From this: Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property. http://www.realestateabc.com/homeguide/reo.htm So basically the asking price is too high on the auctions on these subprimes, considering most of these houses are 80% on the first lien at peak prices, plus 20% for second lien, plus past due interest, etc... Thats why REOs fail, not condition.
It depends a lot on the area you live. Some areas, like Las Vegas, may see plunging prices for a decade to come; meanwhile in areas like New York, specially Manhattan prices haven't plunged at all. Make sure your home is relatively near your workplace. I prefer a smaller house near work, than a larger one requiring a lengthy commute. High gas prices are here to stay for years IMO. There is still enormous demand and minimum production increases.
My wife is a Realtor and I invest in real estate, so maybe I can offer some advice, for what it is worth. Regarding REOs, there are better deals to be had with listed sellers who are in serious distress. You need to locate a good Realtor and clearly explain what you want, and that you are going to be making low but serious offers. Interview a few Realtors and find one who willl work with you. Most aren't selling anything, and if you are a qualified buyer you should have no problems finding someone who will be aggressive for you. If you aren't qualified and ready to move, then don't bother them. Regarding market timing. At present there are thousands of very distressed sellers who are open to offers. It is no different than holding a stock that is crashing. Everyone wants to get out in a panic. But once word gets out that the market is starting to change...then sellers in mass will be less receptive to the kinds of offers they may take now. Right now in my area (Scottsdale), smart money is starting to buy the right properties. And I hear it is starting to happen in other areas as well. WSJ just reported this morning that mortgage apps have risen sharply in the past two weeks. So if you are ready to buy and can swing the expenses, I would not wait. It costs you nothing to make offers. You might be surprised at what you can get, without putting up with the hassles and risks of an REO or a property that needs a lot of work.