At a recent seminar in Costa Mesa, real estate investment advisor Bruce Norris of the Norris Group advised real estate investors to ignore the many optimistic reports forecasting an immediate bottom in the housing market. According to Norris, numerous foreclosures must still be processed before the market approaches anything resembling equilibrium, much less growth. He attributes current lowered foreclosure numbers to Government loan modification programs, but notes that most modified loans tend to redefault, especially in an economy in which unemployment remains at unprecedented highs.

first tuesday take: Norris is right when he advises real estate investors in California to be wary of current market conditions. Government and lender efforts have forestalled defaults and foreclosures by the hundreds of thousands, but their main accomplishment has merely been the creation of a shadow inventory of over 500,000 likely future foreclosures in California alone. So long as unemployment remains high and home values remain low, even those homeowners who are capable of making their mortgage payments will have little incentive to do so.

Real estate investors with readily available cash can find good prices in the market right now, but they are gravely mistaken if they expect those deals to become profitable overnight. With this recession will come a slow return to sanity in the real estate market, and the flippers who artificially inflated property values during the millennium boom will need to find a different casino.

Re: “Foreclosures now are just the tip of the iceberg” from The Orange County Register