Foreclosure Increases Signal Opportunities for Buyers

Allstate sat down with mortgage and real estate insider Rick Sharga of to get his take on the current and future trends in the real estate market.

The real estate market in the United States has yet to rebound since the housing bubble burst a few years ago. Housing prices have fallen, loans remain difficult to secure and foreclosures abound. Sure, the U.S. real estate market struggled through the first half of 2011, but as we enter the second half, one question is on the forefront of many consumers’ minds: Have we hit rock bottom or are foreclosures still to come?

“Foreclosure activity is running at about four- to five-times ‘normal’ levels today,” explains Sharga. “As bad as those numbers are, they’d be even higher except for massive delays in foreclosure proceedings.”

Lenders and institutions process foreclosures in an estimated 400 days, compared to 170 days back in 2007. This delayed process has caused Sharga and other experts to predict that foreclosures will probably peak in 2012-2013. While some may see this as bad news, Sharga points out the silver lining.

“This means several years of bargain pricing on homes across the country. Buyers saved an average of 27 percent on the purchase of a foreclosure home in 2010, compared to a more traditional home purchase.”

Even though bargains are out there, is it the right time to purchase? Sharga and his team at see the trend bottoming out shortly.

“[We] believe that prices may fall a bit more on a national basis, and will likely hit bottom late this year … [and] start to appreciate sometime in 2014.”

Armed with that information, Sharga says today is an unusually opportune time for buyers.

“For most homebuyers—particularly ones who do their homework—there’s really never been a better time to buy,” he says. “But the most logical approach right now [for real estate purchases] is to expect to hold onto that property for at least the next three to five years while the market goes through the final stages of correction.”

Whether you’re looking for a new residence, second home or even investment property—research is imperative. Sharga suggests looking at local housing trends including sales volume, number of homes on the market, sales prices, pricing trends, etc.

Conducting an examination of foreclosure trends, local economic and demographic trends such as unemployment rates, job growth, crime rates and school performance is also extremely valuable when shopping for the right home. However, Sharga warns against jumping the gun on buying a foreclosure or bank owned (REO) property, because with 35 to 40 percent discounts on REO properties, it’s tempting to purchase a home before due diligence is performed.

“Buyer[s] need to carefully inspect the property, and have a really good idea of what it will cost to repair the home so that can be factored into the overall price,” he says.

Avoid common traps

“Don’t underestimate repair costs. Don’t over-value the property,” says Sharga. “Just because it’s selling at 30 percent less than the prior sale doesn’t make it a bargain. Don’t get too hung up on a particular property—there are several million more that are in the pipeline.”

Sharga notes that there are financial products available to help prospective buyers with homes that require extensive repairs.

“The FHA has a loan product called a 203(k) loan that allows a buyer to add repair costs into the mortgage. It’s an ideal product for these types of purchases,” he says.

With regard to short-sale properties, Sharga explains that the process can take three to six months or more. In many cases, the properties are in much better condition and while the discounts typically aren’t as significant, they still offer valuable savings. Of course, Sharga warns, complications can arise during the negotiations and there’s always a bit of uncertainty when it comes to closing. The bottom line: don’t count your chickens before they hatch with a short sale.

Rick Sharga is a real estate industry expert with access to 115 million property records, 2 million MLS records and more than 2.1 million active foreclosure records covering between 92 to 94 percent of all U.S. households. For more information about foreclosures, visit