By Ruth Mantell
RISMEDIA, April 25, 2007-(MarketWatch)-Gary Kent has more foreclosed properties to sell than ever before during his 23 years in the real estate business.
The San Diego-based realty agent currently represents about 100 homes for sale, 85 of which are foreclosures. A year ago, Kent represented about 20 homes for sale with only a couple of foreclosures among them.
"I feel sorry for the people who lost their homes, but I'm probably going to have to best year I've ever had," Kent said.
While all those foreclosed homes mean opportunity for Kent, they spell trouble for homeowners in the neighborhoods in which they are located. In addition to the potential for dragging down the values of surrounding homes as lenders try to unload, vacant foreclosures also present an inviting target for vandals and squatters.
"When there are a lot of foreclosures in a neighborhood that will put downward pressure on other homes. The banks will try to get foreclosures off their balance sheet as fast as they can, and they will be aggressive at pricing them," said Celia Chen, director of housing economics at Moody's Economy.com.
Even when priced below the competition, foreclosed homes can linger on the market.
Kent thinks it could take up to four months to sell the foreclosed properties in his listing book, particularly those that appeal to "low-ballers" and "bottom-feeders" willing to wait in order to pressure lenders into taking just 50 cents to 75 cents on the dollar for the homes.
Although Moody's Economy.com sees home prices overall declining through 2008 due to excessive inventory, individual owners can take steps to make their property more attractive, Chen said. She recommended home improvements such as fresh paint and landscaping to ward off the impacts of falling prices due to a great number of foreclosures in a neighborhood.
For those homeowners fearing that the "low-ballers" and banks trying to unload foreclosed homes will sap the value of their own properties, Kent suggested that residents could band together to watch out for a property.
"They could try forming a little neighborhood watch where people watch over that house to make sure there's no vandalism, no squatters trying to move in, and to avoid people from stealing the fixtures of the home," he said.
Banks will board up houses that are vandalized or that people break into, Kent said.
Making sure that doesn't happen can keep banks from dumping problem homes at fire-sale prices, he said.
Homeowners who have to sell in an area where foreclosures are numerous might want to follow the lead of home builders, which are throwing in extras in to attract buyers while keeping up the selling price.
"One thing that the builders do is to offer to put all kinds of things into the house at no extra charge, like granite countertops," said David Seiders, chief economist for the National Association of Home Builders. "That gives the buyer more house for the money."
Also, paying your buyer's closing costs is an option that some home builders take, Seiders said. Those strategies "help hold the price up, but they do come out of the builder's margins," he said, as they would cut into home sellers profits.
More than two million households in the subprime market have already either lost their homes to foreclosure or hold subprime mortgages that are likely to fail in coming years, according to consumer groups.
According to a recent survey from Yahoo Real Estate and Harris Interactive, 22% of homeowners are at least somewhat concerned about the possibility of foreclosure due to their inability to meet monthly mortgage payments.
But even more Americans think there is opportunity in the situation: 37% of all U.S. adults would be at least somewhat interested in buying a house in foreclosure.
Don't Sell in a Panic
It's important to think of homeownership as a long-term investment, said David Berenbaum, executive vice president with the National Community Reinvestment Coalition. "People have been in an environment where they're flipping homes. We need to look at homeownership as promoting intergenerational wealth."
Berenbaum added that owners should remain calm rather than panicking and trying to sell now. Owners don't actually lose money on a home until they sell at a discount to the purchase price, he pointed out.
"We will weather this storm," he said. "At some point the housing market will come around. What we don't want to see are homes that are empty, home that create a destabilizing environment."
Markets at Risk
Here is a list of the 10 metro area markets where mortgage delinquency rates have increased the most between the fourth quarter of 2005 and the first quarter of 2007, according to Equifax and Moody's Economy.com.
Modesto, California-3.9% rise
Stockton, California-3% rise
Port St. Lucie-Fort Pierce, Florida-2.7%
Miami-Miami Beach-Kendall, Florida, Metropolitan Division-2.5%
Riverside-San Bernardino-Ontario, California-2.5%
Las Vegas-Paradise, Nevada-2.3%
Atlantic City, New Jersey-2.2%
Cape Coral-Fort Myers, Florida-2.2%
Ruth Mantell is a MarketWatch reporter based in Washington.
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