People More Hesitant To Buy Foreclosed Homes

Kevin Kingsbury and Dawn Wotapka report:

Foreclosures have long been labeled a bargain hunter’s dream and reducing the swelling count is a key part of housing’s recovery. But a new Harris Interactive survey released Tuesday shows decreased enthusiasm for buying foreclosed properties amid concerns about aspects ranging from hidden costs to falling home values, delivering yet another blow to a crippled sector.

“What’s significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them,” said Pete Flint, co-founder and chief executive of Trulia.com, a real-estate search engine that released the study with foreclosure tracker RealtyTrac.

The survey shows 47% of adults surveyed, saying in November they would consider purchasing a foreclosed home, down from 54% in April. Meanwhile, 80% now express concern about the negative aspects of buying a foreclosed home, up from 69%.

Buying a foreclosure can be a hassle-filled process. Real-estate agents estimate about half of foreclosed properties to be sold by mortgage companies nationwide have substantial damage, The Journal reported earlier this year.

With each foreclosure costing banks as much as $60,000 in standard expenses — from maintaining the property to paying brokers’ commissions — banks want to unload the homes quickly, with many selling below replacement construction costs.

Buyers’ hesitancy comes as the supply of foreclosures is surging. Barclays Capital recently estimated banks and loan investors owned 871,000 foreclosed homes as of Nov. 1, more than double year-earlier levels, and that inventory could peak around 1.4 million in mid-2010.
Earlier this month, RealtyTrac said that November foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 259,085 properties, a 7% decrease from the previous month, but a 28% jump from November 2007. The report also showed one in every 488 housing units received a filing in November, with the highest rate seen in Nevada, home to the Las Vegas bubble market.

Various public and private efforts have been undertaken in recent months to stem foreclosures, from increased loan modifications to moratoriums on removing borrowers from their homes. But many modifications are failing, and levels of foreclosed homes are expected to spike early next year as some moratoriums expire. (See Blog entry dated Thursday, December 25, 2008)

Wall Street Journal, Digital Network, December 16, 2008