Foreclosure Discounts by StateGrowing consumer discontent and unease surrounding foreclosure sales is fueled by a lagging economy, high volume of foreclosure inventory, and impotent government foreclosure rescue efforts, according to Pete Flint, Trulia Co-Founder and CEO, and Rick Sharga, Senior Vice-President of RealtyTrac. Flint and Sharga co-hosted an industry call coinciding with a news release: Survey from Trulia and RealtyTrac Shows Three In Ten U.S. Adults Expect at least a 50 Percent Discount When Purchasing a Foreclosed Property; More than Three-Quarters Expect at least a 25 Percent Discount. [Conference Call link here.]

You can listen to a full replay of the call here:  1-866-551-4520
Conference code:  238821#

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

During the last seven months, negative sentiment around buying a foreclosure rose. In April of 2008, 69 percent of U.S. adults originally felt that there were negative aspects to purchasing a foreclosed home. In this recent study, conducted during a three-day period in November, 80 percent of U.S. adults are now concerned with negative aspects, citing hidden costs, risky process, home losing value and personal connection with foreclosure as the core concerns. To compensate for perceived risks, consumers expect hefty discounts on foreclosed homes. More than 75 percent of consumers think they should pay at least 25 percent less for a foreclosed home, with three in ten consumers expecting a major discount of at least 50 percent less than a comparable home not in foreclosure.

“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. Misinformation around foreclosures abounds and that’s dangerous for the market and for homebuyers,” said Flint.  “Information is power and at Trulia we are giving homebuyers the information they need to make a fully informed decision about whether a foreclosed property is a good buy or investment for them.”

Flint said that the downturn in perception is driven by hidden costs associated with foreclosures and significant confusion about the foreclosure process.

Overall the outlook for the real estate market in 2009 is grim, said Sharga, “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.”

Option ARMS (adjustable rate mortgages) that reset early in 2009 are expected to impact the housing market similar to the wave of foreclosures that clobbered the industry as a result of the subprime crisis.

“We anticipate 2009 to be at least as bad as this year,” noted Sharga, promising more detailed projections later this month.  He predicted that 2010 is also going to be a difficult year as the system copes with record  REO inventory. “This is a rotten time to be a seller unless you must really sell your house,” he said.

Foreclosure Discounts By U.S. RegionHouse prices will continue to decline on a national and regional level until foreclosures stabilize, said Flint, adding that government assistance may help stabilize the problems.

High default rates associated with recent loan modifications are proof that the modifications put in place were not designed with a long-term view of what will work for the borrower, added Sharga. Increasing inaction by government and ineffective legislation may result in bankruptcy reform measures that will let courts modify loans, he warned.

Predictions for 2009:

  • Interest rates of 4.5% or less, fixed over 30 years.
  • 10-month supply of inventory will decrease to 8- to 9-month supply. (4- to 5-month supply is a normal market.)
  • First-time homebuyers and low interest rates will drive affordability. Even with declining prices, perceived advantages of homeownership will drive sales.
  • There will be increasing need for more education for consumers and real estate professionals.
  • New home starts will remain at historically low levels.
  • Most of the REO inventory that is not on the market yet will flood the market in 2009. Approximately half REO properties are not on the market yet. Slowdown is attributed to longer processing time at banks.

(Conference call link and downloadable charts in GIFs and PDFs are available at the Trulia Newsroom. Charts include those shown in addition to Foreclosure Discounts: Top 25 Hardest Hit Cities and Foreclosure Discounts by State. )