Distress Sales: Finding Foreclosure Bargains
In the first post of the Distress Sales series, we explore how house hunters can still find good deals in distressed or foreclosed properties.
The market has come a long way from the depths of the housing crisis. Back in 2009, home prices were headed to a post-bust bottom and as many as 200,000 properties a month were drawing foreclosure notices.
Some viewed the mortgage meltdown as a buying opportunity, figuring they could pick up distressed properties at rock bottom prices. In many places, short sales and bank owned foreclosed homes (REOs) were selling for less than half their pre-bust values. For some, foreclosures were not an important part of the housing market, they were the housing market.
Mortgage defaults have plunged since then, according to ATTOM Data Solutions, which, as RealtyTrac, has been monitoring foreclosure trends since 2005. In July, foreclosure actions were initiated on about 37,000 homes, an 11-year low. Can a bargain hunter still find a good deal in this environment?
“Sure,” said Daren Blomquist, ATTOM’s senior vice president. “As long as the housing market depends on the current financing system for buying a house, there will be homes lost to foreclosure.”
The discounts for foreclosed properties, however, have shrunk. The median home sold as an REO during three months ended June 30, the latest data available, went for 42% less than the overall median home price, according to Blomquist. That sounds like a lot, but he concedes that many distressed properties are in poor condition or located in economically struggling areas: That lowered their overall average price.
Contrast that difference with the 6% discount for purchasing a short sale during that same period. Because the sellers are usually still living in the home and at least partially maintaining it, short sales tend to be in comparable condition to non-distressed homes on the market and their values reflect that.
Blomquist reports that, in many hot markets, inventories of homes for sale are so low there is intense competition for homes that hit the market, including REOs. Buyers can bid up the prices to close to what other homes command.
That’s certainly the case in Miami, according to Lisa Thomson, a Coldwell Banker Residential Real Estate agent in Miami.
“There’s not a lot of REO to choose from,” she said. “Prices have gone up and lots of times you can get the same value as a regular sale.”
There are regional differences in the number of distressed properties coming onto the market. The foreclosure epicenter has shifted from the so-called “Sand States of Florida, Nevada, California, and Arizona, which led the nation in foreclosure filings during the worst years, to the Northeast and Mid-Atlantic.
New Jersey now has the highest foreclosure rate in the nation. One in every 544 homes received some kind of filing in August. Maryland and Delaware had the second and third highest foreclosure rates. The East Coast gambling mecca of Atlantic City is the hardest hit metro area in the nation.
For buyers, there are three foreclosure stages that represent buying opportunities: The short sale, the auction, and the REO. All of which have their advantages and disadvantages. Auctions are where the best deals can be had, but where the greatest risks are taken; short sale buyers face fewer pitfalls, but get little in the way of a discount; and REO buyers can get slightly better prices with very little more risk.
In our next post, we’ll look at how buyers can get ahead by jumping on the earliest opportunities: short sales and auctions.
Les is a Real Estate Market Specialist for Coldwell Banker Real Estate.
Born and raised in Whitestone, N.Y., and never having lived outside of NYC, Les is a graduate of City College of New York in Manhattan. Les switched careers in his late 30s, studying writing at New School and Brooklyn Polytechnic, now the New York University Polytechnic School of Engineering. Les has written for several magazines and copyedited books on early childhood education prior to joining CNNMoney as a personal finance writer, where his main beat was real estate. His wife and partner of 42 years is a retired magazine editor who spent her career at the New York Zoological Society (Bronx Zoo). They are residents of the Upper West Side.