Home values in Los Angeles and Orange counties are down roughly 25% from their peaks last year.
"In the places that were harder hit, it's pretty clear we're getting close to the bottom," Thornberg said, but "places like West L.A. -- where people said, 'It can't happen here' -- are starting to stumble now. It's a function of time."
Kurtis Squyres believes that many of the desert towns where he buys houses have hit bottom.
"Houses are already down 50%" in some neighborhoods, he said.
To find the best bargains in a market cluttered with abandoned properties, Squyres said he and his wife spend all day scouring real estate listings, phoning brokers and sending postcards to absentee property owners, asking whether they are interested in selling.
They work out of a room in their rented house; they sold their own home in 2005 when they thought the market was about to crash.
Often, they buy houses that others might consider dumps.
"You've really got to find that oddball and take advantage of it," Kurtis Squyres said.
After buying a property, the couple try to unload it as soon as they can to investors they court on their website, FarBelowMarket.com. Those buyers typically try to flip the homes for a quick profit too.
Foreclosures and short sales -- homes offered for sale at prices below their mortgage amounts -- are increasingly shaping markets even in long-established communities.
In Orange County, for instance, foreclosures and short sales constitute the majority of homes for sale in eight cities, among them Aliso Viejo, Santa Ana, Garden Grove and Anaheim, according to an analysis of listing data by Aliso Viejo real estate broker Steven Thomas.
Overall, foreclosed homes made up 41.1% of the homes sold in June, the first time the percentage has topped 40% in this real estate cycle. In June 2007, foreclosed homes made up just 7.3% of home sales.
When banks foreclose homes, they offer them first for sale at an auction, typically at a price lower than even the amount of the defaulted loan. Last month in California, foreclosed homes went to auction with opening bids set at an average of 31% less than the amount owed on the loan, according to ForeclosureRadar, a seller of default data.
Few of those homes find buyers at the auction. In California, 97% of homes auctioned are bought back by the lender because of the lack of higher bids, ForeclosureRadar said. Those homes are then sold by lenders on the open market, sometimes at prices even lower than the auction price.
