Does a high rate of foreclosures in a state mean that existing (non-foreclosed) houses will be worth less?

Question

For example, Pennsylvania has the second-highest rate of foreclosures right now. Will Pennsylvania homes be forced to drop in price because of the foreclosures?

Answer 1

It is unlikely that foreclosures will have any impact on the overall pricing trend in a state. If you are talking about a smaller area like a part of a city, there may be a negligible impact. There are a few factors to consider here.

First, the number of foreclosures, although high in some areas, is very small relative to the total number of home sales.

Second, foreclosed homes are sold just as any other home. Often they are sold for at or near market value. The idea that these homes are dumped on the market for next to nothing is a myth. Look at your local hud page and go to bid statistics to see what HUD (the largest forecloser in the nation) is getting for their homes. Foreclosed homes are often resold quickly after foreclosure for full market value.

Third, the majority of foreclosures occur in inner cities and depressed areas.

None of the above answers rely on information but provide conjecture. The market is slowing in many areas and that actually is more likely to cause foreclosures than foreclosures causing a market downturn. Although it is a spiral, one ultimately affecting the other, in a hot market foreclosures have little or no impact on prices because the homes are snapped up and resold quickly.

Pennsylvania is actually 24th in the rate of foreclosures, not 2d.

“Although Pennsylvania foreclosures increased in July, the numbers haven’t changed since this time last year,” said James J. Saccacio, chief executive officer of RealtyTrac. “The state’s home price appreciation level was above the national average during the past year. This is likely keeping foreclosures steady in the region when so many other states are seeing foreclosures rise sharply.”

Pennsylvania ranked 16th in the country in total foreclosures reported for the month. The state’s foreclosure rate of one foreclosure filing for every 1,813 households ranked it 24th among the 50 states.

Answer 2

People probably don't try to sell because they want to stay in their homes. That and, by the time they realize they are in trouble they might not have the time to sell it. The mortgage companies that service the loans are often different than the investor that owns the loans, and the servicer has no incentive to help the struggling homeowners. They actually make more money when people don't pay, as they get to collect late fees and also charge the investors for the foreclosure process. Then on top of that, the "investor" is being bailed out by the government with tax payer money. So not only are many people losing those homes that they paid a good amount of money into, but both they and you are repaying for those loans in tax dollars. Basically the bankers are royally shafting the people, and I hope that one day they get what they deserve, in this life or the next.

Answer 3

It won't be due to foreclosures but just the lack of buyer demand. People will need to lower prices in a real estate crash. Foreclosures are normal part of the process, the increase has been contributed significantly due to investors with empty houses, not real residences that people live in.

When the demand picks up again and investors are coming in again, it will cycle back up. Real estate has cycles much like any other industry.

Answer 4

A high number of foreclosures has the same effect on a local housing market as does, for example, a large employer closing down, causing a glut of homes available for purchase. Naturally, excessive inventory available tends to drive down sales prices, to an extent.

Here in Wisconsin, we have had a substantial number of foreclosures, but property values have not dropped drastically, since we still have a healthy economy with a goodly number of new buyers stepping in to purchase properties.

Answer 5

Typically, yes. Foreclosed houses enter the market and depress prices by lowering demand (through increasing supply), AND typically the new owner is more interested in selling fast and recouping the owed moneys. Also, because the amount owed is usually less and sometimes much less than the amount the house would bring for a patient seller, the forecloser will often accept much less than market value. If you were buying, which would you prefer, all other things being equal, the higher priced house or the lower priced house? The presence of these lower priced houses on the market causes other sellers to lower their prices just to be competitive.

Answer 6

Foreclosure defininately have an impact on other homes in the area. When you look at statistical information and include those homes that sold after foreclosure, it drives the value averages down. In effect reducing prices in the area.

What is really sad is those folks who have lived in their homes a long time and now have no equity left due this situation in the market. Or those with good credit history, great credit score, but have no income to purchase a home due to the restrictions now placed on mortgage requirements. So those of us who work on commission, real estate in particular are hurting too.

Answer 7

I think you've hit the nail on the head here! Yup, you are absolutely right. People's losses are other people's gain...

It is so sad to see our country in this condition, and it's a country-wide problem right now. Our legislature should have seen this coming and regulated the mortgage field. Most of these foreclosures are due to the thieves in the mortgage industry. Pushing lower rates, adjustable rate mortgages that will be increasing by 20% or more, lending to people who can't afford it. Plus the added dispair of credit card rates skyrocketing, and gas selling for the price of gold.

People are stuck in their homes because they won't sell for what they are worth, people taking losses or just walking away from their homes making more foreclosures. When will it end??

(Am wondering if Michigan is the first-highest in foreclosures....no jobs here)

Answer 8

yes you are correct....I am in Florida and the houses here are cheap now,,,,,we tried selling our but we had to keep dropping the price.

Answer 9

Yes. A certain poster to your question is not living in reality.