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Fall In Housing Starts Bodes Well For Investors

Last week the National Association of Home Builders (NAHB) announced that housing starts nationwide fell 10.6% in April 2011 to a seasonally adjusted annual rate of inflation of 523,000 units.  Many reasons have been cited, but the primary culprits are lack of consumer confidence, limited or reduced availability of credit and competition from distressed properties, aka foreclosures.

On the surface, this dismal information would seem to rain on the campfire of real estate investors.  Quite to the contrary, the national rate of growth indicates a housing need of more than 1,000,000 housing units and if those units are not arriving via new construction, then they must come from somewhere else.  Where you ask?  From the rehabilitation of distressed properties which were removed from the housing market via foreclosure and being returned to the market by banks and lenders who are deleveraging their balance sheets.   Who you ask? Rehabbers, Investors, Developers, and Builders.  Why you ask? Because there are good quality properties which are trading at below replacement cost prices, per Moody’s & Real Capital Analytics.

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Growing Share of Properties Purchased by Investors

According to research by Campbell Surveys, real estate investors accounted for 23% of all purchases in the housing market in April 2011, compared to 18% of all purchased in April 2010.  Additionally, the latest HousingPulse Survey indicated that the percentage of first time home buyers decreased from 35.7% in April 2011 from 43.4% in April 2010.  As a result of the decline, investors are stepping in to the market to buy properties, many times at bargain basement prices due to lack of demand.

Additionally, in April 2011, 45% of foreclosed properties were damaged and not habitable.  As a result, these properties are generally not available for mortgage financing; therefore the properties are left for cash investors to purchase them at heavy discounts.   Per the Survey, of those foreclosed properties which were damaged and not habitable, more than half were purchased by investors and only 27% were purchased by first time homebuyers.  “We have seen an increased interest from investors who compete for foreclosed property that are being very selective in their acquisitions to insure they achieve the best purchase price possible”, Michael Hobbs, President of PahRoo Appraisal & Consultancy, Chicago, Illinois.

Per Campbell, the survey respondents indicated that first time homebuyers are struggling to meet tough underwriting standards and many give up, returning to the rental market.  “Either way you slice it, the market needs investors to buy foreclosed properties, renovate them and return them to the occupied market, either for sale or for rent”, per Adam Wavrunek, REO agent and managing broker of Domain Realty, Chicago, Illinois.

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The Share Of Loans In Foreclosure Is Rising In Illinois

Yesterday, the Mortgage Bankers Association reported overall things are improving in the real estate market based on a comparison from the year prior.  Unfortunately, the movement was very strong, as foreclosures have remained at elevated levels.

In the United States, foreclosure is generally handled in one of two manners: non-judicial and judicial.  In judicial states, such as Illinois, Florida, New York and New Jersey, banks are required to process foreclosures through the courts.  Because of this distinction, court systems throughout the country in judicial states have seem huge surges in cases due to the increase in foreclosure actions.  As a result, it is not surprising  to learn that states such as Illinois, New Jersey and Florida are experiencing increases in the share of loans in foreclosures because of the nearly 1.5 years it is taking current files to be processed.

The extended duration of the average foreclosure filing only prolongs the malaise in those real estate markets and creates greater opportunities for investors to acquire real estate at low prices via foreclosure before the market turns the corner and foreclosure cases decline and prices rise.

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FAQs on Purchasing Homes in Foreclosure

What is the difference between foreclosure and preforeclosure?

A preforeclosure is when you purchase the home directly from the homeowner after the bank has started the foreclosure process. It involves taking over the owner’s mortgage, which can include making the missed payments. The ‘preforeclosure stage’ is referred to the period when a Notice of Default (also referred to as Lis Pendens) is issued until the time the lender puts the property up for auction (This time period is a few months).   A foreclosure is the stage when there is a Judgment to Foreclose entered against the defendant.  In the Judgment documents are specified the balance due to the Plaintiff and the redemption date. Usually a week or two after the redemption date an auction sale is scheduled.

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Cook County Foreclosure Update - June 2010


Cook County, Illinois is still experiencing a large number of foreclosures, despite the gradual recovery of the housing market and American economy at large. The total numbers of new foreclosures(preforeclosures) in Cook County alone filed since January 1st, 2010 till June 30th hit 28,000 almost 15% more than 2009. Foreclosure sales for the month of May totaled at about two thousand homes and apartments, with an average sales price of about two hundred and twenty thousand dollars. There are still 5,372 properties scheduled for sale in the coming 2 months. The average savings compared to market value of the homes was about thirty-five percent, compared to the year average of thirty-eight percent. These savings percentages are high, even compared to the other foreclosures around the state and the rest of the country. If you are interested in real estate in Cook County, such as in Chicago or its suburbs, then now is a great time to buy.

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Many Homes to Hit Auction Mid-July

A large number of bank owned homes will be auctioned between July 13th and July 17th across several states, including Illinois. Bank Owned Foreclosure discounts are the perfect opportunity for those looking into real estate because they offer excellent homes at significantly reduced prices.

Chicago alone will be auctioning over one hundred homes on July 17th, providing an excellent chance to look into a number of different residences for those who are searching for their first home or a piece of land in which to invest. The homes come in a wide range of values, from as little as eight thousand dollars to over four hundred thousand. These type of auctions should not be mistaken for the Judicial Foreclosure Auctions which take place months prior the Bank Owned Foreclosure Auctions.

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