Foreclosures are Still a Big Part of the Real Estate Market

Foreclosure inventory rose in the first quarter of 2013

Courtesy RealtyTrac

Foreclosed homes.  Bank owned homes. Remember them?    They aren’t talked about as much any more but they are still out there and they still have the ability to affect the real estate market.


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RealtyTrac’s first quarter analysis of foreclosure inventory shows that there are still 1.5 million properties actively in the foreclosure process or bank owned.  For some historical perspective that is 9 percent more than there were at this time last year and about as many as there were in April 2008.

Many of these foreclosed homes are being bought up by institutional investors and turned into rentals.  There is ample opportunity for individual real estate investors to do the same or even flip these foreclosed homes.  The RealtyTrac report brings to light some points of information that could prove valuable to investors going forward.

In Oregon, more than half of all homes in the foreclosure process are vacant.  These are homes that are not yet bank owned and could still be sold as short sales.  While homes left vacant for a long time are more likely to need repairs this is not necessarily a bad thing for an investor.  Whether the goal is to flip the house or turn it into a rental homes needing repairs often provide better returns because they sell at more steeply discounted prices yet once the repairs are complete these homes will rent for the same amount and/or sell for the same price as other homes not in foreclosure or short sale.

Shadow inventory rose 12 percent compared to the first quarter 2012.  Homes that have started the foreclosure process but have not yet been listed in the market are considered shadow inventory.  “Many of these properties will be listed for sale as short sales in the next six to 12 months, or go through the foreclosure process and eventually be listed for sale as bank owned in the next 12 to 18 months,” according to the report.  This is good news for investors as it should provide more inventory of homes for sale thereby reducing competition.  It should also provide homes selling or at least listed at a discount to the rest of the real estate market.

The number of old homes in foreclosure is rising.  About a third of the foreclosure inventory as of the first quarter 2013 was built before 1960 which is 11 percent more than a year ago.  Watch out for homes built before 1960.  Regulations for everything were different back then and something as seemingly simple as the kind of paint or insulation used could add thousands of dollars to the ultimate cost of a home.  Investors considering flipping or renting houses this old would be wise to pay for a professional inspection.

About Dan Seim

Dan Seim is the primary contributor to Preferred Residential's blog. He has been writing about real estate issues that affect home owners in Bend and Central Oregon since 2011.