A foreclosure isn’t the nicest process. It means somebody has just lost a home. However, it also opens new opportunities particularly for people who want to get into the real estate business or buy a cheap home.
Where We Stand Today
US foreclosures have definitely come a long way since 2009 when the recession was at its peak. Back then, more than 2.5 million homeowners had a foreclosure filing, one of the highest in history. Further, an estimated 2.8 million were already on default.
Over the last six years, the recovery of the housing market has been slow. In the November 2016 report on foreclosures market, the number of total foreclosure fillings went up to 27 percent. However, this is significantly lower than year-to-year data.
The rate of foreclosures also differs among states. The highest increase year to year was Georgia at 22 percent followed by Pennsylvania at 20 percent while the lowest was Indiana at 3 percent. Other states that posted a rise on foreclosure filings were Ohio, Pennsylvania, Virginia, and Wisconsin.
However, if you consider only the month of October, the top foreclosure states in the country change. Coming in on first place was Delaware with 1 in every 355 homes followed by New Jersey, Maryland, Illinois, and South Carolina.
Home sales for the same month have also gone down by almost 2 percent after adjusting the seasonal annual rate. Nevertheless, this can be offset by the “wins” in the previous quarter. According to RealtyTrac, sales of single-family homes as well as condo units during the second quarter and June of this year have increased up to 6 percent compared to May data. This was also 3 percent points higher than the previous year. The average price of home sold was $231,000, better than that more than 10 years ago.
The cities of Minneapolis, Atlanta, Dallas, and St. Louis had some of the highest home prices for newly built homes. Overall, almost 40 percent had reached the highest home prices.
The Mortgage Interest Rate
If you’re a first-time home buyer, then the mortgage interest rate should concern you. Some loans start out at a fixed interest rate, which helps home buyers plan their budget. They know how much of their income goes to housing. After a few years, it shifts to a variable interest rate, which means the amortization may increase or not, depending on the rate’s movement.
The United States presently has one of the lowest mortgage interest rates, but it’s increasing. This can spell a number of issues for homeowners and future buyers:
• A lot of people may no longer qualify for a good loan.
• While a potential increase of $50 a month in repayment may seem low, it isn’t when you think of it in years. Supposing the rate stays the same within the next 3 years, it means paying almost $2,000 more than today.
• Many first-time home buyers may be frustrated to proceed with the deal.
Although experts believe the increase in mortgage rates may not lead to another round of housing financial crisis, it may still put the industry still in recovery at risk.
What Does the Future Hold?
We have yet to come across more foreclosures market outlook for 2017, but we can predict scenarios. For example:
1. The demand for new homes may increase. This is possible due to the positive employment outlook for next year. Rental prices have also increased in many places around the country, which may force people to think about buying their own home.
The demand may also surge as who had been considered as delinquent or had declared bankruptcies (called boomerang borrowers) during the 2009 recession can already reapply for a mortgage. Any foreclosure can appear in the credit report and stay there for 7 years, after which about 68% of them will have a prime credit. This makes them eligible for housing and mortgage.
2. Home prices are also expected to increase. This year’s mortgage reports already point you in that direction, although this may be felt more in certain areas. The Northeast and South regions are more likely to receive the gains. These places helped bring the home sales percentage up by 0.7 percent, the third consecutive month this happened.
3. Home appreciation may be slow. Home prices and appreciation are different as the latter means how much it’s valued in the market. The higher the appreciation, the more the house becomes profitable for you if you decide to sell it. It’s expected that the rate of appreciation will slow down to 5 percent during the first half of the year and an average of 3.5 percent during the year. One of the possible reasons for the slowdown will be the lingering increase in mortgage rates.
4. Politics will play a huge role in the housing sector. The country is currently in a wait-and-see approach as president-elect Donald Trump has yet to be sworn in and is busy working out his policies that will define his four years in the White House.
Trump has been vocal – and, by the looks of it, really serious – in bringing back manufacturing jobs to the country by slapping offshore companies with a tax burden of 35 percent and a pullout from the NAFTA agreement with Mexico and Canada. This can mean two things.
On one hand, this will drive inflation and, in turn, the cost of commodities including homes up as product creation becomes more expensive. On the other, it may mean more jobs, and more jobs mean a higher purchasing power.
5. New tax may slow down home appreciation and sale. Trump also plans to introduce other tax policies including increasing the tax-exempt income for families and couples. For example, those who are married may enjoy an increase of up $30,000. At first glance, this looks like good news. After all, who among us would love to pay taxes? But this may hurt the real estate and housing market in the long run.
The law provides an “incentive” for people burdened with a high mortgage interest rate: if their total mortgage interest for single tax filers is at least $10,000, they have the option to declare a deduction since the interest is higher than the exemption. Should Trump’s tax plan pushes through, it will already be the other way around, which means there’s no need to itemize the mortgage interest as a deduction.
This makes renting no different from buying a home. Provided the rental prices in the area remain the same, tax filters may decide not to purchase a home yet.
6. The demand will still be higher than the supply. Just like in 2016, the home inventory will remain very low to keep up with demand, which will drive mortgage applications down. The expected low refinancing may further prevent the supply to go up.
What Do All These Data Mean for You?
The value of this information depends on the role you play in the real estate market:
• If you’re a first-time home buyer, you can expect to pay a higher mortgage interest in 2017 than when you apply this year. Compared to pre-recession period, it may be more difficult to find a home because of the low supply and the high demand. Moreover, first-time home buyers are more likely to experience stricter processing or mortgage applications, although this should not be an issue if the credit rating is good.
• If you’re thinking of buying a foreclosed home, there will be challenges in 2017, owing to a better economy and health of the real estate market. Although the mortgage interest is expected to go up, it will still not be enough to indicate a brewing housing crisis.
• If you want to buy a foreclosed home for the sake of generating a profit (e.g., rent or resale), there are advantages and disadvantages. Foreclosed properties may be harder to come by in 2017, which can affect the price you pay for them. However, you may offset the possibly higher cost of acquisition through a higher rental price (depending on factors like the location and type of the property, as well as your target market) and the high demand for homes.
Buying Foreclosed Properties at an Auction
How do you acquire foreclosed properties? Whether you’re an individual looking for a home or a real estate businessperson, you can buy them through an auction.
Foreclosed properties, including those that have been repossessed by banks and other lenders, are usually offered to the public via an auction. This process allows lenders and homeowners to dispose of as many of these homes as quickly and easily as possible.
Auctions provide you a chance to acquire a property at a bargain as lenders may want to recoup the loss from the default fast. Moreover, you can already skip negotiating with a real estate or foreclosure agent, whom you may also have to pay (although normally the responsibility lies on the seller, who is the homeowner).
Best of all, you can now access a wide range of foreclosed properties, saving you a lot of time and effort. An auction can have hundreds of various types of homes, from condo units to detached properties, for you to choose from. These can be found within your state or in other parts of the country.
How to Join Mortgage Auctions
Foreclosure auctions may be online or live. In an online auction, you log in to a secure website where you can see all the properties that are available for auction. You can then start bidding based on the minimum bid price and complete the process online or offline. In a live auction, you need to go to a specific location, which can be a private venue like a hotel function room or a local courthouse. In here, you will see the other bidders and process the sale, should you win, in the same place.
Depending on the auctioneer, there may be joining fees to pay. You can participate or let a representative including a foreclosure agent do it on your behalf.
The process of bidding a foreclosed home is not too different from other types of auctions. An auctioneer presents a property to all bidders, and you try to outbid one another. Keep in mind, though, that while the common procedure is to award the property to the highest bidder, it doesn’t have to be all the time. This may happen if you participate in a lender confirmation auction, which means the lender has the option to reject your offer.
If you plan to join a foreclosure auction, it’s best to do the following:
1. Subscribe to a listing. A foreclosure auction listing serves as a database of all the auctions happening within the country. This allows you to plan your auction appearances accordingly and even check out properties before they are officially offered to the public.
2. Choose one auction to join and check the properties. Many of these auctioneers already have a website where you can see the homes up for auctions. There will be photos and descriptions available. Use this time to determine which of these properties will meet your needs and preferences. This also prevents you from randomly bidding properties later.
3. Take note of the open houses. Not all auctions have open houses, but most do, and it’s important you participate in one. This will be your only chance to see the properties yourself, especially since they will be available for bidding on an as-is basis. If possible, bring a house expert, such as a plumber or electrician, with you. Research ahead to find out the possible common problems your target homes may have.
4. Be ready for other fees. Auctions have fees, which can drive your budget up, so adjust your final bid price accordingly.
The foreclosure markets may be facing challenges in 2017, but there are ways to make it easier for you. Join an auction, see as many properties as you can in a day, and buy a property at a low price.
