For better or worse, the share of Americans interesting in buying a foreclosed home has increased in the past six months, according to survey results released today by Trulia, an online real estate research site, and RealtyTrac, an online foreclosure marketplace that closely watches distressed properties.
The survey, conducted by Harris Interactive, found that 55% of U.S. adults said they would be somewhat likely to consider buying a foreclosure in the future, a jump of eight percentage points compared to November 2008, when the same question was asked. Among younger buyers (those between 18 and 44 years old) and renters, the percentage of buyers willing to go for a distressed property was even higher, jumping to 66% for younger buyers and 68% of renters.
Clearly, “consumers are more interested than ever in buying a foreclosure,” said Pete Flint, Trulia’s co-founder and CEO, during Wednesday’s news teleconference, calling the findings “good news for the economy.”
In one way, that’s true. As Flint noted early in the call, “[f]oreclosures are very much at the heart of this housing crisis and the key to the housing recovery.”
But the volume of and pricing on properties also represent a serious obstacle to builders trying to sell their new homes for a decent price. “More than 50% of what is moving today is distressed property,” Rick Sharga, senior vice president of RealtyTrac, said during the conference.
Such houses do generally sell for less than most new homes, and based on the survey results, buyers continue to search for super bargains, particularly on foreclosures. According to the RealtyTrac/Trulia data, 83% of buyers are expecting discounts of at least 25% on such a purchase; 40% are looking for much as 50%. “People are overestimating the discounts available,” acknowledged RealtyTrac Senior Vice President Rick Sharga, who said RealtyTrac’s data show that the typical markdown, nationally, for a distressed property versus one that is not is about 31%.
There is a bright side for builders among buyers’ growing familiarity with foreclosures: a growing share of would-be buyers a wee concerned about their deal-of-a-lifetime home turning into a money pit. The survey found that 85% of Americans (up from 80% in November 2008) thought there were “negative aspects” to buying a foreclosure, with 71% of those most concerned about “hidden costs.” Noted Flint: “Consumers are wary.”
That presents an opening for builders, who can market their homes as a worry-free, yet still affordable, alternative to buying a foreclosure. That’s what Shea Homes in Arizona is doing, with a Web site that clearly spells out the differences between its new homes and distressed properties on the market. The approach appears to be working; the builder has just 12 inventory homes remaining, down from 94 in January.
Alison Rice is senior editor, online, at BUILDER magazine.