversee a large number of properties spread over a large region.
I would advise clients to the two fold truth, ...and this comes from the lending side as well...yes prices may fall due to more foreclosures hitting the markets, which will probably continue for the next couple of years, however the trade is really "do you sit on the fence and hope that a home will come along at a bargain price and risk that while you wait for a better deal, your credit will remain healthy, rates will remain low, lenders will not change loan programs and the President is wrong that unemployment is going to rise?"
If we're talking about saving $20,000 ...then sitting on the fence risks far to much, they may not have a job in 3 months, their credit may decline (may improve too), rates may go up (can go down, but the fed is not ready to tank rates and kill the banking industry) and lenders have been consistently changing loan programs since 2007 (what was there today may be gone tomorrow).
CIT is about to collapse, this is going to stir the pot in the commercial and business sectors, but considering CIT also lends to small banks - warehouse lines of credit, I have to imagine that there is going to be some underwriting changes, lost loans and a few more smaller lenders taking a nose dive.