Demand for Foreclosures Triples for Homebuyers: Realtor.com
By: Tory Barringer
The stigma associated with foreclosure purchases has apparently faded, with interest in foreclosures nearly tripling in the past two years, according to a survey released Wednesday by Realtor.com.
The survey, conducted over 1,004 phone interviews at the beginning of May, suggested that homebuyer interest in foreclosures has jumped 159 percent since October 2009, when foreclosures made up 29 percent of all home sales. Nearly two-thirds (64.9 percent) of homebuyers surveyed said they’re likely to purchase a foreclosure, a huge increase from 25.3 percent two and a half years ago. The vast majority of buyers said they would want to live in their foreclosure purchase, with 92.1 percent looking for a home to live in and only 6.9 percent looking for foreclosure investments.
“We see a combination of factors coming into play explaining the unexpected interest in foreclosures,” said Steve Berkowitz, CEO of Realtor.com operator Move, Inc. “Reductions in supply, expectations that home prices will rise, and changing attitudes towards foreclosures are contributing to the increased, especially among owner-occupants. As lenders begin processing their distressed inventories and releasing them for sale at the local level, we look to them to move carefully and monitor conditions so recently gained home values aren’t diminished.”
Realtor.com’s survey found that 55.7 percent of Americans are concerned that the more than 1.5 million backlogged foreclosures expected for release will lower home values in their markets. Midwesterners showed the most worry, with 62.2 percent expressing concern about their markets. Concern among homeowners and non-homeowners was nearly equal-56.1 percent and 54.5 percent expressed worry, respectively. The majority of backlogged foreclosures are expected to be released in judicial states, most of which are located in the Midwest and Northeast.
While reluctance to purchase a foreclosure has declined, so too has the fear of losing a home to foreclosure. Today, 34.9 percent of Americans say they fear that they or someone they know will face foreclosure in the next year, down from 52.5 percent in March 2009. Fear of facing foreclosure is highest among people earning less than $30,000 a year and slightly higher among non-homeowners (38.6 percent) than it is among homeowners (33.6 percent).
Although worries about foreclosures have decreased, most Americans said they haven’t seen improvement in the foreclosure situation where they live. The survey found that 49 percent of Americans think the situation is about the same as it was last year, while 17.6 percent think it is worse. Foreclosures have decline by 34 percent in the past year, but only 21.3 percent of respondents said they think their market is better.
Respondents mostly said that the economy, the lenders, and the government are to blame for today’s foreclosure problems, with all three answers holding nearly equal percentages in the 22-25 percent range. The two factors that received the least blame in the survey were defaulting homeowners (10.3 percent) and Wall Street (9.4 percent). Lenders got the most blame from homeowners with $40,000 or higher annual incomes and respondents age 25-64, while Americans 65 or older and those who earned more than $50,000 a year blamed the government most. Consumers age 18-24 largely blamed the economy and defaulting homeowners for the country’s current foreclosure problems.
In order to keep the shadow inventory of foreclosures from lowering home values, the majority of Americans want lenders to offer lease-purchase programs to reduce foreclosure inventories. More than a quarter of respondents (28.3 percent) preferred the lease-purchase option over several alternatives, including slowing down sales, selling to investors, or renting them out until prices improve.
The survey also found that most prospective foreclosure buyers are holding realistic expectations about the discounts and appreciations that may come with their purchases. Most buyers expect to receive a discount between 10-30 percent, which keeps in line with today’s average discount of about 29 percent. Lower income buyers were the most realistic about their expected discounts, according to the survey results.
The majority of prospective buyers said they expect their purchases to appreciate about 2 percent a year over five years, with younger buyers (age 18-34) expressing the more realistic expectation that their purchases will appreciate about 1 percent a year. Middle income buyers anticipated a more conservative appreciation rate of less than 5 percent in five years.
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