Last spring in the waning days of the first-time homebuyer tax credit, Stephen Ploski, 24, made an offer on a foreclosed home in Farmington Hills, Mich.
He said the 1,400-square-foot home was livable, but needed serious updates. He was willing to do the work, and take the risk.
In exchange, he got a deal. The three-bedroom, one-bathroom home was his for $49,000. He lives in the home with his wife, Ashley, 22, and their daughter Lana, 2. And they are expecting their second baby.
“I wanted to buy one because the market conditions were right,” he said. “This is my first home for my family.
But if you do it with an investor’s mind instead of getting emotionally attached, you can get money out of it.”
Despite strong interest in buying foreclosures, supply is expected to continue to outstrip demand in the coming year.
In a survey released last week, nearly half, or 49 percent of U.S. adults surveyed for two real estate Web sites are at least somewhat likely to consider buying a foreclosed property. That’s up from 45 percent in May.
Results from the online survey conducted Nov. 2-4 by Harris Interactive for Trulia and RealtyTrac also indicated that Americans are still uncertain about the housing market and the majority, or 58 percent, expect the recovery to take at least two more years.
“2010 will be another record year for foreclosures,” said Rick Sharga, senior vice president of RealtyTrac, an Irvine, Calif.-based foreclosure Web site. He said that 3 million homes would likely be listed in a foreclosure filing this year, up from 2.8 million last year.
RealtyTrac data shows that banks would repossess 1.2 million properties this year. Less than 1 million foreclosed properties are being absorbed annually in the market now, he said.
“The pipeline is continuing to exceed the market’s appetite for these properties,” Sharga said. “The inventory is going to continue to depress home prices for the next couple of years.”
While the market recovery may be three years off, buyers should not be lulled into a false sense that the current low prices will be around forever.
While there is more interest in buying a foreclosed home, 81 percent of U.S. adults recognize there are downsides to the deal. Top concerns about buying a foreclosure were hidden costs, a risky process and that the home may lose value.
Ploski, a builder and remodeler, said the house had a bit of mildew, but mostly needed updates. He put in a new furnace and hot water heater, ran new wiring and installed some new drywall and insulation.
He also removed two walls in the dining room to create an open floor plan with the kitchen and living room.
The improvements cost $4,000 because he did the work himself. But he figures he added roughly $11,000 to the value of the home. And when the $8,000 tax credit comes through, he’ll use that to update the kitchen.
“We will sit on this one for three to five years because that’s how long you have to stay with the homebuyer tax credit,” he said. “We’ll find another diamond in the rough and do the same thing.”
Carol Wagner, a Realtor with Real Estate One in Commerce Township, Mich., said that one of the biggest drawbacks in a buying a foreclosure is that it comes without seller’s disclosures.
“So some people don’t want to buy them because they don’t know what’s involved,” she said. “Most people looking at foreclosures now are investors.”
Kevin Suksi, a financial services industry recruiter by day and real estate investor by night who lives in Dearborn, Mich., said that investors rarely buy the move-in ready foreclosures. Those largely go to owner-occupants, who are willing to offer more money.
Instead, investors look for houses with bruises that they can fix and sell or rent for income.
“Everyone wants a deal right now, but what will they deal with?” Suksi said. “I think people will deal with paint and carpet and things like that, but when it comes to major structural problems they steer clear.”
Two-thirds of survey respondents said they expected to pay 30 percent less for a foreclosed home when compared with a similar home not in foreclosure.
The online survey of 2,034 adults included 1,329 homeowners and 652 renters. The survey also found that 48 percent of homeowners with a mortgage admitted they would consider walking away if their mortgage was underwater.
Source: McClatchy-Tribune Information Services.