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Real Estate

Bidding Wars Are Emerging on Foreclosures

Source: The Wall Street Journal

Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties. In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again. But, real estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.

The Wall Street Journal’s quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street’s collapse.

Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950’s have made homes far more affordable, luring shoppers who have been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before December 1. The credit – equal to 10% of the purchase price, up to a maximum of $8,000 – is available to buyers who haven’t owned any other primary residence in the U.S. during the three years before the date of purchase.

On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can’t always get loans on attractive terms because of today’s tightened credit standards. In addition, the supply of bank-owned homes is expected to grow over the next few months because many mortgage companies have ended moratoriums during which they refrained from proceeding with foreclosures.

Foreclosures, though far above normal levels in most of the country, are heavily concentrated in a few states, including California, Arizona, Nevada, Florida and Michigan. In areas with large numbers of bank-owned homes, buyers are mainly concentrating on those properties. That leaves ordinary homes languishing as owners generally refuse to slash prices enough to compete with banks.

One positive trend is affordability. A family earning the national median pretax income of $52,800 a year needs to spend 25% of that income to buy a median-priced home, down from 44% in mid-2006. In the Los Angeles area, that ratio has dropped to 45% from 102%, and in Phoenix, it is down to 19% from 46%. Among the markets expected to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, North Carolina; Denver, Sacramento and San Diego.