Banks Double-Down on Home Foreclosures, Creating Opportunities for Investors

Banks Double-Down on Home Foreclosures, Creating Opportunities for Investors

Just when it seemed like there weren’t any more foreclosed homes to buy, banks are finally taking action to clear their backlogs of bad home loans.

“Legislative and legal dams that have held back some foreclosure activity for years,” says Daren Blomquist, vice president at RealtyTrac, a data firm that tracks foreclosure trends. “In states such as New Jersey, Massachusetts, and New York, a flood of deferred distress from the last housing crisis is finally spilling over.”

Many of these properties have been in default for a long time, and may even be vacant. They may eventually sell at low prices that drag down overall home prices in their markets. These thousands of homes may also provide an opportunity for investors.

“Many of these homes will be hitting the market for sale in the next six to 12 months,” according to RealtyTrac.

Banks seize homes in judicial foreclosure states

The number of homes repossessed by banks spiked 66 percent in the third quarter compared to the year before. Banks seized 133,811 properties in the U.S. during the period, roughly the same as in the second quarter, but a huge increase from the third quarter of 2014.

A few states top the list for the biggest increases. In New York State, the number of bank repossessions more than quadrupled, rising 469 percent to reach 4,435. In New Jersey, the number of bank repossessions more than tripled, rising 351 percent to reach 6,858. Bank repossessions also rose 34 percent in Florida—not a huge percentage increase. But because banks have been more consistently busy in Florida, the increase represents a high number of homes: 22,252 bank repossessions in the third quarter.

These foreclosures took a long time to happen. Properties seized in the third quarter had been in the foreclosure process an average of 630 days—close to two years.

The number of bank repossessions also rose, though less starkly, for different reasons in a states like Texas, Michigan and Washington. In these places the foreclosure market has settled into a normalized pattern close to or even below pre-crisis levels. “In those states the overall housing market should easily absorb the additional foreclosure activity with little impact on home values,” says Blomquist.

Fewer sales to institutional investors

If more foreclosed homes come up for sale that may provide an opportunity for some institutional investors to resume buying. Institutional investors bought just 16,000 homes or 1.9 percent of the single-family houses and condos purchased in the third quarter. That’s a slight increase from 1.6 percent in the second quarter, but it’s steep decline from 5 percent a year ago, according to RealtyTrac, which defines “institutional investor” as any buyer that purchased 10 or more homes in the last year.

Eighty metros posted a higher share of institutional investor sales than the national average. For the most part, these towns were outside the housing bust cities where investors once bought foreclosed homes. Instead, these were largely class-B markets, were investors might find houses for sale at prices low enough to make them profitable to operate as rental properties.

The cities with the highest share of institutional buyers were Montgomery, Ala. (9.8 percent), Columbus, Ga. (7.1 percent), Muskegon, Mich. (6.0 percent), El Paso, Texas (5.5 percent), and Jacksonville, Fla. (5.5 percent), according to RealtyTrac. Other major metros with a high percentage of institutional investor acquisitions included Cincinnati, Ohio (4.9 percent), Memphis, Tenn. (4.8 percent), Orlando, Fla. (3.8 percent), Cleveland, Ohio (3.8 percent), and Columbus, Ohio (3.8 percent).

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