Erin Bucaro had her eye on a four-bedroom home in Fairway Canyon, a golf community in Beaumont, Calif.
Driving around the neighborhood, she noticed papers posted on the door, a sign that a bank had taken it over. She’d have to move fast.
Bucaro lost out on a nearby foreclosure in February. By the time she put in an offer a week after it listed for sale, it had already gone to escrow.
This time the 29-year-old nurse made sure her offer would be first on the table the morning it listed.
The 3,000-square-foot home went up for sale at $227,000 — less than half of what it sold for brand-new a couple of years earlier.
Bucaro agreed to the list price, but asked the bank to pay $8,500 in closing costs. It countered at $234,000, including costs. Bucaro accepted.
Buyers are out in force — and aggressive — in many markets hard-hit by foreclosure, such as Riverside and San Bernardino counties in Southern California’s Inland Empire, where Beaumont is. Other major foreclosure spots are Las Vegas, South Florida and Phoenix.
With prices cut up to 50% from their peaks, low interest rates and $8,000 tax credits for first-time buyers like Bucaro, people are vying for bank-owned bargains as hungrily as speculators during the housing boom. Multiple bids are common.
“Supply and demand takes over,” said Mark Stark, owner-broker at Prudential American Group Realtors in Las Vegas, which has the highest foreclosure rate in the U.S.
Troubled Properties Sell
Homes banks took back and are selling off make up anywhere from 40% to 80% of the inventory in these markets. Many go at prices that barely cover construction costs.
“If you’re Mr. and Mrs. Smith and you want to sell your house, you can’t compete with the bank properties,” said broker Bob Wasson of ReMax Results in Moreno Valley, Calif.
Distressed homes made up a third of May sales, downwardly distorting the U.S. median existing-home price, the National Association of Realtors said this week. The median fell 16.8% from a year ago to $173,000.
In just the last year, purchase prices in top foreclosure markets dropped nearly 30%, by various first-quarter estimates. Miami fell even more.
Foreclosed homes in Riverside and San Bernardino counties are selling at 2000 prices. It’s the same in Las Vegas. South Florida is back to 2003.
“Foreclosures are devastating for values,” said Peter Zalewski, principal of Condo Vultures, a brokerage in the Miami area. “That said, as first-time buyers pick off properties, it’s working to stabilize prices.”
And clear out inventory: The number of unsold homes on the market at the end of May fell 3.5% from April to nearly 3.8 million, the NAR said.
Price Risk Persists
Some surveys suggest month-to-month price drops in hard-hit markets are getting less severe. But an expected new wave of foreclosures as payment-option adjustable rate mortgages reset higher, plus more job losses, might stall a recovery and push prices down further.
For now, though, demand for bank-owned homes in foreclosure-heavy spots is so high that contracts are being signed at prices above original, albeit deeply cut, listings. It’s especially true for homes in good shape.
“We have qualified buyers who are willing to pay more than the listed price,” said Garey Teeters, a broker with Coldwell Banker-Teeters in Yucaipa, Calif.
But appraisals often come in under the agreed-upon sales price, quashing the deal. “It’s the biggest problem we have now,” Teeters said.
Close to 20% of contracts over the last two months have been canceled due to low appraisals, he says, as new government appraisal guidelines make appraisers more cautious.
Prices have dropped the most — and are still falling — in exurbs farthest from urban coastlines. They include new developments bordering the Florida Everglades and the easternmost reaches of the Inland Empire in California, like Beaumont.
Taking advantage of the steep dip, a Jamaican banker is assembling a portfolio of $40,000 homes in Homestead, some 20 miles south of Miami. In this region, new housing tracts reach to the brink of the Everglades.
In Las Vegas, as other foreclosure markets, the low end is seeing the steepest drops. Here, homes going for $70 per square foot are common.
“If I had a bucket full of money, I’d buy 10 myself,” said Heidi Kasama, broker-owner at Windermere Summerlin Real Estate.
Investors Flash Cash
Stark says about 38% of Las Vegas deals are cash, indicating investor activity. Most financing is through government-insured Federal Housing Administration loans.
Bucaro says she “got into the perfect storm” of motivating factors. As first-time buyers, she and her ironworker husband get an $8,000 federal tax credit. And as an Air Force veteran, she qualified for a zero-down Veterans Affairs loan. She got a 30-year fixed mortgage at 4.85%. The couple and their two young children plan to move in by July 1.
“I’m so happy,” Bucaro said.
But real estate agents complain that moratoriums on foreclosures have kept back a lot of new inventory, limiting the number of homes they can sell to now-eager buyers. Also, they say banks are releasing foreclosed homes to the market in a slow and controlling way.
Bank Buys Take Time
Complicated guidelines for selling bank-owned homes also are slowing what would otherwise be a much faster sales pace, says Mike Novak-Smith, a broker with ReMax Results in Riverside, Calif.
In Las Vegas, inventory is about half what it was a year ago, brokers say. “If we got it back to 25,000 or 30,000, I’m very confident we could handle it. The market is selling about 3,500 homes a month,” Stark said.
But Teeters said, “The dam is about to break. We’re told that in July, banks will release more REOs (real estate owned by banks).”
Las Vegas broker Kasama sees more bank supply coming on as well.
“Banks have a large backlog of inventory they will bring back on the market,” she said. “That will continue to keep our prices low.”
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