10 Years after the housing bust: today’s home foreclosure opportunities

December 20, 2017 - 4 min read

Is home foreclosure a thing of the past? Or just old news?

In the wake of the 2008 “housing bust,” the headlines and airwaves were packed with news about the growing flood of home foreclosure. By 2010, ABC News reported that 2.9 million properties received foreclosure filings that year. Five states (California, Florida, Arizona, Illinois and Michigan) accounted for more than half the filings.)

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Where did the foreclosures go?

By late-2012, however, stories about foreclosures had almost disappeared.

What happened? Home foreclosures are (obviously) still occurring, but what are the numbers today? Which regions of the U.S. have the highest and lowest levels?

Boomerang buyers: getting a mortgage after foreclosure or a deed-in-lieu

Can homebuyers still find good deals by chasing foreclosures, or are those deals gone?

From a flood to a trickle

If “history is … the register of the crimes, follies, and misfortunes of mankind,” then foreclosure stories vanished because the crisis ended. The flood became a trickle. And for many news organizations (and historians), good news is not interesting news.

Falling foreclosure rates are pushing up YOUR home's value

According to an April 2017 report, U.S. foreclosure activity has dropped to its lowest level since November 2005. Nationwide, 1 in every 1,723 housing units had a foreclosure filing in April.

By September, that number had fallen to 1 in every 2,099 housing units.

At the height of the crisis in 2010, the number was 1 in every 45 units.

Foreclosures increasing in some locations

But those figures are nationwide averages. Some states and cities are faring worse than others when it comes to foreclosure levels.

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In September, for example, Delaware actually recorded an 18.76% increase in foreclosure filings over August, with 1 in 744 housing units receiving a foreclosure filing.

Other high-foreclosure states include New Jersey (1 in every 788 housing units); Maryland (1 in every 1,117 units); Connecticut (1 in every 1,286 units) and Illinois (1 in every 1,351 units).

And others enjoying happy times

At the other end of the scale, South Dakota leads the nation for lowest number of foreclosure filings at 1 unit per 17,560. It’s followed by North Dakota (1 in every 14,211 units); Montana (1 in every 11,368 units); West Virginia (1 in every 10,524 units); and Vermont (1 in every 6,774 units).

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As of April, the cities with the highest foreclosure rates included: Atlantic City, NJ (1 in every 237 units); Fayetteville, NC (1 in every 615 units); Trenton, NJ (1 in every 620 units); Rockford, IL (1 in every 668 units); and Philadelphia (1 in every 733 units).

By contrast, the Seattle area is flying high. In April, foreclosure activity there declined by 38% from April 2016.

Where are the best foreclosure deals?

The most scientific way to determine which areas may have the best foreclosure deals is to consult some housing data.

Some experts believe Florida is an ideal place to buy foreclosed homes. It has the highest foreclosure rate in the country (7.9%). At the same time, median home values have jumped almost 20% during the last five years.

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Other “best bets” include Nevada, Texas, Massachusetts and Arizona, which are all seeing upticks in housing demand, though their foreclosure rates are lower than Florida’s.

And how do you find them?

First, look at foreclosure levels in an area to learn if the number of properties is large or small. These numbers will suggest how much competition you’ll face.

Next, gather data about the recent prices paid for homes that are comparable to what you want. This will give you an idea of the current market value for the area’s homes.

Starter home alternatives: niche properties with less competition

Finally, determine the housing demand in the area. Is demand on the rise, stable or declining?

Ideally, you want an area with plenty of foreclosed properties, where housing demand is rising.

Why? Because this suggests that you won’t face fierce competition for the best properties, and that the value of a good property is likely to increase.

Buyer, beware

Before rushing to locate a bargain, however, here are a few caveats:

If you’re a new homebuyer, or have never shopped for a foreclosed home, now is not a great time to learn the ropes. The number of bank-owned properties is far lower than it once was. (The number has dropped by 30 percent since last year.)

First-time buyers guide

For this reason, homes in prime locations, and in relatively good condition, have dwindled to a precious few in many areas.

Although foreclosed homes sold for an average discount of 18 percent below market value in 2016, gone are the days when you could easily scoop up a good property for pennies on the dollar.

Get professional help

The competition for foreclosures is often stiff, and banks are seeking prices as close to market value as possible.

Be sure to hire a real estate agent if the owner hasn’t hired one as the selling agent. Foreclosed properties are sold “as is.” And banks (unlike individuals) don’t have an obligation to reveal problems with the house or even grant you access for an inspection.

Your lender and real estate agent are buddies: Is this a bad thing?

An agent who knows foreclosures (and the neighborhood) will help ensure that you don’t buy a lemon.

What are today’s mortgage rates?

When buying foreclosure property, you may have to pay cash at an auction. In that case, you can often refinance and put some of that money back in your pocket.

If buying to rent or resale, you’re looking at higher interest rates than if you want to purchase a home for your own occupation. Current mortgage rates for all of those scenarios are still very affordable and attractive for most buyers.

Time to make a move? Let us find the right mortgage for you

Pete Gerardo
Authored By: Pete Gerardo
The Mortgage Reports contributor
Pete Gerardo is a business writer whose work has appeared in The New York Times and numerous trade magazines.