Time To Buy Foreclosures?

MSN real estate is suggesting it might be a good time for foreclosures if you're brave.

It might be the best time in years to buy a foreclosure home, which would mean it's perhaps the worst time for thousands of financially strapped U.S. homeowners struggling to hang onto their homes.

Many economic experts are predicting that mortgage delinquencies will rise up to 15% in 2006 among homeowners with higher-cost or "subprime" loans. About 19% of all U.S. home loans are now subprime, in contrast to just 5% 10 years ago, according to the folks at Fitch Ratings, an investment-analysis firm. A lot of those homeowners with adjustable-rate subprime loans will see their loans reset at higher interest rates in the coming months, and that will spell trouble.

The buyers are circling
Other factors expected to contribute to the default phenomenon are already-high consumer debt levels, rising energy costs and the advent of somewhat risky interest-only mortgages. So expect to see a lot of defaults on low-to-mid-level homes in 2006, although your opportunities will vary from market to market, of course.

That said, foreclosure buying is a very competitive game right now, with so many real estate gurus advocating the strategy in books and seminars, and on TV and the Internet. Just do a Web search under "foreclosure opportunities" and you'll see what I mean. Obviously, more and more buyers -- particularly investors -- are looking for an advantage in the game.

While there's not space here to go through all the strategies, buying a "pre-foreclosure" from a defaulting or financially strapped owner might be the best way to go on the consumer end. The county clerk's office keeps lists of such pre-foreclosures. Seek out titles where a "lis pendens" notice has been filed by the lender.

Be tenacious – and cautious
Before contacting and engaging in negotiations with the owners of these properties, make sure you are pre-qualified for a loan. You'll probably want to enlist a buyer's agent to make sure your best interests are represented and that you make the right offer -- which would ideally be at a below-market price.

Finding an agent with foreclosure experience would also be a plus.

The foreclosure-property auctions that you see advertised are usually the realm of more heavily bankrolled professional investors who stand ready to pay cash for a property.

If you are brave and well capitalized, you might try your hand at it. You might want to attend one or two for observation before acting. Whichever approach you try, don't give up if your first few efforts don't pan out. Eventually, your tenacity will pay off in substantial savings. Good luck and happy hunting.

Now is the best time in years to buy foreclosures?
Let's be serious. Wouldn't it have been better to buy a foreclosure in California or Florida 4 years ago and sold it last year? How can this possibly be the best time when "so many real estate gurus are advocating the strategy in books and seminars, and on TV and the Internet".

This sounds more like a top to me. Perhaps there is a bargain or two out there, especially if one has skills to do any fixing up that needs to be done, but when the "buyers are circling" and most of them are rookies that have for the most part only experienced an up market, I think the advice is like telling someone to go ahead and buy JDSU or some other stock on the first pullback in 2000. Yep, if you were quick enough many stocks bounced, even JDSU. OK you could have bought the pullback from 100 to 75 and got out at 100. But if you held JDSU is currently at $3. Real estate is a lot less liquid that JDSU was at the time.

Foreclosures Climb
The Star Telegram is reporting Home foreclosures continue to climb.

The number of homes slated for foreclosure continues to rise in Tarrant County, with 1,101 headed to auction next month. That is a 17-year high, according to Foreclosure Listing Service.

That total is up 27.6 percent from a year ago. The total of 3,583 homes facing foreclosure in Tarrant, Dallas, Denton and Collin counties is the highest since 1989, according to the Addison company.

Consumer advocates and foreclosure analysts said several factors are driving up foreclosures. Among them are rising payments on adjustable-rate mortgages, high energy costs, job losses and higher required minimum credit-card payments.

"Any one of them would be serious," said George Roddy, president of the Foreclosure Listing Service. He cited last year's changes to the federal bankruptcy law, which make filing for protection more difficult, as another possible factor. Before the change, he said, Texas homeowners often turned to bankruptcy protection to keep their homes out of foreclosure.

The number of foreclosures started edging upward a few years ago after the layoffs in the telecom and airline industries. But foreclosures have continued to rise even as the economy has improved.

"We're moving from high levels to extremely high levels," Roddy said. "There's no other reason they would jump other than the reasons I mentioned, and those reasons aren't going to change."

Analysts said rising interest rates, particularly on adjustable-rate mortgages, have forced some homeowners to give up their houses. The average interest rate hit a two-year high of 6.37 percent in November, according to Freddie Mac.

A typical ARM can increase the interest rate on a loan by 2 percentage points at once, driving the payment up by hundreds of dollars.

"The amount that [the payment] goes up over time is generally more than somebody's salary would go up," said Dara Boswell, manager of the call center for the Consumer Credit Counseling Services office in Fort Worth.

Boswell also said that many new-home buyers are not getting their taxes escrowed -- intentionally or not. Others are surprised when they get their tax bills in the year after the purchase, because their initial tax assessments included only the land, not the house, she said.

The homes will be auctioned on the Tarrant County Courthouse steps Feb. 7.

Tarrant County Auction
If someone is in the area I would be curious as to how frantic the buying is. I suspect many people will be overpaying at that auction relative to what they could get if they just went out and bought a house. How many shills will be there representing lenders that want to fetch a certain price just to get their money back? Many times you can not even inspect the homes but I do not know if that is the case for this auction or not. Buy a house with a leaking basement or roof and you have a big problem.

Housing Divide
The Dallas News is reporting a "Housing Divide" with smaller mortgages falling to foreclosures as high-end sales climb.

In a healthy local housing market, a sign of trouble has appeared: More people are losing their homes to foreclosure than at any time since the Texas real estate bust of the 1980s.

The causes run from bad luck to bad financial decisions: job loss, divorce, a health crisis, skyrocketing energy bills, out-of-control credit card debt or a mortgage payment that turned out to be unaffordable.

But there also seems to be a sharpening contrast between real estate markets at either end of the economic ladder.

As residential foreclosures jumped 30 percent from a year ago in North Texas, the average mortgage on foreclosed houses fell to $129,000, compared with almost $146,000 a year ago.

Meanwhile, home sales set records last year, with a strong 20 percent increase in sales of homes priced over $400,000.

But there was a 4 percent decrease in sales of homes priced below $110,000.

"What we're seeing develop in the marketplace is the haves and the have-nots," said Craig Jarrell, who heads up the Dallas operations of Pulaski Mortgage Co.

"Either you've got money and you've got a job and you're buying a new house and you're rocking along," he said. "Or you're underwater and can't buy a new house, and can't afford the one you're in and you're going into foreclosure."

That's not the whole picture, of course. The foreclosure hammer also recently fell on an Addison home valued at $1.5 million, a North Dallas house valued at nearly $870,000 and a Coppell property worth about $430,000.

But Connie Zetterlund, a Coldwell Banker Residential agent who specializes in foreclosed property sales, says she's noticed increasing signs of trouble at lower-priced properties.

"The price ranges are a little lower than last year," she said. "There are a ton of foreclosures out there right now."

That's not the only trend. Ms. Zetterlund has also noticed more trouble among newer mortgages, the ones acquired after the economic downturn earlier this decade.

"I'm seeing a lot of properties bought in 2004 and already going to foreclosure," she said.

In the last foreclosure boom, lenders dumped houses and it wasn't uncommon to see property values fall by 30 or 40 percent in a neighborhood, Mr. Roddy said.

Now, some real estate investors are looking at the Dallas-Fort Worth area as a place where bargains can be had for lender sales. So far, however, lenders are seeking top dollar for such homes, even if that means keeping them on the market longer, realtors say.

"We certainly haven't seen the value loss like we had in the 1980s," Mr. Roddy said. "But if the foreclosure numbers hold up like we've seen for February, it could be pretty scary."

Problems Facing Dip Buyers
Here is one problem facing the first wave of "dip buyers": Real estate investors are looking at the Dallas-Fort Worth area as a place where bargains can be had for lender sales. So far, however, lenders are seeking top dollar for such homes, even if that means keeping them on the market longer, realtors say.

Dippers dip, because that's what they were trained to do. Just as with JDSU, once the trend changes it is very tough to change one's perspective.

Another reason why this is not the dip to buy is the massive inventory of homes and the massive numbers of homes big homebuilders need to get rid of.

A 15% dip might seem attractive, until Poof - 25% Vanishes Overnight. I guess in the scenario described, one would only be 10% underwater plus commissions if one had to sell, assuming of course there was a bid.

Another problem for dip buyers is our economy seems like it is headed for a recession.
The FED seems hell bent on breaking something too. Let's see how many more hikes it takes before the FED breaks the bubble in junk bonds and credit lending. If it takes 2-3 more, what will that do to housing?

Sheriff’s Sales Rise
NewsZap is reporting a sixfold increase in sheriff’s sales.

When Kent County [Delaware] Sheriff James A. Higdon took office 11 years ago, the usual number of sheriff sales was five or six a month.

"And now it’s not unusual to have over 30," he said.
Homes are sold in sheriff sales for either tax or mortgage foreclosure.

"Today, Americans live paycheck to paycheck," said Dover real estate agent Rocke Gaston. "Look at our credit card debt, it’s atrocious. I foresee a day soon where these mortgages are given out and they’re going to regret it."

Buyer beware
Buying a property in a sheriff’s sale requires homework and a strong stomach.

"When you buy a house in a sheriff sale, it’s a risk," said Mr. Gaston, a frequent auction buyer.

It’s recommended that potential buyers research the property for liens and to make sure taxes are current. They might also drive past a property or peek inside a window, but they won’t be able to go inside the house.

The rest, the sheriff said, is at the buyer’s own risk.
"We can’t guarantee anything," he said.

A year ago, Mr. Gaston said he’d found good bargains on houses. But lately, they’ve sold for close to retail prices.

"It’s a seller’s market," he said. "Were coming to the end of it."

Foreclosures are not just a US phenomenon either. Forbes is reporting
House repossession actions surge in England & Wales in Q4 to highest in 13 yrs.

The number of actions presented by banks and building societies to repossess properties surged in the fourth quarter of 2005 to their highest level since the UK last emerged from a recession in 1993, government figures showed today.

The Department of Constitutional Affairs revealed that there were 31,018 mortgage possession actions entered during the quarter, and a total of 18,784 orders were made.

The number of actions entered were 50 pct higher than the previous year, and at their highest level since the third quarter of 1993 when the UK housing market was just emerging from one of its deepest crashes ever.

Elsewhere today, the Department of Trade and Industry revealed that the number of personal bankruptcies in England and Wales during the fourth quarter were 20,461. This was a 15 pct increase on the previous quarter and a 57.1 pct rise on a year-on-year basis.

The DTI also said the number of company liquidations during the quarter fell 5.5 pct on a quarterly basis to 3,187. However, that was 8.5 pct higher than a year ago.

'The rise in bad debt, alongside the recent slowdown in consumer credit, suggests that households are starting to feel the pressure of their rapid build-up in recent years,' said Vicky Redwood, UK economist at Capital Economics.

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Real estate has now clearly peaked, worldwide, I might add. Back on June 7th, 2005 I put in a top call with help from Time Magazine. That top call was based on this:



Time Magazine went gaga over real estate on the June 12th issue, right at the very peak of the bubble. Congratulations must go out to Time Magazine for that fine achievement.

Now just 6 months later, with some areas still bubbly, MSN real estate is suggesting it is time to buy the dip in foreclosures. I have a better idea: wait until no one else wants them.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/