The latest results of a periodic national survey by Trulia.com and RealtyTrac show reduced appetite for foreclosure purchases, but also more realistic expectations.
The November survey found 43 percent of the 2,203 adults surveyed would be at least somewhat likely to consider buying a foreclosed home in the future, compared with 55 percent of adults surveyed in May.
Among all respondents, negative sentiment towards a foreclosure purchase remained high at 81 percent, compared with 85 percent in May. Top concerns included hidden costs, the riskiness of the process, and fear that the home will lose value after it is purchased.
Top executives for Trulia, a real estate search and marketing site, and RealtyTrac, a data company specializing in distressed properties, predicted continued volatility in the housing market in 2010. Therefore, they said, consumers’ fears are not unfounded.
"Unfortunately, prices may well decline, so that’s a realistic view. And there are significant hidden costs. The process takes longer (for foreclosures) and the cost of improvements is also a factor," said Rick Sharga, senior vice president of RealtyTrac.
U.S. foreclosure properties are, on average, a 33 percent discount compared to nondistressed homes for sale, said Pete Flint, chief executive officer for Trulia. "So people have to figure out if the discount is enough to account for these drawbacks."
The survey, conducted by Harris Interactive every six months since May 2008, also found that real estate investors, current homeowners looking to trade up, and renters were the most likely to consider a foreclosure purchase. Sharga said that between one-quarter and one-third of sold properties this year were distressed in some way, with the highest percentages of distressed properties sold in Florida, California and Arizona.
Nearly a quarter of adults (23 percent) are at least somewhat likely to purchase a second home or investment property, the survey found, and of these, 92 percent are at least somewhat likely to buy a foreclosed property.
Buyers expect heavy discounts from such properties: Nearly two out of three adults (65 percent) surveyed expect a discount of 30 percent or more. The federal tax credit for homeowners looking to purchase a new home or trade-up home will also be a factor in rising interest in foreclosures.
Younger adult renters are also significantly more likely to purchase a foreclosed home, with more than 60 percent of renters between 18-44 expressing interest. Homebuyers over 55 were the least likely to consider purchasing a foreclosure. …CONTINUED
"They don’t want to deal with the headaches, and they are less likely to do the work themselves," said Trulia spokesman Ken Shuman, in an e-mail. "The older demographic wants a move-in-ready home!"
Flint and Sharga forecast — optimistically, they say — that 2010 will also be the peak year in terms of foreclosure activity. They said that they expect the number of people receiving foreclosure filings will rise to between 3.2 million and 4 million due to "unemployment levels, negative equity and bank unwillingness" to help borrowers, Flint said.
He also said he expects house prices to drop 10 to 20 percent and mortgage interest rates to rise up to 6 percent as government intervention starts to disappear and so-called "shadow inventory" of foreclosures hits the market. Sharga estimates that the inventory of possible and pending foreclosures includes about 2.5 million homes.
"The biggest wave of shadow inventory isn’t bank-owned homes or foreclosures, but the homes that are currently delinquent. They won’t hit all at once, which will protect prices from an overall calamitous drop," Sharga said.
Neither executive approved of the results of the Obama administration’s efforts to bolster the housing market. Both said the administration has fallen 90 percent short on its goal of having lenders permanently modify the projected 4 million home loans eligible for a loan modification (see related article).
While Sharga called the government’s progress "disappointing," Flint was more blunt. "They’ve been all lip service and little action," he said.
Flint also condemned "short-term fixes such as tax credits vs. long-term solutions. The tax credit has not created new demand, only pushed it to the beginning of 2010."
For current and future waves of foreclosures, Sharga points to areas with spikes in unemployment, especially in metro areas such as Boise, Idaho; Fayetteville, Ark.; Provo, Utah; Portland, Ore.; and Joliet, Ill.
Both said the administration needs to focus on increasing jobs. "There’s no point in lowering payments if the homeowner is unemployed," Flint said.
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