Let's look at some FACTS. No one is buying these houses at their CURRENT price, which is STILL bloated from the housing bubble. A house in a normal neighborhood, and 1/8th of an acre, that cost less than 1K to build back in 1953...should NOT be priced at over 200K today. That's a bubble price...and yet, that's what banks are asking for some of these houses, and MORE. So, they are not selling them. Which suits them just fine. A bank is losing nothing on the house by not selling, aside from some property taxes. Compound that issue with the fact that the banks are ALSO the ones that issue the loans, and have made that process damn near impossible for anyone making LESS than 80K a year (you need a WHOPPING 20% of the sale price of the house up front, and an average credit score of over 750)...and then mix in the fact that MOST of these houses are "middle class" houses....which, in CT, means anywhere from 150K to 350K, and you know what you get? The people that can afford to buy houses are also wealthy enough to buy the houses that AREN'T sitting in foreclosure...and the people that WOULD buy the houses that ARE sitting in foreclosures and short sales, can't qualify for the loans...what do you get?
Now, in NORMAL economics, when you have a product that is priced too high, and then fails to sell...you REDUCE the price, or go belly up. But not so with housing, because who owns them? Banks. And banks don't have to worry about going belly up, do they?