Where to find the best deals on foreclosure properties

With a cooling real estate market and higher interest rates expected to trigger more mortgage defaults and foreclosures in the coming months, 2006 could herald the coming of a buyers market, and present homebuyers and investors an opportunity to pick up pre-foreclosure and foreclosure properties well below market value.

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There are already signs that foreclosure rates are rising from the record-low levels they’ve been at in recent years. Foreclosures nationwide increased steadily in 2005, according to the RealtyTrac™ U.S. Foreclosure Market Report , which documented 846,982 properties entering some stage of foreclosure during the year. If the trend continues, the nation’s annual foreclosure rate could surpass 1 percent of all U.S. households in 2006, creating a market more favorable to foreclosure buyers and investors.

But not all regional markets are experiencing rising foreclosures, and it’s important for buyers and investors to carefully evaluate local market conditions before diving into foreclosures in any given area. An analysis of nationwide foreclosure property sales in the last seven months shows that while some areas of the country documented a plethora of properties in foreclosure and big savings on foreclosure purchases, other areas reported relatively low foreclosure inventories and smaller average savings on foreclosure purchases.

Foreclosure markets most favorable to buyers and investors
According to data from the RealtyTrac database, homebuyers and investors realized average savings over the past seven months of more than 40 percent on foreclosure purchases in Ohio and average savings of more than 30 percent on foreclosure purchases in Indiana, Tennessee, Georgia and Texas. Those types of bargains are well within the parameters of what most experienced investors consider a sound investment, even in areas where home value appreciation is relatively slow.

All five of the states with foreclosure markets most favorable to buyers and investors reported annual foreclosure rates of more than 1 percent of total households along with increasing foreclosures in 2005. In addition, the low average sales price of foreclosures in these states makes it easier to purchase a foreclosure property — especially at foreclosure auctions, where the full amount in cash is sometimes required.

StateAvg. Foreclosure Sales PriceAvg. % Market ValueTotal 2005 Foreclosures% Households in foreclosure
Ohio$67,45456.91%49,8441.042
Indiana$73,81862.48%30,4951.208
Tennessee$70,80163.96%24,5421.00
Georgia$120,15065.61%38,3131.237
Texas$115,18068.65%115,6431.436

Search foreclosures nationwide.

Foreclosure markets requiring persistence and savvy
In other states, deep discounts on foreclosure properties were harder to find. For example, the average savings on a foreclosure property in California was less than 20 percent. While that’s still a significant savings, the state’s booming property value appreciation rates mean a buyer still needs to invest a substantial amount of money — $412,811 was the average sales price for a foreclosure property in the state. And foreclosure rates in California, New York and Washington were well below the national average, meaning that relatively few foreclosure properties were available to interested buyers and investors.

Still, there were some pockets within these states where buyers and investors found great bargains. For example, foreclosures in Monroe County (Rochester), New York sold for an average price of $59,591 — 47.82 percent of market value.

StateAvg. Foreclosure Sales PriceAvg. % Market ValueTotal 2005 Foreclosures% Households in foreclosure
California$412,81182.98%61,5630.504
New York$325,15377.79%37,0680.483
Washington$201,60379.19%14,8650.622
Nevada$265,72581.86%7,7230.890

If mortgage defaults and foreclosures continue to move higher nationwide, the foreclosure market will provide more bargain-buying opportunities for homebuyers and investors. But prospective foreclosure buyers and investors should research the local market conditions in their area so they know what to expect in terms of the number of properties in foreclosure and the types of discounts available.

Search foreclosures nationwide.

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