by CalculatedRisk on 6/27/2010 08:13:00 PM
http://www.calculatedriskblog.com/2010/06/housing-supply-metrics.html
Here is a table of various housing supply measures (just putting this in one place with links to the source data).
Note: here is the Weekly Summary and a Look Ahead. It will be a busy week!
Housing Supply Overview:
Total delinquent loans (1) 7.3 million
Seriously delinquent loans (1,2) 5.0 million
Total REO Inventory (3) 0.5 million
Fannie, Freddie, FHA REO (4) 210 thousand
Homeowners with Negative Equity (5) 11.2 million
Homeowner vacancy rate (6) 2.6%
Rental vacancy rate (6) 10.6%
Excess Vacant Units (6,7) 1.7 million
Existing Home Inventory (8) 3.89 million
Existing Home Months of Supply (8) 8.3 months
New Home Inventory (9) 213 thousand
New Home Months of Supply (9) 8.5 months
1 Source: estimate based on the Mortgage Bankers Association’s (MBA) Q1 2010 National Delinquency Survey. "MBA’s National Delinquency Survey covers about 44.4 million first lien mortgages on one-to four-unit residential properties ... The NDS is estimated to cover around 85 percent of the outstanding first-lien mortgages in the country."
2 This is based on the MBA's estimate of loans 90+ days delinquent or in the foreclosure process.
3 Source: Radarlogic and Barclays as of Feb 2010.
4 Source: Fannie Mae, Freddie Mac and FHA. Fannie, Freddie, FHA REO Inventory Surges 22% in Q1 2010
5 Source: CoreLogic Q1 2010 Negative Equity Report
6 Source: Census Bureau Residential Vacancies and Homeownership in the First Quarter 2010
7 CR calculation.
8 Source: National Association of Realtors
9 Source: Census Bureau New Residential sales
Tuesday, June 29, 2010
Monday, June 28, 2010
Time is running out to qualify for California's first-time home-buyer tax credit.
Kathleen Pender, Chronicle Staff Writer
Friday, June 18, 2010
The state Franchise Tax Board has received applications claiming about 80 percent of the funds allocated for the credit. Although it's hard to predict, tax board spokeswoman Denise Azimi says the credit could be gone within a few weeks.
In March, the Legislature approved $100 million in state tax credits for first-time home buyers who purchase a new or existing home in California. To qualify, the buyer must close escrow after May 1 and before the $100 million runs out.
The credit is 5 percent of the purchase price or $10,000, whichever is less, spread over three years. To make full use of the credit, the buyer would have to owe at least $3,333 in California income taxes in each of those three years.
Because many first-time buyers won't owe that much tax and lose part of their credit, lawmakers allowed the tax board to reduce the $100 million pot by only 57 percent of the credit claimed by each buyer. If a buyer requested a $10,000 credit, the pot would shrink by only $5,700.
As of Tuesday, the tax board had received more than 15,000 applications claiming more than $78 million in post-reduction credits. Because many applications are duplicates or invalid, the board said it plans to accept at least 28,000 applications to make sure the full $100 million is awarded.
The board, which has been posting weekly updates on its Web site ( www.ftb.ca.gov) showing how much money remains, will announce the cutoff date at least 24 hours in advance so people can fax their documentation. The credit will be allocated on a first-come, first-served basis, according to the time and date stamp on the fax. The board warns that submission before the cutoff does not guarantee a credit; it will stop allocating credits once the $100 million is gone.
A first-time buyer is someone who did not own a principal residence for the preceding three years. The buyer must reside in the home for at least two years immediately following the purchase date.
At the same time it approved the first-time home buyer credit, the Legislature approved a separate tax credit for people who already own a principal residence who purchase a newly constructed (but not an existing) home. This credit is also worth up to $10,000, spread over three years. Because more repeat buyers will be able to take full advantage of the credit, this $100 million pot will be reduced by 70 percent of the tax credit allocated to each buyer.
This program also has $100 million in credits available, but the money is not close to running out. Buyers can reserve a credit by entering into a binding contract between May 1 and Dec. 31 and closing before Aug. 1, 2011.
Friday, June 18, 2010
The state Franchise Tax Board has received applications claiming about 80 percent of the funds allocated for the credit. Although it's hard to predict, tax board spokeswoman Denise Azimi says the credit could be gone within a few weeks.
In March, the Legislature approved $100 million in state tax credits for first-time home buyers who purchase a new or existing home in California. To qualify, the buyer must close escrow after May 1 and before the $100 million runs out.
The credit is 5 percent of the purchase price or $10,000, whichever is less, spread over three years. To make full use of the credit, the buyer would have to owe at least $3,333 in California income taxes in each of those three years.
Because many first-time buyers won't owe that much tax and lose part of their credit, lawmakers allowed the tax board to reduce the $100 million pot by only 57 percent of the credit claimed by each buyer. If a buyer requested a $10,000 credit, the pot would shrink by only $5,700.
As of Tuesday, the tax board had received more than 15,000 applications claiming more than $78 million in post-reduction credits. Because many applications are duplicates or invalid, the board said it plans to accept at least 28,000 applications to make sure the full $100 million is awarded.
The board, which has been posting weekly updates on its Web site ( www.ftb.ca.gov) showing how much money remains, will announce the cutoff date at least 24 hours in advance so people can fax their documentation. The credit will be allocated on a first-come, first-served basis, according to the time and date stamp on the fax. The board warns that submission before the cutoff does not guarantee a credit; it will stop allocating credits once the $100 million is gone.
A first-time buyer is someone who did not own a principal residence for the preceding three years. The buyer must reside in the home for at least two years immediately following the purchase date.
At the same time it approved the first-time home buyer credit, the Legislature approved a separate tax credit for people who already own a principal residence who purchase a newly constructed (but not an existing) home. This credit is also worth up to $10,000, spread over three years. Because more repeat buyers will be able to take full advantage of the credit, this $100 million pot will be reduced by 70 percent of the tax credit allocated to each buyer.
This program also has $100 million in credits available, but the money is not close to running out. Buyers can reserve a credit by entering into a binding contract between May 1 and Dec. 31 and closing before Aug. 1, 2011.
Friday, June 25, 2010
OPEN HOUSE
Complete Property Services is hosting an open house at 12736 N Bend Court, Rancho Cucamonga CA 91739
Schedule is as followed:
2010.6.26 2PM ~ 5PM (SATURDAY)
2010.6.27 2PM ~ 5PM (SUNDAY)
View Larger Map
Schedule is as followed:
2010.6.26 2PM ~ 5PM (SATURDAY)
2010.6.27 2PM ~ 5PM (SUNDAY)
View Larger Map
Wednesday, June 16, 2010
The top 10 most desired home features and the percentage of respondents who ranked the feature as high priority
Source: ZipRealty.
1. 86.8% - Garage or parking space.
2. 78.9% - Master suite.
3. 72% - Ample storage space.
4. 66.5% - Large or walk-in closets.
5. 66.4% - Guest bedroom.
6. 64.3% - Outdoor entertainment area.
7. 60.6% - Gourmet or updated kitchen.
8. 55.8% - Breakfast room or eat-in kitchen.
9. 43.2% - Large yard:
10. 40.8% - Wood floors: 40.8 percent.
1. 86.8% - Garage or parking space.
2. 78.9% - Master suite.
3. 72% - Ample storage space.
4. 66.5% - Large or walk-in closets.
5. 66.4% - Guest bedroom.
6. 64.3% - Outdoor entertainment area.
7. 60.6% - Gourmet or updated kitchen.
8. 55.8% - Breakfast room or eat-in kitchen.
9. 43.2% - Large yard:
10. 40.8% - Wood floors: 40.8 percent.
Monday, June 14, 2010
Wasn't commercial real estate supposed to crash?
By Heidi N. Moore, contributorJune 8, 2010: 6:12 AM E
FORTUNE -- During the long years of the financial crisis, the American economy has been like a retelling of the Somerset Maugham story "Appointment in Samarra," in which a man unsuccessfully runs from city to city in attempts to avoid a run-in with Death -- who, of course, is one step ahead of him. Similarly, investors have now spent years dodging disaster in one area of the markets, only to find their investments coming to a bad end elsewhere.
Oddly, however, there is one sector that has been outrunning the reaper since 2007, and it's the last place you'd expect to have survived so long: commercial real estate. For much of 2008 and 2009 CRE was awash in red ink, and yet it hangs on. Richard LeFrak, chairman of the LeFrak Organization, said at the Milken Institute Global Conference in April, "The failure that we were all anticipating in the commercial real estate market, it kind of didn't happen. We blinked, it went away.
The only question now is how long it can keep up the sprint while the ghosts of boom-time leverage haunt the sector, and $1.4 trillion in loan maturities loom three years over the horizon.
To crash or not to crash: which side is right?
There is a sharp disagreement among experts in how things will play out. Some predict foreclosures, loan defaults and a national crisis of disastrous proportions. In that corner is Elizabeth Warren's Congressional Oversight Panel, which flatly predicted this year that commercial real estate loans are heading for a crash that will bring down small banks, destroy small-business lending and create "a downward spiral of economic contraction," in her ominous words.
On the other side, investors in commercial properties and buyers of commercial mortgage-backed securities believe that the commercial real estate market will continue to suffer until it hits a bottom, but it will never crash in the way that the residential market collapsed. They believe that commercial real estate will be an example of how a market can take the hits and keep on ticking, that not every spot of trouble results in a crisis, that an industry can actually, somehow, stop a crisis if it acts early enough and has enough support.
Peter Roberts, Chief Executive Officer of the Americas for property giant Jones Lang LaSalle (JLL), put it this way: "We're not going to see a 'crash'. We're going to see a long work-through." Roberts believes commercial property values are in the process of bottoming out and will get to the ground floor by early 2011.
He credits the government's support programs in capital markets with reversing the psychology of nervous markets in 2009: "The powers that be are very focused in making sure that we don't have a crash in the real estate market. That has infused the mindset of investors."
The Hilton Maneuver
Investors are making the most of their good luck while they can. There have already been deals of several different varieties that show us their plan for addressing the problem of high-water mark commercial mortgages coming due.
Of them, there's no better example of temporarily sidestepping the debt monster than Blackstone Group's clutch move with Hilton Hotels. The PE firm's $26 billion buyout of Hilton in 2007 -- with $20 billion of outstanding debt due by 2013 -- is a prime example of the sweaty palms that high leverage deals can cause even savvy investors.
But in April, Blackstone (BX) bought back $1.8 billion of Hilton's debt and restructured another $2.1 billion to turn it into preferred equity. Blackstone also pushed off the maturities of the remaining $16 billion until 2015, buying itself two whole years of breathing room. Hilton is still debt-laden, but it's not dead -- and hedge-fund investors speak approvingly of Blackstone's decisions to face its problems early.
The deal has kicked off a quiet trend of what one real-estate investor at a hedge fund calls "mini-Hiltons" -- a pending wave of real estate investors seeking to buy back and restructure their own debt to stay alive until the recovery.
In another pattern, auctions for distressed assets are becoming more and more competitive, giving troubled assets quick homes. One of the most notable was the acquisition of Corus Bankshare's $4.5 billion real estate portfolio, sold for a mere 60 cents on the dollar in an FDIC auction to a group of real estate investors and hedge funds including Barry Sternlicht of Starwood, TPG Capital, WLR LeFrak and Perry Capital. The FDIC kept the majority of the portfolio, but gave the buyers zero-percent financing -- a sweet deal for any investor.
Unhinged loans
Since properties have become so hard to buy, many investors have turned with voraciousness to the bundles of securitized loans known as commercial mortgage-backed securities, or CMBS. If anything in commercial real estate stands ready for a reckoning, it is these securities.
Despite CMBS hurtling toward higher default rates, however, investors who have faith in them are practicing some serious compartmentalization. They say that there are only some CMBS -- and some tranches of CMBS -- that will be hurt. They believe that the highest-rated tranches, rated triple-A, are in no danger.
They also say that CMBS could never create as much havoc as their residential cousins because of their structure: they are made of whole loans that haven't been chopped up as much in the Wall Street sausage factory, and are based on stronger assets.
The tranches most likely to be hurt, of course, are those with the worst ratings - the triple Bs. These were the biggest victims of lax underwriting standards. According to Commercial Mortgage Alert, the boom years of 2005 through 2007 saw a total of $602 billion in CMBS issuance. (The CMBS written during those three years, by the way, account for a whopping 49% of all CMBS written over the past 20 years.) Those are likely to be the problematic securities. The CMBS written before and after don't have as much leverage put on them, say investors.
CMBS, however, accounts for only about 20% of the total loan market, according to Jones Lang LaSalle's Roberts. The bigger danger to the capital markets -- and to banks -- are speculative commercial loans, like those in construction and land loans. Those aren't backed by firm assets and are a key part of the reason that many smaller banks have failed in recent years. It is these loans, in particular, that worry Warren and others, and could yet bring a reckoning to CRE.
There is a lot riding on the outcome of commercial real estate's do-it-yourself salvation. If the sector can escape the same kind of crash that took down residential real estate, then we have a case study in how investors and government can prevent a crash before it happens. If it doesn't work, however, the economy could be hit again at a moment when it is least able to bear the punch.
FORTUNE -- During the long years of the financial crisis, the American economy has been like a retelling of the Somerset Maugham story "Appointment in Samarra," in which a man unsuccessfully runs from city to city in attempts to avoid a run-in with Death -- who, of course, is one step ahead of him. Similarly, investors have now spent years dodging disaster in one area of the markets, only to find their investments coming to a bad end elsewhere.
Oddly, however, there is one sector that has been outrunning the reaper since 2007, and it's the last place you'd expect to have survived so long: commercial real estate. For much of 2008 and 2009 CRE was awash in red ink, and yet it hangs on. Richard LeFrak, chairman of the LeFrak Organization, said at the Milken Institute Global Conference in April, "The failure that we were all anticipating in the commercial real estate market, it kind of didn't happen. We blinked, it went away.
The only question now is how long it can keep up the sprint while the ghosts of boom-time leverage haunt the sector, and $1.4 trillion in loan maturities loom three years over the horizon.
To crash or not to crash: which side is right?
There is a sharp disagreement among experts in how things will play out. Some predict foreclosures, loan defaults and a national crisis of disastrous proportions. In that corner is Elizabeth Warren's Congressional Oversight Panel, which flatly predicted this year that commercial real estate loans are heading for a crash that will bring down small banks, destroy small-business lending and create "a downward spiral of economic contraction," in her ominous words.
On the other side, investors in commercial properties and buyers of commercial mortgage-backed securities believe that the commercial real estate market will continue to suffer until it hits a bottom, but it will never crash in the way that the residential market collapsed. They believe that commercial real estate will be an example of how a market can take the hits and keep on ticking, that not every spot of trouble results in a crisis, that an industry can actually, somehow, stop a crisis if it acts early enough and has enough support.
Peter Roberts, Chief Executive Officer of the Americas for property giant Jones Lang LaSalle (JLL), put it this way: "We're not going to see a 'crash'. We're going to see a long work-through." Roberts believes commercial property values are in the process of bottoming out and will get to the ground floor by early 2011.
He credits the government's support programs in capital markets with reversing the psychology of nervous markets in 2009: "The powers that be are very focused in making sure that we don't have a crash in the real estate market. That has infused the mindset of investors."
The Hilton Maneuver
Investors are making the most of their good luck while they can. There have already been deals of several different varieties that show us their plan for addressing the problem of high-water mark commercial mortgages coming due.
Of them, there's no better example of temporarily sidestepping the debt monster than Blackstone Group's clutch move with Hilton Hotels. The PE firm's $26 billion buyout of Hilton in 2007 -- with $20 billion of outstanding debt due by 2013 -- is a prime example of the sweaty palms that high leverage deals can cause even savvy investors.
But in April, Blackstone (BX) bought back $1.8 billion of Hilton's debt and restructured another $2.1 billion to turn it into preferred equity. Blackstone also pushed off the maturities of the remaining $16 billion until 2015, buying itself two whole years of breathing room. Hilton is still debt-laden, but it's not dead -- and hedge-fund investors speak approvingly of Blackstone's decisions to face its problems early.
The deal has kicked off a quiet trend of what one real-estate investor at a hedge fund calls "mini-Hiltons" -- a pending wave of real estate investors seeking to buy back and restructure their own debt to stay alive until the recovery.
In another pattern, auctions for distressed assets are becoming more and more competitive, giving troubled assets quick homes. One of the most notable was the acquisition of Corus Bankshare's $4.5 billion real estate portfolio, sold for a mere 60 cents on the dollar in an FDIC auction to a group of real estate investors and hedge funds including Barry Sternlicht of Starwood, TPG Capital, WLR LeFrak and Perry Capital. The FDIC kept the majority of the portfolio, but gave the buyers zero-percent financing -- a sweet deal for any investor.
Unhinged loans
Since properties have become so hard to buy, many investors have turned with voraciousness to the bundles of securitized loans known as commercial mortgage-backed securities, or CMBS. If anything in commercial real estate stands ready for a reckoning, it is these securities.
Despite CMBS hurtling toward higher default rates, however, investors who have faith in them are practicing some serious compartmentalization. They say that there are only some CMBS -- and some tranches of CMBS -- that will be hurt. They believe that the highest-rated tranches, rated triple-A, are in no danger.
They also say that CMBS could never create as much havoc as their residential cousins because of their structure: they are made of whole loans that haven't been chopped up as much in the Wall Street sausage factory, and are based on stronger assets.
The tranches most likely to be hurt, of course, are those with the worst ratings - the triple Bs. These were the biggest victims of lax underwriting standards. According to Commercial Mortgage Alert, the boom years of 2005 through 2007 saw a total of $602 billion in CMBS issuance. (The CMBS written during those three years, by the way, account for a whopping 49% of all CMBS written over the past 20 years.) Those are likely to be the problematic securities. The CMBS written before and after don't have as much leverage put on them, say investors.
CMBS, however, accounts for only about 20% of the total loan market, according to Jones Lang LaSalle's Roberts. The bigger danger to the capital markets -- and to banks -- are speculative commercial loans, like those in construction and land loans. Those aren't backed by firm assets and are a key part of the reason that many smaller banks have failed in recent years. It is these loans, in particular, that worry Warren and others, and could yet bring a reckoning to CRE.
There is a lot riding on the outcome of commercial real estate's do-it-yourself salvation. If the sector can escape the same kind of crash that took down residential real estate, then we have a case study in how investors and government can prevent a crash before it happens. If it doesn't work, however, the economy could be hit again at a moment when it is least able to bear the punch.
Tuesday, June 8, 2010
How Dangerous is Buying a Foreclosure?
June 7th, 2010, 6:00 am • posted by Marilyn Kalfus, real estate reporter
http://mortgage.freedomblogging.com/2010/06/07/how-dangerous-is-buying-a-foreclosure/32309/
Here’s more from a recent survey by Trulia.com and RealtyTrac on how people view buying a foreclosure.
I think some of the confusion stems from the fact that the term foreclosure is used in different ways. When some people say foreclosure they mean a home in default on the loan and going through the foreclosure process but not yet sold at auction or reverted to the lender. Others mean a home that has already been foreclosed and now is owned by the bank.
At any rate, the 2 Websites have come up with what they’re calling the Top 10 Myths about buying foreclosures, along with their reality checks:
1. Foreclosures need a huge amount of work.
Reality check: “Although stories of foreclosures missing plumbing and every electrical fixture are very memorable, many foreclosed homes need only the (relatively inexpensive) cosmetics that many new homeowners want to customize no matter what kind of home they’re buying: paint, carpet, etc.
2. Foreclosures sell at massive discounts compared to other homes. 36% expected to receive a bargain basement discount of 50% or more.
Reality check: “While foreclosures might be discounted massively from what the former owner paid or owed, their discounts are much more modest when compared to their value on today’s market and the prices of similar homes.”
3. Buying a foreclosure is risky.
Reality check: “Yes – buying a foreclosure at the auction on the county courthouse steps can have risks, including the risk the new owner will take on the former’s owner’s liens and other loans. But most buyers looking for foreclosures are looking at bank-owned properties, which are listed on the open market with other, ‘regular’ homes. Buying these homes is really no more risky than buying a non-foreclosed home.”
4. You can’t get inspections on the property when you buy a foreclosed home.
Reality check: “County auction foreclosures don’t often offer the ability for buyers to have the homes inspected. But virtually all bank-owned properties for sale on the open market not only allow, but encourage buyers to obtain every inspection they deem necessary. This is because almost every bank sells their foreclosed homes as-is, and they want to avoid later liability. It’s in everyone’s best interests to make sure that the buyer has full information about the property’s condition before they close the deal.”
5. There are hidden costs to watch out for when buying a foreclosed home. 68% of respondents who felt there is a negative stigma to buying a foreclosure worried about the danger of hidden costs.
Reality check: “At some foreclosure auctions, there are buyer’s premiums and other hefty fees that can really add up and take a chunk out of the effective savings the buyer stood to realize. However, when you buy a bank-owned property that is listed for sale with a real estate agent, the closing costs are the same as they would be if you bought a non-foreclosed home. Overdue property taxes, HOA dues and other bills left behind by the defaulting homeowner are cleared by the bank that owns a foreclosed home before it is sold on the market, though these items should be watched out for if you buy a home at the county foreclosure auction.”
6. Foreclosures are more likely to lose their value than “regular” homes. Some 35% of respondents believing there are downsides to buying a foreclosure expressed this concern.
Reality check: ”In fact, because foreclosures often offer a discount from the home’s current market value, they may offer some degree of insulation from further depreciation. Whether a home loses its value or not has to do with the dynamics of the local market, including the area’s supply of homes, demand for homes, interest rates and the health of the employment market – not with whether the home was or was not a foreclosure at the time it was purchased.”
7. Most foreclosures happen when homeowners just walk away. Among homeowners with a mortgage, just 1% said walking away from their home would be their first choice if they were unable to pay the loan. 59% of mortgage-holders said they wouldn’t walk away no matter how upside down they were.
Reality check: “Most foreclosures happen when the owners lose their jobs or their mortgage adjusts to the point where they absolutely cannot pay the mortgage, no matter how hard they try. Voluntary walk-away’s are simply not as popular as many people think.”
8. When you buy a foreclosure, you should lowball the bank – they are desperate to get these homes off their books.
Reality check: “Stories about in the press abound about the large numbers of foreclosed homes the banks have on their books. We’ve all heard the adage that banks have no interest in owning these properties. But the real deal is that they’re simply not desperate enough to give these places away. Also, the banks mostly service the defaulted loans – they don’t own them. Various groups of investors do, and they hold the banks accountable to selling the bank-owned property at as high a price as possible, helping them cut their losses. Many banks won’t even consider lowball offers.”
9. You need to be able to pay in cash in order to buy a foreclosure.
Reality check: “Again, if you buy a foreclosed home on the county courthouse steps, you might need to bring a cashier’s check and be ready to pay for the place on the spot. By contrast, bank-owned homes are bought through a more normal real estate transaction, which means buyers can obtain a mortgage to finance the home just like they would if the home weren’t a foreclosure. It is true, though, that in some markets, banks prefer offers from cash buyers, but this tends to be in situations where the property’s condition is pretty dire, and the bank knows this may make it hard for a buyer to obtain financing.”
10. It’s easier to buy a foreclosure with bad credit if you get a mortgage with the same bank that owns the property.
Reality check: “Think about it: why would the bank want to end up with the same property as a foreclosure, again? In reality, many banks do offer incentives like lower fees or closing cost credits for buyers who use their bank for their mortgage. But the buyers must meet the same credit, income and other qualification standards as anyone else would to seal the deal.”
Here’s more from a recent survey by Trulia.com and RealtyTrac on how people view buying a foreclosure.
I think some of the confusion stems from the fact that the term foreclosure is used in different ways. When some people say foreclosure they mean a home in default on the loan and going through the foreclosure process but not yet sold at auction or reverted to the lender. Others mean a home that has already been foreclosed and now is owned by the bank.
At any rate, the 2 Websites have come up with what they’re calling the Top 10 Myths about buying foreclosures, along with their reality checks:
1. Foreclosures need a huge amount of work.
Reality check: “Although stories of foreclosures missing plumbing and every electrical fixture are very memorable, many foreclosed homes need only the (relatively inexpensive) cosmetics that many new homeowners want to customize no matter what kind of home they’re buying: paint, carpet, etc.
2. Foreclosures sell at massive discounts compared to other homes. 36% expected to receive a bargain basement discount of 50% or more.
Reality check: “While foreclosures might be discounted massively from what the former owner paid or owed, their discounts are much more modest when compared to their value on today’s market and the prices of similar homes.”
3. Buying a foreclosure is risky.
Reality check: “Yes – buying a foreclosure at the auction on the county courthouse steps can have risks, including the risk the new owner will take on the former’s owner’s liens and other loans. But most buyers looking for foreclosures are looking at bank-owned properties, which are listed on the open market with other, ‘regular’ homes. Buying these homes is really no more risky than buying a non-foreclosed home.”
4. You can’t get inspections on the property when you buy a foreclosed home.
Reality check: “County auction foreclosures don’t often offer the ability for buyers to have the homes inspected. But virtually all bank-owned properties for sale on the open market not only allow, but encourage buyers to obtain every inspection they deem necessary. This is because almost every bank sells their foreclosed homes as-is, and they want to avoid later liability. It’s in everyone’s best interests to make sure that the buyer has full information about the property’s condition before they close the deal.”
5. There are hidden costs to watch out for when buying a foreclosed home. 68% of respondents who felt there is a negative stigma to buying a foreclosure worried about the danger of hidden costs.
Reality check: “At some foreclosure auctions, there are buyer’s premiums and other hefty fees that can really add up and take a chunk out of the effective savings the buyer stood to realize. However, when you buy a bank-owned property that is listed for sale with a real estate agent, the closing costs are the same as they would be if you bought a non-foreclosed home. Overdue property taxes, HOA dues and other bills left behind by the defaulting homeowner are cleared by the bank that owns a foreclosed home before it is sold on the market, though these items should be watched out for if you buy a home at the county foreclosure auction.”
6. Foreclosures are more likely to lose their value than “regular” homes. Some 35% of respondents believing there are downsides to buying a foreclosure expressed this concern.
Reality check: ”In fact, because foreclosures often offer a discount from the home’s current market value, they may offer some degree of insulation from further depreciation. Whether a home loses its value or not has to do with the dynamics of the local market, including the area’s supply of homes, demand for homes, interest rates and the health of the employment market – not with whether the home was or was not a foreclosure at the time it was purchased.”
7. Most foreclosures happen when homeowners just walk away. Among homeowners with a mortgage, just 1% said walking away from their home would be their first choice if they were unable to pay the loan. 59% of mortgage-holders said they wouldn’t walk away no matter how upside down they were.
Reality check: “Most foreclosures happen when the owners lose their jobs or their mortgage adjusts to the point where they absolutely cannot pay the mortgage, no matter how hard they try. Voluntary walk-away’s are simply not as popular as many people think.”
8. When you buy a foreclosure, you should lowball the bank – they are desperate to get these homes off their books.
Reality check: “Stories about in the press abound about the large numbers of foreclosed homes the banks have on their books. We’ve all heard the adage that banks have no interest in owning these properties. But the real deal is that they’re simply not desperate enough to give these places away. Also, the banks mostly service the defaulted loans – they don’t own them. Various groups of investors do, and they hold the banks accountable to selling the bank-owned property at as high a price as possible, helping them cut their losses. Many banks won’t even consider lowball offers.”
9. You need to be able to pay in cash in order to buy a foreclosure.
Reality check: “Again, if you buy a foreclosed home on the county courthouse steps, you might need to bring a cashier’s check and be ready to pay for the place on the spot. By contrast, bank-owned homes are bought through a more normal real estate transaction, which means buyers can obtain a mortgage to finance the home just like they would if the home weren’t a foreclosure. It is true, though, that in some markets, banks prefer offers from cash buyers, but this tends to be in situations where the property’s condition is pretty dire, and the bank knows this may make it hard for a buyer to obtain financing.”
10. It’s easier to buy a foreclosure with bad credit if you get a mortgage with the same bank that owns the property.
Reality check: “Think about it: why would the bank want to end up with the same property as a foreclosure, again? In reality, many banks do offer incentives like lower fees or closing cost credits for buyers who use their bank for their mortgage. But the buyers must meet the same credit, income and other qualification standards as anyone else would to seal the deal.”
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