More Foreclosures Expected in 2012
It would seem like a contradiction, but it’s just the machinations of the system at work: fewer Americans are behind on their mortgage payments these days, but foreclosure activity is up and is expected to continue rising. This means a wave of short sales will arrive soon, if it hasn’t already done so, as potential buyers, brokers, and banks hurry to settle on homes that are worth less than the actual mortgages on them.
Because of how the banking system previously handled delinquent mortgages, there’s a large backlog of them. However, due to recent pressure from the federal government, this backlog is being unclogged and foreclosed homes are finally emerging from the system and into the market. This means that prospective homeowners and real estate brokers will be able to have a larger inventory from which to choose, in recent months, the backlog has caused a major lack of sales activity.
According to online foreclosure sale site RealtyTrac, more than half of the country’s 200-plus metropolitan areas had increases in foreclosure starts in the first half of 2012. Five of the nation’s top ten were in California, led by the nation’s leader, Stockton. Interestingly enough, all five California metro areas and nine-tenths of the top 10 saw decreased foreclosure activity overall – Atlanta was the exception.
In addition to the rise of foreclosures in Atlanta, other cities experienced increases, including several big cities that endured foreclosure gains of more than 20 percent over the second half of 2011: Baltimore, New York, Chicago, Philadelphia, and Tampa.
On the flip side, cities that enjoyed foreclosure decreases of more than ten percent from the second half of 2011 included Boston, Los Angeles, Detroit, San Francisco, and Seattle, which had the largest drop of all the metro areas.
In many places, sales prices are rising while foreclosure discounts are at a minimum of 15 percent, a formula that makes them top markets for investing. Boston, Cleveland, Phoenix, and Durham, NC, are all in the top 10.
Advice for Sellers
All in all, though it’s a good time for buyers, there are plenty of incentives for sellers, as well:
- Banks – Speak with your bank. JPMorgan Chase and Bank of America are among lenders who are expediting short sales programs. Sellers are prequalified, as are their homes for short sales at mutually-agreeable prices. Furthermore, some banks are paying cash to the owners of specially selected distressed properties.
- Tax breaks – Close this year. Special tax breaks, such as any debt remaining after a short sale, are ending this year and you’ll want to take advantage of them.
- Hardship is more broadly defined – Sellers wanting to short sale have to prove financial hardship, which will prevent them from paying off the loan. Banks are considering larger parameters to define hardship. Take advantage of it if need be.
Advice for Buyers
- Deals are there – While you shouldn’t expect “deals of the century”, average prices for distressed properties is $175,000, more than 20 percent below the average non-distressed properties.
- Short Sales v Foreclosures – Short-sold homes are often occupied, making them well-maintained and complete with guarantees. Compare this to foreclosed homes, usually stripped bare by displaced occupants as they leave, and short-sold homes might be a better buy.
- Long locks on mortgage rates – With rates at record lows, make sure you get a 60-day lock, if not longer, so you’ll have plenty of time between finding the property you like and actually putting the finishing touches on buying it.
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