Economy & Policy

If you go to buy a foreclosed house, ask for a 31% discount

By Barbara Kiviat | May 20, 2009 | +

I was listening in on a conference call about this new survey of people’s attitudes towards buying foreclosed houses, when RealtyTrac’s Rick Sharga mentioned that, nationwide, foreclosures are selling at a 31% discount to nominal market value. Every time the National Association of Realtors puts out a release about falling home prices, the trade group mentions that prices are depressed because of foreclosure sales—but that’s a heftier discount than I imagined. Sharga mentioned that in certain areas—like Riverside and San Bernardino in California—folks are picking up houses at some 20% of what those homes sold for previously. Though that’s not to say such houses are always a deal. He said that he sees a lot of people underestimating how expensive it’ll be to fix up the properties they buy. And overestimating how much they’ll be able to get in a resale (a lot of this activity is investor-driven).

Barbara!

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  • dotybj

    What, exactly is “nominal market value?” It sounds like one of those models, which have been highly dubious in the real estate industry lately.

  • Barbara Kiviat

    That’s a really great question. He meant similar houses that are being sold, but not sold out of foreclosure.

  • qqi239

    It seems to me that comparisons to insane peak of 2005 or to the sliding slope off the insane peak do not make much sense. What about comparisons to adjusted for inflation relatively sane numbers of 1997 or even 2000? See the graphs below
    -
    http://bp3.blogger.com/_odwu_bJENb8/SGFtO3LxcoI/AAAAAAAAA8c/CXZuQg2y7t8/s1600-h/Case+Shiller+inflation.png

    http://bp1.blogger.com/_odwu_bJENb8/SGFtVm2MTUI/AAAAAAAAA8k/5Hc2yHfTY4M/s1600-h/Case+Shiller+20+inflation.png
    -
    According to the lower graph we were still somewhere 40% above sanity levels in early 2008.

  • tc125231

    I have posted about this on this blog before, because I moved last fall, and looked a a LOT of foreclosed houses. Banks seem to go out of their way to just destroy the value of the homes. They appear to uniformly turn of heat, water, power and electricity and both dry and cold climates –destroying all landscaping, and often causing damage inside the home.

    There are no caretakers for the homes.

    In general, foreclosed houses require a LOT of work. Consequently 31% is rational.

    Now, all you foreclosure fundamentalists –tell me the bank wouldn’t have been better off cutting the mortgage payments and keeping the previous resident in the home.

    It’s just one more piece of “moral hazard” absurdity.

  • qqi239

    @tc125231 – “Banks seem to go out of their way to just destroy the value of the homes.” I am sure they are doing it on the advice of their own deep thinking “economists”.

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