CONDITION OF MANY FORECLOSED HOMES SCARE AWAY PROSPECTIVE BUYERS!
CONDITION OF MANY FORECLOSED HOMES SCARE AWAY PROSPECTIVE BUYERS!
DESPITE SURGING FORECLOSURE RATES HUGE SAVINGS – MANY BUYERS DON’T WANT THE HEADACHE!
Here in Chicago and across the country the sheer number of home foreclosures is intimidating!
Despite the fact that foreclosures across the U.S. declined 7% in November versus October of this year over 259000 properties were at some stage of the foreclosure process at the end on November. That’s a 28% increase over November 2007. Across the country one in every 488 homes received their first Notice of Foreclosure last month. (Data from RealtyTrac.)
Often properties falling to foreclosure now owned by the original lender are discounted heavily from average market prices. In many cases these homes are 25 percent or more cheaper than what they might have received on the open market. In fact some home sellers expect to pay even less for foreclosed properties – perhaps half of estimated market value.
However purchasing a foreclosed home can be a bit of a risky process. Often the condition of these homes is below average to poor and the new owners will likely have to pour thousands of dollars into many foreclosed properties simply to make it habitable.
When foreclosed properties revert to the lender they often board up the home and turn off the water service and other utilities. Sometimes water pipes freeze creating massive damage. Intruding squatters sometimes cause more damage ranging from holes in the wall to painted graffiti. Rodents often invade.
And in a few cases enraged displaced homeowners do additional damage or remove fixtures and appliances – anything of value – before the bank finally took possession of their former home according to Michael M. Phillips in his Wall Street Journal article he wrote last March.
A recent survey by Real Estate Search Engine Trulia.com shows falling enthusiasm among homebuyers for buying a foreclosed property. The November Trulia survey shows 47% of respondents would consider buying a bank-owned foreclosure – down from 54% last April. In the same survey 80% of those questioned expressed serious concern about the condition of a home in foreclosure compared to 69% last spring.
According to Peter Flint Co-Founder and CEO of Trulia.com “What’s significant about our findings is that just as the market is being flooded with more foreclosures homebuyers are more hesitant to buy them.”
On average it costs a bank about $60000 to hold and then sell a foreclosed home they own including property maintenance security and selling expenses. Naturally they are motivated to sell their foreclosed homes also called "REO’s" – Real Estate Owned quickly.
Foreclosures are expected to continue to surge with the New Year as many new Adjustable Rate Mortgage Loans reset and Unemployment increases. Barclay’s Capital recently estimated that foreclosure inventory could peak at the 1.4 Million Home Level by mid-2010.
In recent months several large U.S. Banks including Citibank and Bank of America have attempted loan modifications to renegotiate unfordable house payments of some borrowers. Other banks as well as giant U.S Mortgage Investors Fannie Mae and Freddie Mac have placed a moratorium on foreclosures through the holiday season.
Many of the modified loans are failing once again however. And as the moratoriums expire as well thousands of new foreclosed inventory will hit the market.
The question is – will bargain-hunting home buyers be interested in them?
For more read Kevin Kingsbury and Dawn Wotapka’s post in the Wall Street Journal Developments Blog from December 16th.
DEAN MOSS & DEAN’S TEAM CHICAGO
