According to RealtyTrac, an online marketer of foreclosed homes, More than 800,000 properties received foreclosure filings in the first quarter of 2009. After four years of record keeping done by RealtyTrac, the only quarter with more foreclosures was the 4th quarter in 2008. These statistics show that the market may be bottoming out; however, do not be fooled. This is due to a moratorium Fannie Mae placed on evictions starting in October 2008 with nearly every other lender following suit. The first quarter of 2009 has passed, and now most moratoriums have been lifted, leaving a large increase of evictions and foreclosure auctions.
An article from the New York Times stated, in the end of 2008, 11.93 percent of all mortgages were delinquent or in foreclosure. In the first three months of 2009 the nation has seen about 12.07 percent of all mortgages delinquent or in foreclosure.
There is plenty of discussion about state and federal assistance to those who are underwater with their mortgage payments. This will make very little difference in 2009. Ron Quintero, the CEO of Debt Advisory Alliance, said that after the first quarter of 2009, we are going to see a large amount of foreclosures starting to adjust. He also went on to say that President Obama’s recently released housing plan does not allow close to seventy-five percent of borrowers with adjustable rate mortgages (ARMS) to qualify for the loan modification.
With the moratoriums ending, unemployment rates rising, property values decreasing, and an increase in foreclosure filings, the housing market is already seeing another wave of bank owned homes. Morris Davis, a real estate expert at the University of Wisconsin quoted in a New York Times story, “Foreclosures were bad last year? It’s going to get worse.” People defaulting on their mortgages will likely jump 60 percent because of unemployment in 2009, while last year showed about a 30% increase.
What does all this mean for housing prices and knowing the right time to buy? There are signs that the housing market is bottoming out, but it will not bottom out as one would expect. The “bottom” could refer to the moment housing prices start to decrease at a slower rate. We’ve already seen this happen with the first quarter of 2009. Property values will begin to decrease at a lower rate as the surplus of available homes begins to get smaller. Once this happens, there will be greater competition for each home – especially the low-priced, bank foreclosures.
RealtyTrac and Trulia.com conducted a survey where they found that in November of 2008 47% of buyers were inclined to buy a foreclosure. In May of 2009, this number increased to 55%. Another statistic from RealtyTrac estimated that foreclosed homes sell for 30% less than privately owned homes.
Nearly half of the buyers today are still wary of buying foreclosures for a few reasons, while 85% state there are negative aspects of buying a foreclosure. The top concerns, in order from greatest to least, are Hidden Costs, believe the process is risky, and concerns that the home will lose value.
With an increase in interest with foreclosures and with inventory beginning to dry up, real estate markets will begin to see less of a price gap between foreclosed homes and privately owned homes. If you’re looking to get the best value for your home purchase now may be the time.
When buying a foreclosure, here are a few steps to help you in your journey.
First, trust only in agents who specialize, or are familiar with working with foreclosed properties. If your agent is submitting an offer, request for plenty of time - at least 45 days. This is especially important for FHA buyers who need time to get their loan commitment.
Conditions of foreclosures can sometimes appear excellent but there could be damages unseen by the naked eye. Don’t let this dissuade you on submitting an offer. You have 48-72 hours from the time your offer is accepted before you have to sign and return “seller addendums,” in other words, the seller’s contract. Within that period always get an inspection. It may cost you some money, but it gives you a much larger picture as to the condition of the home you’re buying.
Make all requests up front. If you’re obtaining a loan to purchase a home, ask your agent and mortgage broker what repairs, if any, are necessary to complete to obtain financing. For example, if there is no running water and no range (which could cause a lender not to approve you for financing), state in the contract that water must be turned on prior to the sale and a working range must be installed. Requesting these items after going under contract could potentially kill the deal. Banks, asset management companies, and outsourcers have a lot of files and upper management to deal with to make decisions. A small request or change to the terms of a property under contract for a traditional sale can normally be worked out fine but could potentially kill a deal for a bank owned sale.
Posted by: Jared Cohen
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