Do homeowners like the idea of walking away from their homes? Are many Americans considering buying foreclosed properties? Do they intend to spend much to renovate them? These are a few of the questions answered by a new poll sponsored by foreclosure expert RealtyTrac and real estate search website Trulia.com. Its results and the market observations of executives from these two companies provide some insight into the future of housing.
The Underwater Problem
At this point, most foreclosures aren't caused by wacky subprime mortgage products: they're caused by unemployment. And if you don't have any equity -- or even negative equity -- in your home, then you may be less likely to do whatever it takes to prevent foreclosure. These so-called underwater borrowers now make up one out of five mortgages in the U.S. They're driving foreclosures at this time.
But according to the poll, a mere 1% of respondents said that walking away is their first choice if they are unable to pay their mortgage. 69% would first try modification. Clearly, most people want to remain in their homes.
Another problem is strategic default. This occurs when homeowners actually can pay, but since they are so far underwater, they decide to default instead. Yet, 59% polled said they would not consider walking away from their home no matter how much it is underwater. Of course, the flipside is that 41% would consider it, which is a sizable portion of homeowners who could consider strategic default.
Interest in Foreclosures
So what's going to happen to all these foreclosures -- someone has to buy them. It turns out that there's a little less negative stigma surrounding foreclosures these days.78% of those polled believed there were downsides to buying a foreclosed property. That might sound like a lot, but it's lower than the 85% who had that same response a year earlier.
Yet, the poll also revealed that 45% of adults are at least somewhat likely to consider purchasing a foreclosed home in the future. That's lower than the 55% who had this response a year ago. This is a little bit worrying, as there are an awful lot of foreclosures available, and those numbers aren't slowing down very much.
Finally, 57% of renters said they were at least somewhat likely to purchase a foreclosed home in the future, while only 40% of homeowners said they would consider it. Again, these numbers aren't very impressive, considering how many foreclosed homes have and will continue to hit the market.
Renovating the Job Market
Construction was probably the biggest industry hit by the collapse of the housing market and recession that followed. Many of those jobs aren't coming back, but if renovations to foreclosed properties ramp up, some of these workers will find employment. The good news is that 92% of those polled said they would be willing to invest in improvements such as renovations and remodeling if they purchase a foreclosed home. Moreover, 65% of that group would be willing to invest up to 20% of the home's purchase price in upgrades. This provides a little hope that some construction jobs could return as more foreclosures continue to be bought up.
On the conference call to discuss the poll results, RealtyTrac Senior Vice President Rick Sharga also discussed the foreclosure market in general. He spent some time explaining that there was still a significant shadow foreclosure inventory. Those are defaulted homes banks are purposely preventing from hitting the real estate market. He said that banks are releasing these properties slowly, so not to flood the market and bring down prices.
How big is the shadow inventory? According to Sharga, it consists of about two-and-a-half times as many foreclosed properties as are currently available for sale. That's probably around 600,000, says Sharga. And that doesn't include the additional properties that default each month.
Looking for Recovery
So how long will homeowners foreclose at elevated rates? Quite a while. Foreclosure activity will likely peak in 2011, according to Sharga. He says somewhere between 5 and 5.5 million mortgages are in some stage of serious delinquency. He expects foreclosures to reach normal levels in late 2013. But he also believes that banks' strategy of releasing foreclosures into the market slowly should keep prices from falling much further nationally. At the same time, however, he doesn't expect prices to rise much, if at all, over the next several years.
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