Bargain hunters lose interest

Whilst the downturn in the US property market has provided brilliant opportunities for some investors to pick up a bargain, the novelty is now wearing off and the thrill of snapping up a foreclosed property has dwindled...

Long a bargain hunter's dream come true, foreclosed properties (homes that are owned by the lender because the home owner couldn't make their mortgage payments) provide a real opportunity to pick up a lot of home for your money.

Earlier this year, a whopping 54 per cent of people surveyed by Trulia.com, a property search engine and foreclosure tracker RealtyTrac, said that they would definitely consider buying a foreclosed home.

Earlier this month, RealtyTrac said that November foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 259,085 properties, a seven per cent decrease from the previous month, but a 28 per cent jump from this time last year.

The report also showed one in every 488 housing units received a filing in November, with the highest rate seen in Nevada which has enjoyed a strong housing boom in the last few years.

Now, thanks to concerns about hidden costs and falling home values, the enthusiasm for picking up a foreclosed property is waning and the number of people keen to buy has fallen from 54 per cent to 47 per cent.

Meanwhile, 80 per cent of people now express concern about the negative aspects of buying a foreclosed home, up from 69 per cent earlier this year.

Pete Flint, Co-Founder and Chief Executive of Trulia.com said, "What's significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them."

Hassle factor

A big part of the current American property is made up of foreclosures and short sales (the latter are pre-foreclosure properties where the home owners owe the bank more than the value of their home).

Whilst foreclosed homes could sell for a fraction of their worth in this market and may seem like a steal, if you are not careful, these kinds of homes could also harbour unpleasant surprises which prove very costly.

Estate agents estimate that about half of all foreclosed properties to be sold by mortgage companies nationwide have substantial damages, sometimes inflicted by previous owners who are upset at losing their homes.

As a result, prospective buyers are asking for large discounts to offset the perceived risks. More than 75 per cent of consumers think they should pay at least 25 per cent less for a foreclosed home, with three in 10 expecting to pay at least half that of a comparable home which is not in foreclosure.

Mr Flint of Trulia.com also said that the survey showed that there are a lot of myths about buying a foreclosed property.

"Misinformation around foreclosures abounds, and that's dangerous for the market and for home buyers.

"Overall foreclosure activity is expected to increase in 2009 and bottom out next year in hardest hit areas.

"House prices will continue to decline on a national and regional level until foreclosures stabilize," added Mr Flint.

Rick Sharga, Senior Vice-President of RealtyTrac, said, "The delay tactics put in place by the Government have not had an effect beyond delaying the foreclosures.

"We will see a significant spike in early 2009."

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