I love the real estate industry. It’s endlessly fascinating, with so many unique facets and niches. But in the decade following the financial crisis, we’ve seen a unique degree of evolution and change. We’ve watched as the housing bubble burst, foreclosure rates went through the roof, and homes were abandoned in virtually every neighborhood across the country. But the economic tide is clearly turning. As interest rates rise after nearly a decade at near-zero, we’re seeing a marked decrease in foreclosure rates. There has also been a dip in the number of abandoned or “zombie” properties that investors bought to flesh out their portfolios at below-market rates. While some investors are starting to worry about how to grow their real estate portfolios, others are developing strategies for how to find a great investment opportunity amidst the current economic environment.
A Look at Falling Foreclosure Figures in the United States
Figures from CoreLogic’s December 2016 National Foreclosure Report suggest that the country’s foreclosure inventory has fallen by 30% and completed foreclosures have declined by 40% when compared with December 2015. At the close of 2015, there were 36,000 completed foreclosures; that figure saw a major drop-off with a decrease to just 21,000 by the end of 2016. This represents an 82% decrease from September 2010’s peak of 118,336 completed foreclosures.
What’s more, the total number of properties that are currently going through the foreclosure process was at 329,000 in December 2016, accounting for 0.8% of all homes with a mortgage. Compared with the December 2015 figure of 467,000, which represented 1.2% of all homes with a mortgage. That’s a major reduction in just one year.
Data released by ATTOM Data Solutions—curators of the nation’s largest fused property database—supports these findings. The company’s Year-end 2016 U.S. Foreclosure Market Report revealed that foreclosure activity, including default notices, scheduled auctions, and bank repossessions, fell to a 10-year low.
But why are foreclosure rates declining? Daren Blomquist, CEO of ATTOM Data Solutions, attributes this shift to two factors. Firstly, there are fewer “legacy” foreclosures—homes in the foreclosure process with loans that originated between 2004 and 2008. Despite the backlog in areas such as New York, most legacy foreclosures have now been resolved. The second reason is that there are fewer foreclosures occurring. Banks and other lenders moved to tighten mortgage application requirements in the wake of the financial crisis. As a result, loans granted over the past seven years have “default rates below historically normal levels.”
How are Investors Affected by Falling Foreclosure Rates?
The impact of falling foreclosure rates will vary depending upon your situation as an investor. For those with bulging property portfolios who are looking to offload some of their investments, it is great news. Abandoned houses drag down neighborhood property prices. And it’s not just because they are unsightly; these abandoned properties also tend to attract crime. A study by Harvard and MIT found that homes near abandoned properties could see a 1% decrease in sale price. While that may not seem like much, that’s a sizable sum of $5,000 on a $500,000 property. Plus, the effect can be amplified when there are multiple abandoned homes in a single neighborhood.
Fewer foreclosures means property prices are likely to increase across the board. In fact, they already have. Foreclosure and delinquency rates began declining in 2010. And, according to data from S&P CoreLogic Case-Shiller, the market has experienced positive year-on-year growth in real estate prices since 2012.
It’s not such great news if you are trying to expand your property portfolio, however. The same study found that a foreclosure reduced the property’s eventual sale price by an average of 27%. Investors who acquired properties for under-market value prices amidst the foreclosure surge will see a major shift.
Finding New Investments With HomeVestors
All is not lost for investors who wish to build their portfolios in 2017. Even if the number of abandoned properties continues to decline, investors can still choose from thousands of below market-value properties. But only if they become a HomeVestors® franchisee.
But what if homeowners were to sell direct to you, instead? As a HomeVestors® franchisee, you get the exclusive rights to use the best marketing tools for investors and the “We Buy Ugly Houses®” branding in your area. With millions of dollars spent on marketing our brand, members of your community will know to turn to your franchise when they need to sell fast.
Speak to a member of our team for more information on becoming a franchisee; or if you’re ready to take the next step, perhaps it’s time for pursuing franchise consideration today.
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