As the summer wears on, I’m seeing a whole lot more activity on our distressed properties. I’m not sure what to attribute this to: investors patiently waiting for the bottom of the market, or our desire to take less in the way of profit to get certain properties off the books. Either way, it’s gratifying.

But what’s causing this? I’m beginning to suspect that the supply of really cheap property is disappearing, or “being absorbed,” to use the industry term, for three reasons.

1)      Savvy investors have undoubtedly snapped up the really good foreclosed properties, the ones in good neighborhoods that were purchased originally by over-extended but well-meaning buyers.

2)      Firms like ours have been churning through the next level of foreclosed homes, the ones with bigger issues but lower price tags.

3)      Cities have become more assiduous about two kinds of homes: the ones they’ve acquired through tax forfeitures, and the ones that have been abandoned. They’re tearing them down in order to reduce blight in otherwise pleasant neighborhoods.

The result: less inventory at the bottom of the market. I’m seeing lists of distressed properties that used to have a selection of prices in the thousands; now they’re in the tens of thousands. That tells me that demand is up.

Sadly, this does not signal less inventory on the market. It only signals less distressed inventory. According to an article posted on the Foreclosure Data Bank Web site on August 2^nd:

“While latest information tracked by market leaders suggests that the rate of foreclosures in America decelerated in 9 out of 10 of the worst affected metros during the first 6 months of 2010, it also reveals that this was not the case as well in metros with over 200,000 residents. There, 3 out of 4 metros reported increased rates of foreclosures, with 17 out of 20 of the worst increased recorded regions in California and Florida.”

The article’s hypothesis (which will come as no surprise to anyone): we’ve cycled through the homes that were purchased at the height of the boom with 100% mortgages, and now the people who have been put out of work by the recession are beginning to lose their homes.

There will still be foreclosed homes available, but presumably they’ll be in better condition, simply because their owners struggled longer to keep themselves afloat. The only downside — if there are too many foreclosures for the market to absorb, we may find ourselves facing a second wave of blight.